It has been a quiet start to the week, with US equity futures and European stocks mostly unchanged with all eyes on what progress (if any) will be made between Greece and the Eurogroup, where the press conference is scheduled for 7:00 pm GMT (expect significant delays) in what is otherwise expected to be a relatively subdued day with the US away from market and a light macroeconomic calendar.
In terms of the latest commentary from Greece, today and the weekend has seen relatively mixed messages with the Greek Finance Minister Varoufakis saying he believes they will reach a mutual agreement at today’s Eurogroup meeting despite the FT reporting weekend talks revealed the two sides are further apart than expected.
Furthermore, German press has reported Troika may accept Greek demand for a new aid program and no longer insistent on an extension of current bailout. Nonetheless, the cautious footing has seen the GR/GE 3yr spread widen by a hefty 127bps in early trade. Elsewhere in fixed income markets, Gilts are notably lower following dovish rhetoric over the weekend from BoE’s Weale and Broadbent with Weale suggesting a rate rise could start sooner than markets are currently expecting.
Asian equity markets traded higher bolstered by a strong Wall Street close on Friday which saw the S&P 500 finish at a fresh record high and the NASDAQ 100 at a 15yr high. Nikkei 225 (+0.5%) touched its highest level since Jul’07, further underpinned by Japanese Q4 GDP (SA Q/Q 0.6% vs. Exp. 0.9%), which showed the country exit recession, despite missing analyst forecasts. Hang Seng (+0.18%) rose while the Shanghai Comp (+0.58%) fluctuated between gains and losses, amid reports Shanghai Exchange margin trading fell by the most in 3yrs. JGBs tumbled sending the 10yr yield to its highest level since the 25th November, as participants remain wary ahead of tomorrow’s 20yr JGB auction.
In FX markets, NZD continues to outperform after being underpinned by strong NZ retail sales, which matched a 2yr high and posted the biggest gain since Q2 2012 Q/Q 1.7% vs. Exp. 1.3% (Prev. 1.5%, Rev. 1.6%). As such, NZD/USD breached 0.7500 to trade at a 3-week high while AUD/NZD has continued its decline and resides at record lows after breaking through January's multi-year low of 1.0358. Elsewhere, this morning has been somewhat of a chopfest with participants awaiting the Eurogroup press conference which is due after-market at 1900GMT.
In the commodity complex, WTI and Brent crude futures trade lower albeit amid a lack of pertinent newsflow, with today’s floor trade suspended due to the US Presidents’ Day market holiday. Elsewhere, Gold has extended recent gains amid USD weakness following more poor data from the US on Friday with University of Michigan Sentiment missing expectations. Copper saw mild weakness as prices further retreated from 3-week highs amid quiet trade ahead of today’s US market closure, while iron ore futures gained with Dalian iron ore futures rising over 2% amid speculation China could tweak policy to keep growth around 7% for 2015.
In Summary: European shares trade mixed, off intraday highs, with utilities and personal & household sectors underperforming and bank, construction outperforming. Euro-area finance ministers meet in Brussels today to continue negotiations on Greek financing. Japan’s 4Q GDP growth below estimates. EU widens blacklist over Ukraine, adds Russian defense official. U.S. Presidents’ Day holiday today The German and Dutch markets are the worst-performing larger bourses, the Swiss the best. The euro is stronger against the dollar. Japanese 10yr bond yields rise; Greek yields increase.
Market Wrap
- S&P 500 futures down 0.2% to 2089.5
- Stoxx 600 down 0.2% to 376.3
- US 10Yr yield little changed at 2.05%
- German 10Yr yield little changed at 0.35%
- MSCI Asia Pacific up 0.3% to 143.3
- Gold spot up 0.4% to $1233.8/oz
- 2 out of 19 Stoxx 600 sectors rise; bank, construction outperform, utilities, personal & household underperform
- Top Stoxx 600 decliners: Piraeus Bank -10%, Hunting -9.2%, Alpha Bank -8.9%, Eurobank Ergasias SA -8.8%, National Bank of Greece SA -8%, OPAP -8%, Hellenic Telecom -5.8%, Fresnillo -4.2%, Intertek -3.3%, Telecity -3.3%
- Asian stocks rise with the Shanghai Composite outperforming and the Kospi underperforming.
