With US markets closed for the Memorial Day holiday, and some of the key European markets likewise shuttered for public holiday including the UK, Germany and Switzerland, it is difficult to find where one can observe or trade the weekend's newsflow, which is once again centered on developments in Europe, where on Sunday Spanish Prime Minister Mariano Rajoy’s People’s Party suffered its worst result in a municipal election in 24 years [37] while Greece continues to threaten with default 5 some years after it should have officially pulled the plug.
As DB summarizes the major swing to "anti-austerity" in yet another European country - a move that may further force the Eurozone to keep a hard line with Greece or else suffer concession demands from Spain next - the weekend the ruling People’s Party (PP) suffered a loss of support in the regional and local elections, with anti-austerity focused Podemos and the emerging Ciudadonos party making gains. In Madrid in particular (a PP stronghold), the People’s Party won the municipal election but could lose control of the city council after the ruling party took 21 seats but Podemos backed Ahora Madrid took 20, meaning it’s now looking like they could form a coalition with the third placed Socialists, according to Reuters. It’s a similar story in Spain’s second largest city Barcelona, where Podemos backed activist Ada Colau has won the most votes in the mayoral race. Although coalition negotiations may take some time, it’s one that worth keeping an eye on.
And then there is always Greece, whose endless saga continues to drag on after little meaningful progress over the weekend. Instead, the Greek government has called on its creditors to compromise and according to Finance Minister Varoufakis, ‘do their bit’. As the clock ticks, Interior Minister Nikos Voutsis has once again reiterated that Greece will not be able to make the IMF repayments due in June totaling €1.6bn (and starting on the 5th) saying that ‘this money will not be given and is not there to be given’. Issues over reforms, particularly labour and pensions, still remain at the heart of the disagreement and lack of progress with the Greek government adamantly stating that it will stick to its ‘red lines’ and PM Tsipras again saying on the weekend that the government ‘won’t budge to irrational demands’. In the meantime, German Finance Minister Schaeuble remains defiant, saying that the problems are rooted in Greece and now Greece does have to fulfill its commitments. For now, technical talks are set to continue this week with pressure and time mounting. Expect to see more and more headlines with time appearing to be close to running out.
So of what little markets are open, the Italian and Spanish are the worst-performing. The euro is weaker against the dollar. European shares fall with the banks and utilities sectors underperforming and basic resources, travel & leisure outperforming.
There was Asia, of course, which was open and where another bout of Yen weakness pushed the Nikkei up 0.7%, while not even the (briefly and formerly) richest man in China getting busted inflating then selling his own stock, and thus crashing it [38], in what may be one of the biggest Chinese frauds in history, put a dent in the Chinese stock bubble juggernaut, as the Shanghai Composite added another 3.4% in what has become most obvious parabolic blow off top bubble observed since the Nasdaq's vertial move in the year 2000.
Market Wrap:
- S&P 500 futures down 0.1% to 2123.3
- Stoxx 600 down 0.1% to 407.2
- MSCI Asia Pacific up 0.2% to 153.7
- Gold spot down 0.1% to $1204.5/oz
- 8 out of 19 Stoxx 600 sectors rise; basic resources, travel & leisure outperform, banks, utilities underperform
- Eurostoxx 50 -0.7%, FTSE 100 closed, CAC 40 -0.7%, DAX closed, IBEX -1.7%, FTSEMIB -1.9%, SMI closed
- Asian stocks rise with the Shanghai Composite outperforming and the Sensex underperforming; MSCI Asia Pacific up 0.2% to 153.7
- Nikkei 225 up 0.7%, Hang Seng closed, Kospi closed, Shanghai Composite up 3.4%, ASX up 1%, Sensex down 0.9%
- 7 out of 10 sectors rise with consumer, utilities outperforming and telcos, staples underperforming
- Euro down 0.37% to $1.0972
- Dollar Index up 0.39% to 96.39
- Italian 10Yr yield up 1bps to 1.87%
- Spanish 10Yr yield up 2bps to 1.81%
