Futures, Dollar Drift Lower, Oil Slides Ahead Of "Whisper Miss" Payrolls

Unlike yesterday's vertigo-inducing overnight session, today has been a smooth sea by comparison even if one which has flowed from the top left to the bottom right for now, with futures erasing all of the last minute surge which was HFT programmed to sticksave the S&P just green for the year and then some. It is difficult to pinpoint the catalyst that will be today's market narrative although with NFP in just over 24 hours, falling on a holiday which will allow S&P futures just 45 minutes of trading after the BLS report hits before closing for the day, and with the weak ADP not to mention the 0.0% Atlanta Fed Q1 GDP forecast [29], the "whisper" expectation is for a NFP print that will be well below consensus, somewhere in the mid-100,000s if not worse now that the bartender hiring spree is over. The fact that March payrolls have missed on 6 of the last 7 reports probably adds to the dollar weakness, even if a huge miss tomorrow may just be the catalyst Yellen needs to launch the QE4 trial balloon.

A quick look at oil, and the energy complex, shows Brent and WTI crude futures were initially seen lower amid profit taking: at last check WTI was approaching $49 to the downside, around yesterday's low and accelerating on hope an Iran deal, which almost certainly is not coming, will be announced at some point today. Earlier today we learned that Iran Foreign Minister Zarif said a joint statement expected today, says no agreement yet.

Progress in Greece continues to remain slow and despite the government submitting an updated ‘list’ yesterday, it’s looking increasingly likely that the government won’t receive any sort of early fund disbursement or mini tranche approval ahead of next week’s T-Bill auction and IMF payment. According to Reuters, eurozone officials noted that they received the list from Greece too late for it be discussed at yesterday’s teleconference for deputy finance ministers. It’s looking more likely that talks will resume next week which means in the meantime Greece will need to scrape together the funds to pay next week’s financial maturities as well as pension’s and public sector salaries.

Slower progress is also being felt in the Iran nuclear talks where negotiations have already passed the end-March deadline and appear set to move onto this morning. According to Bloomberg, US Secretary of State John Kerry will stay until at least Thursday morning while yesterday the French foreign minister Fabius returned to talks having previously left. German finance minister Steinmeier acknowledged that a collapse in negotiations is still a possibility but maintained that progress is being made. With a hard deadline for a final agreement set for the end of June, and with few key points appearing to be remaining it could well be that talks are left somewhat unresolved or postponed until a later date, giving both sides longer to firm up on an agreement.

Asian stocks rose after shrugging off yesterday’s negative Wall Street close, led by the Nikkei 225 (+1.46%) after tracking back all of yesterday’s declines. Furthermore, sentiment was lifted by prospects of further easing from the BoJ, after the second-part of the central bank’s Tankan survey showed that large companies see inflation at 1.6% in 5yrs, well off the BoJ’s around end-FY15 2% target. Elsewhere, both the Hang Seng (+0.77%) and Shanghai Comp (+0.41%) trade in the green, the latter in close proximity to its 7yr highs, in an extension of the yesterday’s post Chinese HSBC/Official Mfg. PMIs.

European equities trade relatively mixed to unchanged in what has been a subdued start to the session ahead of tomorrow’s NFP report and Easter weekend. In terms of index-specific moves, the DAX underperforms albeit modestly so after being dragged lower by Deutsche Lufthansa who were subject to a negative broker move and Daimler who are trading ex-div. Elsewhere, the FTSE 100 has been buoyed by Marks & Spencer following their pre-market update which saw a beat on expectations. In terms of the latest developments for Greece, markets still await any notable progress in negotiations, although according to banking sources, the ELA for Greek Banks has been increased by EUR 700mln by the ECB, while the Greek Labour Minister has stated the country will repay the IMF next week and has enough cash to last until the end of the month.

For fixed income markets, Bunds were dragged lower in early trade ahead of this morning’s auction from the French Tresor with analysts at IFR noting extra concession being built in for longer-dated taps. In terms of the auction, it was relatively well-received with French paper being dragged modestly lower after the auction as a result of minor-profit-taking, while Bunds returned to relatively unchanged territory with the supply out of the way.

In FX markets, the USD-index has taken a breather from recent gains ahead of the aforementioned US jobs report, subsequently providing a modest boost to some of its major counterparts, with nothing else in terms of fundamental news driving the index. Elsewhere, GBP saw a minor bout of weakness in the wake of the latest UK construction PMI data which fell short of expectations (57.8 vs. Exp. 59.8), while political uncertainty continues to weigh on the UK currency. Finally, the AUD continues to remain softer against its peers ahead of the looming April 7th RBA rate decision, with markets pricing in a 78% probability of a 25bps rate cut.

Iranian foreign minister Zarif stated today that there has been significant inroads in nuclear negotiations however no agreements have been made as yet. This comes as they continue to work towards a technical compromise ahead of a final deal expected in late June this year. (RTRS)

Iraq (2nd largest OPEC producing nation by production) has reported that exports were at 92.401mln/bbl in March, an increase of 15%. (BBG) In other notable news, Flint Hills Corpus Christi west plant in Texas, US, has sent notifications of an unscheduled shutdown affecting several units. (RTRS)

In precious metals markets, both spot gold and silver trade relatively unchanged with gold holding above the USD 1,200/oz level. Elsewhere, Nickel has trimmed its losses for the week amid technical and physical buying stoked by Asian demand after the industrial metal fell to 6-year lows earlier during the week.