- MSCI Asia Pacific up 0.3% to 143.3
- Nikkei 225 up 0.5%, Hang Seng up 0.2%, Kospi up 0%, Shanghai Composite up 0.6%, ASX up 0.2%, Sensex up 0.1%
- 8 out of 10 sectors rise with financials, industrials outperforming and utilities, health care underperforming
- Euro up 0.18% to $1.1415
- Dollar Index down 0.18% to 94.03
- Italian 10Yr yield up 3bps to 1.63%
- Spanish 10Yr yield up 3bps to 1.58%
- French 10Yr yield little changed at 0.65%
- S&P GSCI Index closed
- Brent Futures up 0.8% to $62/bbl, WTI Futures up 0.1% to $52.8/bbl
- LME 3m Copper down 0.3% to $5715.5/MT
- LME 3m Nickel down 0.9% to $14510/MT
DB's Jim Reid summarizes the key events over the weekend
The market will hope Greece and the EU are today more successful than I was in negotiating their difficult position. The Eurogroup meeting starts at 15.00 CET so we should start to hear progress updates during the evening. There’s been little in terms of leaks over the weekend in the run up to the event. In fact, on the whole comment from officials has generally been more conciliatory. Quoted in German press Stern over the weekend, Greek PM Tsipras was quoted as saying that ‘we’re looking at difficult negotiations on Monday’ but ‘nevertheless, I’m full of confidence’. Meanwhile, Greek finance minister Varoufakis was noted in Ekathimerini as saying that ‘developments over the last few days have given me a significant degree of hope that, despite the difference, there is an appetite on both sides for finding common ground between the previous program and a new agreement between Europe and Greece’. In the same article Varoufakis was also quoted as saying that ‘our resolute stance on totally logical matters will, in the final analysis, lead to a mutually beneficial convergence, even at the 11th hour’.
Sentiment on Friday was lifted following the news that Greece and technical teams from the EC, ECB and IMF were to begin talks ahead of today’s meeting. Greek equities (+5.61%) rallied for a second consecutive day following last Wednesday’s stalemate at the Eurogroup meeting. The news from Greece over the weekend probably suggests some willingness to agree on a proposal tonight. It’s possible that we see some sort of ‘verbal agreement’ – but maybe not much in the way of substance and details in terms of a longer term package. However as a word of caution, the FT reports that ’weekend talks uncovered a bigger than expected gap between the two sides’ with Greece in particular raising more objections to the existing bailout conditions than the 30% reports earlier last week.
Some sort of agreement today will likely be just the first step – and perhaps the easiest - in what will still be a difficult and much debated process in the run up to the end of month with both sides still clashing over the terms of financing and policy. Should we see no agreement today, Ekathimerini reports that a potential extra Eurogroup meeting could be held on Friday although the FT reports that several countries would require the next two weeks to approve an extension in the parliaments which puts the pressure back on a positive outcome today. Any stalemate today will immediately shift focus to Wednesday’s ELA review, where ultimately a worst case scenario remains a removal of ELA or eventual capital controls.
In terms of other news on the weekend, following the announced ceasefire agreement last week between Ukraine and Russia – which formally commenced on Saturday night – there are various reports this morning of continued fighting in the town of Debaltseve in Ukraine. According to Reuters, pro-Russian rebels have announced that they will not observe the truce in the town with reports that rebel attacks in the area increased from mid-afternoon. The FT meanwhile reports that Ukraine, Russian, German and French leaders were discussing the implementation of the ceasefire on Sunday with the Kremlin issuing a statement that ‘particular emphasis was put on the need for rigorous observation by the opposing parties of the comprehensive ceasefire’. Clearly the situation remains fragile and will likely continue to generate near term headlines with the conflict still yet to be fully resolved.
With politics in Europe playing a large part in the direction of markets and likely to continue doing so, it was interesting to see in the Hamburg regional elections over the weekend that the anti-euro Alternative Deutschland Party looked set to win their first seats in the Western-German state parliament after gaining 5.5% of the vote. Chancellor Merkel’s Christian Democratic Party meanwhile slipped to 16% of total votes from 22% in the last election in 2011. This is the CDU's lowest share of the vote in the region post WWII. Meanwhile the Social Democratic Party declined to 46.5% with Bloomberg reporting that it may force Mayor Scholz into seeking a possible coalition with the Greens for a second term. This is probably not a huge story but the AfDs share of the vote will get a little attention even if some projected a slightly better result for them.