- Brent Futures down 0.6% to $65/bbl, WTI Futures down 0.6% to $59.4/bbl
DB's Jim Reid concludes the weekend event summary
It’s another week of important data releases in the US this week which will help sharpen second quarter growth expectations some more and no doubt fuel the debate further on whether or not we are seeing a meaningful bounce back following the soft first quarter. Durable goods orders and in particular the core capex component will be one which will be closely followed tomorrow, while new homes sales and the Chicago PMI are also due this week. Of course, there will also be much focus on Friday’s second revision to Q1 GDP with our US colleagues expecting growth to be revised down to -1.0% for the quarter after the initial +0.2% estimate. We’ve got the usual full rundown on the week’s highlights at the end of the report. Markets on Friday were about as muted as you could get given we had US CPI and the Fed’s Yellen speaking. 10y Treasuries closed 1.9bps higher in yield at 2.210% and the S&P 500 finished -0.22% lower after core CPI was rounded up one-tenth of a percent above expectations to +0.3% mom (0.256% unrounded), which helped keep the annualized rate at +1.8% yoy. Yellen’s comments probably didn’t move the liftoff dial much after the Fed Chair said that it would be ‘appropriate at some point this year to take the initial step to raise the fed funds rate’ should the US economy continue to improve as expected.
So with a number of markets closed today, attention is mostly on the Asia timezone where bourses are trading firmer as we go to print. Indeed, the Nikkei (+0.69%), Topix (+0.69%), Shanghai Comp (+2.32%), CSI 300 (+2.03%) and ASX (+1.05%) are all higher, while bond markets are relatively unchanged on the whole. Asia credit markets are around a basis point wider this morning while oil markets are modestly higher (+0.2%). Meanwhile, in Japan the April trade data report showed export volumes rising slowly but the trade balance deteriorating somewhat. Exports rose 8% yoy and above expectations of 6%, while imports declined 4.2% yoy although more than the 1.1% decline expected. The result was a smaller than expected trade deficit (¥54.4bn vs. ¥351.1bn expected), however our colleagues in Japan noted that seasonally adjusted, the economy recorded a much larger deficit and noted that the trend in export volumes, although up, is signaling a gentle recovery.
Away from Asia, the Greek saga continues to drag on after little meaningful progress over the weekend. Instead, the Greek government has called on its creditors to compromise and according to Finance Minister Varoufakis, ‘do their bit’. As the clock ticks, Interior Minister Nikos Voutsis has once again reiterated that Greece will not be able to make the IMF repayments due in June totaling €1.6bn (and starting on the 5th) saying that ‘this money will not be given and is not there to be given’. Issues over reforms, particularly labour and pensions, still remain at the heart of the disagreement and lack of progress with the Greek government adamantly stating that it will stick to its ‘red lines’ and PM Tsipras again saying on the weekend that the government ‘won’t budge to irrational demands’. In the meantime, German Finance Minister Schaeuble remains defiant, saying that the problems are rooted in Greece and now Greece does have to fulfill its commitments. For now, technical talks are set to continue this week with pressure and time mounting. Expect to see more and more headlines with time appearing to be close to running out.
The political situation is also taking shape in Spain where over the weekend the ruling People’s Party (PP) suffered a loss of support in the regional and local elections, with anti-austerity focused Podemos and the emerging Ciudadonos party making gains. In Madrid in particular (a PP stronghold), the People’s Party won the municipal election but could lose control of the city council after the ruling party took 21 seats but Podemos backed Ahora Madrid took 20, meaning it’s now looking like they could form a coalition with the third placed Socialists, according to Reuters. It’s a similar story in Spain’s second largest city Barcelona, where Podemos backed activist Ada Colau has won the most votes in the mayoral race. Although coalition negotiations may take some time, it’s one that worth keeping an eye on.