In Summary: European shares decline and U.S. equity index futures fall, signaling S&P 500 Index decline for third day, with dollar weakening before U.S. jobs report. Asian equities rise, led by Nikkei 400. European underperforming sectors incl. autos, basic resources; retail, oil & gas stocks outperform ahead of Good Friday holiday. Yields rise on most eurozone 10-yr sovereign notes, while Portuguese yields fall slightly. Brent, gold, copper fall while wheat gains among food commodities. U.S. jobless claims, Bloomberg consumer comfort, ISM New York, factory orders, trade balance, Challenger job cuts due later.

Market Wrap

S&P 500 futures down 0.4% to 2045.5
Stoxx 600 down 0.1% to 398.1
US 10Yr yield down 0bps to 1.86%
German 10Yr yield up 1bps to 0.17%
MSCI Asia Pacific up 1.2% to 147.7
Gold spot down 0.1% to $1202.7/oz
Eurostoxx 50 -0.1%, FTSE 100 +0.2%, CAC 40 +0.1%, DAX -0.2%, IBEX -0%, FTSEMIB -0.1%, SMI +0.1%
Asian stocks rise with the Nikkei outperforming and FTSE Straights Times STI, Jakarta Composite underperforming
MSCI Asia Pacific up 1.2% to 147.7
Nikkei 225 up 1.5%, Hang Seng up 0.8%, Kospi little changed, Shanghai Composite up 0.4%, ASX up 0.6%, Sensex up 1.1%
10 out of 10 sectors rise with telecom, industrials outperforming and helath care, materials lagging
Euro up 0.58% to $1.0825
Dollar Index down 0.38% to 97.81
Italian 10Yr yield up 1bps to 1.28%
Spanish 10Yr yield up 3bps to 1.24%
French 10Yr yield up 1bps to 0.47%
S&P GSCI Index down 0.1% to 406.2
Brent Futures down 0.2% to $57/bbl, WTI Futures down 0.2% to $50/bbl
LME 3m Copper down 0.5% to $6017.5/MT
LME 3m Nickel up 1.3% to $12870/MT
Wheat futures up 0% to 528.8 USd/bu

Bulletin Headline Summary

European equities trade relatively unchanged, while the USD-index takes a pause from recent gains ahead of tomorrow’s US jobs report
USD-index trades lower ahead of tomorrow’s widely anticipated NFP report, subsequently helping to lift some of the greenback’s major counterparts
Looking ahead, today sees the release of the weekly US jobs data, trade balance, factory orders and potential comments from Fed’s Yellen
Treasury yields lower overnight as negotiations with Iran over its nuclear program still ongoing; tomorrow’s holiday-shortened trade session offers nonfarm payroll release.
Iran said diplomats failed to bridge differences over its nuclear program in a marathon round of overnight negotiations, and may only release a statement that falls short of the blueprint they had sought to end a 12-year standoff
Greek opposition leader Antonis Samaras, who was ousted by Tsipras in January elections, signaled his willingness to join a unity government if the concessions required to win emergency loans drive a wedge through the ruling anti- austerity coalition
Bank of Japan policy makers remain confident that inflation is on track to meet their target, even after the latest monthly reading showed price gains stalling, said people familiar with discussions inside the bank
China now has an outpost in America’s backyard to challenge the U.S. dollar’s dominance in global finance, enlisting Canada in its campaign to help put the yuan among the ranks of the world’s reserve currencies
U.S. Senator Bob Menendez promised to fight federal corruption charges that he took almost $1 million in gifts and campaign donations to help a longtime friend, vowing to stay in office as he temporarily leaves a key committee post
Sovereign 10Y yields mixed, Portugal 10Y 11bps higher at 1.67%. Asian stocks rise. European stocks mostly higher, U.S. equity-index futures decrease. Crude and copper fall, gold rises

US Event Calendar

7:30am: Challenger Job Cuts y/y, March (prior 20.9%)
8:30am: Initial Jobless Claims, March 28, est. 287k (prior 282k); Continuing Claims, March 21, est. 2.405m (prior 2.416m)
8:30am: Trade Balance, Feb., est. -$41.2b (prior - $41.8b)
9:45am: Bloomberg Consumer Comfort, March 29 (prior 45.5)
9:45am: ISM New York, March, est. 62 (prior 63.1)
10:00am: Factory Orders, Feb., est. -0.4% (prior -0.2%)

Central Banks

7:30am: ECB publishes minutes of March policy meeting
8:40am: Fed’s Yellen speaks in Washington
3:45pm: Fed’s Brainard speaks in Washington