Coming back to markets on Friday, it was another better day for US equities with the S&P 500 closing +0.41% and back at an all time record high. The better sentiment was supported by stronger data out of Europe which we’ll touch upon later, although a rally in oil gave a boost to equity markets with the energy segment in particular rising nearly 2%. Both WTI (+3.07%) and Brent (+3.78%) rallied for a second consecutive day – Brent in particular closing back above $60/bbl for the first time this year. The rally appears to have been supported by a further drop in number of US oil rigs which in turns is lending support to near term curbs in production. The latest Baker Hughes count showed the number of operating rigs falling by 98 last week to 1358 and now down 482 from the end December count. Treasury yields rose with the better tone. Indeed the yield on the 10y benchmark closed +6.6bps and back above 2% to finish at 2.050%. In terms of data, the University of Michigan consumer sentiment print for February dropped 4.5pts in February to 93.6. The fall was the first drop in seven months. Finally the import price index declined 8% yoy (vs. -8.9% yoy expected) in January.
Before this in Europe, it was another strong day for European equity markets with the Stoxx 600 closing +0.60% and rising for the second consecutive day. The index has in fact now closed in positive territory eight times in the last ten sessions. Away from the obvious focus on Greece and Ukraine, GDP data for the Euro-area on Friday encouraged the supportive tone. Germany reported a Q4 GDP print of +1.6% yoy and ahead of expectations of +1.2%. Our European colleagues noted that although the GDP components in the print are released later this month, the press release suggested that domestic demand and private consumption in particular was said to have seen another marked increase which is unsurprising given the fall in energy prices. An increase in construction spending was of greater surprise however given recent industrial production prints which suggested a fall was more likely. Our colleagues noted that seasonal factors may be at a play and possibly overstating the reading.
Elsewhere, the Q4 Euro-area GDP print came in a touch above expectations (+0.9% yoy vs. +0.8% expected) and UK construction spending for December was in line (+5.5% yoy). The Euro closed more or less unchanged on Friday versus the Dollar at $1.1394 whilst credit markets firmed with the better tone as Crossover finished 6bps tighter.
Before we move onto this week’s calendar, in terms of the early trading in Asia this morning bourses are largely following the lead from the US and trading firmer as we type. The Hang Seng (+0.26%), Shanghai Composite (+0.16%), Kospi (+0.05%) and Nikkei (+0.53%) are all higher as we go to print. The latter in particular is shrugging off a weaker than expected Q4 GDP print with the +0.6% qoq reading below consensus of +0.9% with domestic demand in particular softer. The latest print has lifted the nation out of recession though following two previous negative quarters of growth. Nevertheless the softer print will increase the debate about whether even more stimulus is needed in spite of some at the BoJ recently suggesting more stimulus may be counter-productive.
Taking a look at this week’s calendar, other than the obvious focus on the Eurogroup meeting later the only notable data release this morning will be trade data due out of the Euro-area. It’s a public holiday in the US today so no data releases are due. The calendar picks up tomorrow however with focus in the morning on the UK where we have inflation data for January. As well as this we also have the February ZEW survey due for Germany and the Euro-area. In the US we’ve empire manufacturing and the NAHB housing market index whilst the Fed’s Plosser is also due to speak. On Wednesday we kick off in Japan with machine tool orders whilst in Europe we’ve got December construction output prints for the Euro-area as well as various employment indicators for the UK. It’s a busy day in the US on Wednesday. The release of the FOMC minutes from the January 27th and 28th meeting will be in focus, particular with the language around the inflation outlook. The minutes could also be an indicator for what we may hear from Fed chair Yellen at the Humphrey Hawkins on February 24th – we note as well that the minutes did not have the benefit of the latest strong payrolls report. In terms of data, we start with housing starts and building permits prints followed closely by the January PPI reading. As well as this we’ve also got industrial production, capacity utilization and manufacturing production readings for January due. Turning to Thursday, the Bank of Japan’s monthly economic report for February could well be of some focus in the morning. In Europe meanwhile we get inflation data for France as well as CBI trends for the UK and consumer confidence for the Euro-area. Across the pond on Thursday, the Philadelphia Fed business outlook for February, initial jobless claims and leading index for January are the main highlights. On Friday we’ve got the manufacturing PMI print for Japan to start in the morning. It’s a busy day on Friday in Europe with the February preliminary manufacturing and services PMI’s readings due for Germany, France and the Euro-area and we also get inflation data in Italy and retail sales and public sector borrowing in the UK. We end the week in the US with the preliminary February manufacturing PMI print.