Back to markets on Friday, unsurprisingly the bulk of the moves in Treasuries came following the CPI report with the 10y benchmark jumping around 4bps higher having traded a touch tighter in the run up to the print. 5y Treasuries saw the sharpest move closing 5bps higher on day at 1.563%, while 30y yields finished more or less unchanged (-0.4bps) at 2.985%. The data supported a bid for the Dollar with the DXY finishing +0.80% to mark the first weekly gain in six weeks. Gold closed +0.11% higher while oil markets had a softer session as WTI (-1.65%) and Brent (-1.76%) declined to $59.72/bbl and $65.37/bbl respectively. On the data, despite the modest rise in the core, headline CPI met expectations for the month of April having risen +0.1% mom to lower the annualized rate further into deflation at -0.2% yoy as expected. The move higher than expected in the core meanwhile appeared to be almost solely attributed to a somewhat unpredictable jump in medical care costs (+0.7% mom).
Digging into Yellen’s comments a bit more, the Fed Chair also noted that following the first move, the pace of normalization will likely be gradual while she mirrored other similar Fed comments that any move will be data dependent. There was some mention of a ‘generally disappointing pace of wage growth’ and that although the labour market was approaching full strength ‘we are not there yet’. Also noted were headwinds that had previously constrained growth, including ‘weak growth abroad’ should abate supported by ‘monetary policies that generally remain highly accommodative’.
Over in Europe on Friday, bond markets closed relatively mixed on the whole as 10y Bunds (-3.6bps) finished tighter, while in the periphery Italy (+1.6bps), Spain (+1.6bps) and Portugal (+2.6bps) finished a tad wider. After 4 consecutive weeks of moves of at least 7bps higher in yield for 10y Bunds, last week saw yields actually close 2bps tighter over the five days. Risk assets were a touch weaker on Friday. Equity markets were led by a decline for the DAX (-0.42%) while the CAC (-0.07%) and Stoxx 600 (-0.03%) finished modestly lower. In credit Crossover ended 5bps wider meanwhile. Much of the focus data-wise was on the final revision to Q1 GDP in Germany which saw no change to the +0.3% qoq print as both net exports and inventories in particular proved to be a drag. Following this, our colleagues in Germany have now lowered their 2015 GDP forecast from 2.0% to 1.6% given the weaker starting base now. They did however note that they still expect quarterly growth rates to average a healthy +0.4% qoq in 2015 and that the downward revision should not distract from the underlying story of strong domestic demand that remains unchanged in their view. Staying in Germany, we also got the May IFO survey which showed just a modest 0.1pt decline to 108.5 (vs. 108.3 expected). Although the expectations index fell 0.4pts in line to 103.0, the current assessment survey was a notable beat versus consensus after improving 0.3pts to 114.3 (vs. 113.5 expected). Elsewhere, manufacturing confidence for France improved 1pt to 103 (vs. 101 expected) while there was an equal rise in business confidence for the region as expected to 97.
Looking at the week’s calendar now, with markets closed in the US and some of Europe, there are no data releases due aside from the BoJ’s monthly economic report for May this morning. We’ve just got Japan PPI and UK CBI reported sales to look forward to in the Asia and European timezones on Tuesday before we get a bumper data day in the US on Tuesday afternoon with durable goods orders, capital goods orders, FHFA house price index, S&P/Case Shiller house price index, May flash composite and services PMI’s, new home sales, consumer confidence, Richmond Fed manufacturing index and the Dallas Fed manufacturing activity index. Wednesday starts in China where we get industrial profits data for April and small business confidence in Japan. There are more confidence indicators in Europe on Wednesday with German and French consumer confidence. There are no releases of note in the US in the afternoon. On Thursday we get Japan retail sales in the early morning. We then turn to Europe where we get various May confidence indicators for the Euro area. Initial jobless claims and pending home sales will be due in the US on Thursday. It’ll be a busy end to the week on Friday as we get CPI, industrial production, housing starts and the jobless rate out of Japan first of all. In Europe we start with French consumer spending, quickly following by Euro area money supply data and then the preliminary Q1 GDP report for the UK. Over in the US the second reading for Q1 GDP will be important given the expected revisions, while we also get the Chicago PMI and the final May University of Michigan consumer sentiment reading. There’s plenty of Fedspeak this week with Fisher, Mester, Lacker, Williams and Kocherlakota all due.
