Following a volatile end to April, on whose last day many decided to frontrun "selling in May before going away", the world has taken a breather and overnight China was closed to celebrate May day, unable to celebrate the "beat" of the official Chinese Manufacturing PMI which printed unchanged from last month, at 50.1, goalseeked to beat the consensus expectation of 50.0 by the smallest of possible increments. After tumbling by 2.7% on Thursday, the negative sentiment in Japan following the BOJ's unwillingness to ease further persisted, with the Nikkei closing barely unchanged following a last minute surge to end the day up 0.06%.
Asian equities saw a subdued session amid thinned trading, after taking the lead from a negative Wall Street close. Nikkei 225 (+0.06%) reversed its earlier weakness heading into the close, with participants continued to fret about the lack of further easing from the BoJ. ASX 200 (+0.36%) rose led by basic materials, after Vale, the world’s 3rd largest miner, suggested slowing down its iron ore exports. Sentiment was further lifted by a better than Exp. Official Chinese Manufacturing PMI (50.1 vs. Exp. 50.0 (Prev. 50.1). JGB’s fell in tandem with yesterday’s continued global sell-off across fixed income, with the long-end better bid following today’s enhanced liquidity auction of old 20s/30s/40s. Markets in China, Taiwan, India and Singapore were closed for public holidays.
As expected the session has been relatively subdued, the FTSE traded flat despite strength in the basic materials sector ?bolstered by reports that Vale, the world’s 3rd largest miner, suggested slowing down its iron ore exports causing UK Miners to outperform. In addition, the negative UK PMI Manufacturing SA (Mar) M/M 51.9 vs. Exp. 54.6 lifted Gilts following the release, however remains to be supported as uncertainty looms leading up to the May 7th Election.
The weak UK Manufacturing data dragged GBP/USD into negative territory with the weaker headline number being attributed to the relative strength in GBP. In holiday related thin conditions EUR ticked higher against all crosses with demand for EUR/JPY helping the cross to test 135.00 while EUR/GBP broke the 0.7300 handle. Furthermore, Greek asset classes are closed however, the market await any developments with Greece as they are expected to make their delayed EUR 200mln payment to the IMF on Wednesday due to the holiday.
In Summary: U.K., Irish shares fall, with Stoxx 600 down for fourth day, on track for its worst week of the year. Most European stock markets closed for holiday, volume is 30% of the 10 day average. Brent crude, gold decline, silver rises. U.K. April manufacturing PMI below ests. U.S. manufacturing PMI, ISM manufacturing, construction spending, vehicle sales, Michigan confidence due later.
Market Wrap
- S&P 500 futures up 0.3% to 2084.5
- Stoxx 600 down 0.2% to 395
- US 10Yr yield up 2bps to 2.05%
- German 10Yr yield little changed 0.37%
- MSCI Asia Pacific down 0.1% to 153.1
- Gold spot down 0.1% to $1183.2/oz
- Euro up 0.25% to $1.1252
- Dollar Index up 0.03% to 94.63
- Italian 10Yr yield up 2bps to 1.52%
- Spanish 10Yr yield up 2bps to 1.48%
- French 10Yr yield little changed at 0.64%
- S&P GSCI Index down 0.1% to 445.2
- Brent Futures down 0.3% to $66.6/bbl, WTI Futures down 0.1% to $59.6/bbl
- LME 3m Copper down 0.2% to $6324.5/MT
- LME 3m Nickel down 0.4% to $13900/MT
- Wheat futures up 0.2% to 474.8 USd/bu
Bulletin headline news summary from Bloomberg and RanSquawk
- With China away from market, overnight trade was relatively subdued, although the Nikkei 225 was weighed upon by yesterdayís decision by the BoJ to refrain from additional easing
- Further dovish rhetoric from New Zealand weighed on NZD with AUD also weakening in sympathy
- EUREX and Euronext will be closed today due to a European market holiday
- Gilts (+41 ticks) have edged higher throughout the session supported by lacklustre UK Manufacturing PMI and ongoing political uncertainty
- A subdued session so far, given the widespread EU market closures with the exception of the UK.
- Looking ahead, sees the of release Canadian & US Manufacturing PMI, ISM Manufacturing, Univ. of Michigan, Fed’s Mester, Fed’s Williams and earnings from Chevron.
- Trading likely to be quiet as Hong Kong, Europe closed for May Day holiday; U.K. closed on Monday
- The U.S. Navy has begun accompanying U.S.-flagged ships through the Strait of Hormuz in response to Iran’s seizure of a cargo ship flying the flag of the Marshall Islands, American defense officials said
- U.K.’s manufacturing PMI fell to 7-month low of 51.9 from 54 in March, median est. 54.6; new export orders shrank for fifth time in seven months
- China’s official manufacturing PMI was at 50.1 in April vs 50.0 median forecast in a Bloomberg survey
- Apple Inc. may sell its first yen bonds, in a move that would further diversify its fundraising currencies after making debut offerings in euros and the Swiss franc
- $1.5b IG priced yesterday, $900m high yield. BofAML
- Sovereign bond yields higher. U.K. stocks little changed,
- U.S. equity-index futures higher. Crude oil, gold and copper decline
US Event Calendar
- 9:45am: Markit US Manufacturing PMI, April final, est. 54.2 (prior 54.2)
- 10:00am: Construction Spending m/m, March, est. 0.5% (prior -0.1%)
- 10:00am: ISM Manufacturing, April, est. 52 (prior 51.5)
- ISM Prices Paid, April, est. 42 (prior 39)
- 10:00am: U. of Mich. Sentiment, April final, est. 96 (prior 95.9)
- U. of Mich. Current Conditions, April final (prior 108.2)
- U. of Mich. Expectations, April final (prior 88)
- U. of Mich. 1 Yr Inflation, April final (prior 2.5%)
- U. of Mich. 5-10 Yr Inflation, April final (prior 2.6%)
- TBA: Wards Domestic Vehicle Sales, April, est. 13.4m (prior 13.35m)
- Wards Total Vehicle Sales, April, est. 16.9m (prior 17.05m)
DB's Jim Reid concludes the overnight recap
April was actually a pretty positive month for most assets but with some sharp declines over the last few days for European equities and Government bonds creating a nervous end to the month. We'll review April and YTD performance at the end today with graphs and tables in the pdf.