DB's Jim Reid concludes the overnight event summary

As we move on from a busy quarter for global markets, trends that we had seen for the majority of Q1 continued into the first day of Q2 as equity markets in the US retreated, European bourses firmed and bond yields tightened. The one caveat was the Dollar which closed out a fairly choppy session a touch lower. Starting in the US, ahead of tomorrow’s all important payrolls data, focus was on yesterday’s ADP employment change reading as a prelude into Friday with the +189k print (vs. +225k expected) surprising to the downside and falling 25k from the February print. Having opened some 1% weaker, the S&P 500 pared back some of the initial losses but traded softly for most of the session before closing down 0.40%. The Dollar, as measured by the DXY eventually closed -0.17% having initially traded between gains and losses. The weaker sentiment generally helped support a bid for Treasuries however. Indeed, 2y (-2.0bps), 10y (-6.6bps) and 30y (-7.1bps) yields all closed tighter, with 10y yields in particular now nearly 40bps off the highs in yield of early March. The commodity complex had a stronger day also as Gold (+1.72%) was well supported while the latest IEA data showing a fall in US crude output helped push WTI (+5.23%) and Brent (+3.61%) higher.

Back to the data, as well as the softer than expected employment reading, yesterday’s ISM manufacturing print for March also weighed on sentiment with the 51.5 print down versus both expectations (52.5) and last month’s print (52.9). The reading was in fact the lowest since May 2013 and the export orders component in particular contracted a point further to 47.5, reflective of the effects of the stronger Dollar but also important given it’s read through into the Q1 GDP print. Elsewhere, the ISM prices paid, despite still at historically low levels, rose 4 points to 39.0 (vs. 38.0 expected) while the final March reading for the manufacturing PMI was revised up slightly to 55.7, from 55.3 previously. Construction spending (-0.1% mom) was as expected and total vehicle sales rose to 17.1m SAAR in March, ahead of expectations of 16.9m.

Yesterday’s softer data saw another cut in the forecast for the Atlanta Fed GDPNow forecast of Q1 GDP to 0.0% SAAR, a 0.2% cut from the previous revision. The model is interesting to us given its divergence from the current market forecasts, which sit in the range of 1-2.5% for Q1. Our colleagues in the US, who currently have a +1.7% Q1 GDP forecast, note that today’s trade data in particular will be an important reading – a wider gap than forecast by the market could see growth estimates revised lower. Elsewhere, the Atlanta Fed’s Lockhart, somewhat unsurprisingly reiterated his June-September timeframe for rate liftoff, but noted that ‘certainly, the weakness of the first quarter gets my attention’.

There was a better tone in Europe yesterday and despite a slight pullback post the US data, equity markets closed higher with the Stoxx 600 (+0.31%), DAX (+0.29%) and CAC (+0.57%) all firmer. Core and peripheral sovereign bonds extended their gains meanwhile. Bunds in particular struck fresh record lows as a strong 5-year auction, in which the government managed to issue 5y debt at a record low of -0.10%, helped support a bid. Indeed, 2y (-0.5bps), 10y (-1.4bps) and 30y (-0.4bps) yields all struck fresh lows at -0.257%, 0.167% and 0.601% respectively. With the curve trading in negative territory up until the 7y maturity (-0.04%), it’s perhaps only a matter of time before 8y (0.02%), 9y (0.09%) and possibly even 10y yields dip below zero.

Data yesterday in Europe was highlighted by better than expected PMI indicators in particular. The final March Euro-area manufacturing reading was revised up slightly to 52.2 from 51.9 previously. Regionally we also saw upward revisions in Germany to 52.8 (+0.4pts) and France to 48.8 (+0.6pts). Elsewhere, in Italy the manufacturing PMI rose 1.4pts to 53.3 and in Spain the reading was more or less in line at 54.3. It was a similar story in the UK also with the indicator rising 0.4pts to 54.4 and in line with consensus.

Geopolitics appears to be more of a theme in markets at present as the conflict in Yemen is showing little sign of abating. According to the BBC, Houthi rebels have reportedly advanced deeper into Aden in a bid to seize control of the city despite the airstrikes from the Saudi-led coalition. With concerns of the number of casualties rising, fears are also mounting over the potential for rebels to consolidate their position on the key parts of the city.

Before we take a look at today’s calendar, quickly refreshing our screens this morning Asian equity markets are mostly ignoring the weakness in the US yesterday and trading firmer. The Shanghai Comp (+0.19%), Nikkei (+1.82%), Hang Seng (+0.44%) and Kospi (+0.11%) are all higher as we go to print. Credit markets in Asia too are around a basis point tighter. Meanwhile, oil markets have given up around a percent of yesterday’s gains.

Turning to the day ahead now, it’s quiet in Europe this morning ahead of the Easter break with just the construction PMI in the UK due. In the US this afternoon, we get more employment data with Challenger job cuts and initial jobless claims while the February trade balance will be an important indicator into Q1 GDP. The ISM NY and factory orders round off the data releases while Fedspeak wise Yellen speaking in Washington this afternoon will be worth keeping an eye on. With most major markets closed tomorrow ahead of the Easter holidays, payrolls reaction will be felt next week when the US market reopens on Monday and European markets open again on Tuesday. Of course, next week also see’s the start of the Q1 reporting season with Alcoa unofficially kicking things off on Wednesday so plenty for us and the market to digest next week.