Yesterday the Atlanta Fed came out with their first GDPNow forecast for Q2 which came in at 0.9% - well below the consensus which is still broadly around 3% (DB 2.5%). After their long standing prediction of a soft Q1 print, way before the consensus and the eventual accurate final number, their views will be closely tracked from here. If they're right we probably don't need to worry about the recent government bond sell-off.
Talking of the sell-off it was a bad end to the month for the core bond markets. In Europe the German 10yr yield ended the day +8bps higher at 0.37% (back nearly to where QE started from), the French 10yr rose +7bps but with the Italian and Spanish 10yr outperforming to be basically flat on the day. There was a bit of a shock for some as 5 year bunds ended the day in positive yield territory (+0.005bps) for the first time since January 27th. The Greek 10yr yield fell another -80bps as sentiment around Greece remained positive (more later). Over in the US the 10yr ended the day broadly flat with a late rally after having been 6bp higher as Europe closed. The USD broke its recent downward slide, rising against most G10 currencies (although not the EUR which climbed into the 1.12 handle range). The VIX rose another half point to 14.
The month didn't end well in US equities with a late sell-off which saw the S&P 500 -1.01% with no particular single catalyst for it. There was some chatter about the Nasdaq BioTech index falling -9.3% over the past 5 days and Apple having its worst 3-day slide (-5.7%) for 15 months. Month-ends are always a bit unpredictable so it'll be interesting if the trends of the last few days continue into early May. In Europe equities were mixed whilst credit managed to eke out a small gain. Although most of the main equity bourses were slightly higher, the Stoxx 600 fell -0.4%. iTraxx Crossover tightened -1bp whilst in the US CDX HY widened +5bps.
Overnight in Asia, markets are trading in negative territory with the Nikkei down -0.2% although a number of markets in the region are closed for Labour Day. Asian credit markets are trading broadly flat. Some of the weakness in the Japanese markets is being driven by comments made by BoJ Governor Kuroda after markets closed on Thursday saying that no further policy easing was needed for now even though inflation won't return to 2% within their 2 year timeframe. After stripping out the impact of last yearís tax change and the volatile fresh food components CPI came in at +0.2 YoY today for April. Elsewhere the headline CPI came in slightly ahead of expectations at +2.3% YoY (vs +2.2% expected and prior). The core read also rose slightly, to +2.1% YoY.
We also saw April manufacturing PMI updates from Japan and China with the former edging up to 49.9 (from 49.7) and the latter holding steady at 50.1 (vs consensus fall to 50). The alternative China PMI from HSBC/Markit slipped to a one-year low of 49.2 though. China is closed today.
Looking to yesterday's news, in Europe we saw German March retail sales (which fell -2.3% MoM vs an expected rise of +0.5%) and April unemployment (which came in-line with expectations at 6.4%). We also saw Spanish Q1 GDP which surprised to the upside rising +0.9% QoQ (vs consensus expectation of +0.8%) and April CPI which came in broadly in-line at +0.7% MoM. Finally in Europe we also had the Italian and Eurozone April CPI both of which came in in-line with expectations (both at 0% YoY change) as the eurozone number rose from a negative -0.1% YoY last time around.
Over in the US it was another day of market sensitive releases as we got the Q1 employment cost index (which rose to +0.7% exceeding consensus estimates of +0.6%) as well as the March personal income, spending and PCE all of which marginally disappointed. Initial jobless claims came in much lower than expected at 262k although it seems there may have been some seasonal factors in play. Finally in terms of data we had the Milwaukee April ISM which disappointed (48 vs 53 expected) whilst the April Chicago PMI surprised to the upside (at 52).
Returning to the positive Greek sentiment yesterday, this seemed to be driven by headlines that both sides had agreed to actively pursue negotiations starting Thursday with the target of getting a preliminary deal done by May 3rd with the idea being for the finance ministers to sign off on the accord at the May 11th meeting (Bloomberg News). This seems too good to be true at the moment but there does seem to be a better tone to negotiations at the moment although Eurogroup chief Dijsselbloem kept the pressure on by suggesting that the Greek government should spend less time on interviews and more on avoiding abyss. The stakes remain high.
Looking to the day ahead it looks set to be a slightly quieter day compared to the past couple especially with many countries celebrating May or Labour Day. In the UK we have the April manufacturing PMI which is expected to rise to 54.6. In the US we will get the final read on US April PMI, March construction spending (expected to rise to +0.5% MoM), the April ISM (expected to rise to 52) and the latest UoM sentiment. On the earnings front we will hear from Smurfit Kappa and Lloyds in Europe and the likes of Chevron and Berkshire Hathaway in the US.
