It had been a painfully quiet session in Asia (where Chinese levitation continues with the Shanghai Composite up another 0.6% oblivious of yesterday's rout in the US, because as we explained [33]for China it is now critical to blow the world's biggest stock bubble) and Europe, where the only notable news as that for the first time in months the ECB had not increase the Greek ELA, keeping it at €80.2 billion on conflicting reports that Greek deposit withdrawals had halted even as Kathimerini said another €300MM had been pulled just yesterday, suggesting the ECB has reached the end of its road when it comes to funding nearly two-thirds of what Greek deposits are left in local banks. But the punchline came moments ago when Bloomberg reported that "Greece will likely miss a deadline for a deal with creditors by the end of the week as the two sides have made little progress during talks in recent days."
The completely "unexpected" news in turn sent the EURUSD sliding back under 1.09 after a brief rebound to a high of 1.0925 overnight. And speaking of FX, moments ago the USDJPY surged to 123.69, a new post-2007 high. In short: the USD rampage continues following the best week in years, and it remains to be seen if this will lead to another US equity and commodity selloff like yesterday, or if today Gartman flopped to bearish, and suddenly a rising dollar is good for stocks again.
Elsewhere in bond markets, Germany had another quasi-failed 30Y auction, receiving just €1.5 billion in buds will below the €2 billion target, selling €1.424 billion of 2.5% 30Y bonds in the final tally.
A closer look at markets shows a European session which has been particularly light in terms of newsflow and data, with major equity indices (Eurostoxx: 0.4%) in the green paring back some of yesterday’s Greece inspired losses. The only notable news regarding Greece from the European morning has been source comments stating the ECB are to keep Greek ELA ceiling on hold at EUR 80.2bln due to a slowdown in withdrawals over the past week, with the ECB also keeping haircuts on Greek collateral unchanged.
In early trade the USD gave back some of yesterday’s gains amid the light European session, bolstering both EUR and GBP but later pared its initial weakness to trade relatively flat. However USD/JPY remains above the 123.00 handle and near 8 year highs with analysts at JP Morgan suggesting a medium term rise in the pair looks set to continue after breaking above the critical 122.04 resistance level yesterday, with the next notable long term target being the 124-126 range.
In terms of Central Bank speakers, overnight Fed vice-chair Fischer (voter, soft dove) said the Fed could decrease the pace of rate hikes if world economic growth declines while Fed's Lacker (voter, hawk) reiterated that June is a good time to begin considering raising interest rates.
Looking ahead, the notable event of the session will be the BoC rate decision, with participants also looking out for bond auctions from both UK and Germany as well as any Greek comments from today’s G7 meeting.
The weaker greenback has led to strength in the energy sector after yesterday’s slump as prices fell to a 1-month low and recorded their worst day in over 2-months. While the metals complex has seen less of a paring of yesterday’s moves, with spot gold remaining down almost USD 20 on the week.
After yesterday's macro economic data deluge, there is little on the US econ calendar with just Mortgage Application data shortly.
In summary: ECB Said to Leave Emergency Aid Level for Greek Banks Unchanged. The Italian and Spanish markets are the best-performing larger bourses, German the worst. The euro is stronger against the dollar. Japanese 10yr bond yields fall; German yields increase. Commodities gain, with wheat, corn underperforming and WTI crude outperforming. U.S. mortgage applications due later.
Market Wrap
- S&P 500 futures little changed at 2105.8
- Stoxx 600 up 0.5% to 405.5
- US 10Yr yield up 2bps to 2.16%
- German 10Yr yield up 1bps to 0.56%
- MSCI Asia Pacific down 0.7% to 152.1
- Gold spot down 0.2% to $1185.4/oz
- Asian stocks fall with the Shanghai Composite outperforming and the Kospi underperforming; MSCI Asia Pacific down 0.7% to 152.1
- Nikkei 225 up 0.2%, Hang Seng down 0.6%, Kospi down 1.7%, Shanghai Composite up 0.6%, ASX down 0.8%, Sensex up 0.1%
- Euro up 0.26% to $1.0901
- Dollar Index down 0.09% to 97.22
- Italian 10Yr yield up 1bps to 1.95%
- Spanish 10Yr yield up 1bps to 1.87%
- French 10Yr yield up 1bps to 0.86%
- S&P GSCI Index up 0.3% to 433.8
- Brent Futures up 0.7% to $64.2/bbl, WTI Futures up 0.8% to $58.5/bbl
- LME 3m Copper little changed at $6107/MT
- LME 3m Nickel down 0.1% to $12665/MT
- Wheat futures down 1.1% to 488 USd/bu
Bulletin Headline Summary from Bloomberg and RanSquawk
G-7 finance ministers and central bankers meet in Dresden, Germany
ECB are to keep Greek ELA ceiling on hold at EUR 80.2bln due to a slowdown in withdrawals over the past week, with the ECB also keeping haircuts on Greek collateral unchanged
Today’s European session has been particularly light in terms of newsflow and data, with major equity indices in the green paring back some of yesterday’s Greece inspired losses
Looking ahead, the notable event of the session will be the BoC rate decision, with participants looking out for any Greek comments from today’s G7 meeting
Treasuries decline before week’s auctions continue with $35b 5Y, WI 1.545%, highest since Dec., from 1.380% in April.
Greece will likely miss a deadline for a deal with creditors by the end of the week as the two sides have made little progress during talks in recent days, four international officials familiar with the matter said
ECB left Emergency Liquidity Assistance ceiling for Greek lenders unchanged at EU80.2b, will also leave haircut on Greek collateral unchanged, according to two people familiar with the matter
RBS could pay as much as $4.5b to resolve claims of misconduct in its handling of agency MBS, according to Bloomberg Intelligence
Obama’s executive action on immigration, which would allow 5m undocumented immigrants to remain in the U.S., was dealt a serious blow as federal judges ruled the effort must remain on hold while 26 states sue to overturn it
Yellen plans to skip the annual gathering of economists and policy makers in Jackson Hole, Wyoming, this year, a spokeswoman for the central bank in Washington said
Chinese stocks rose for a seventh day, with the Shanghai Composite Index flirting with the 5,000 level on gains for commodity and power producers
Sovereign bond yields mostly lower. Asian stocks gain; European stocks, U.S. equity-index futures gain. Crude oil higher; copper, gold little changed
US Event Calendar
- 7:00am: MBA Mortgage Applications, May 22 (prior -1.5%)
- 1:00pm: U.S. to sell $35b 5Y notes
DB's Jim Reid concludes the overnight wrap
The market was dazzled yesterday by a rare (by recent standards) day of better than expected US data which ironically coincided with one of the best days of the year for US Treasuries as 10yr and 30yr yields fell 7.0bps and 8.6bp respectively. Over the last few weeks US yields have generally edged higher in spite of weak data. Perhaps yesterday there was a feeling that the earlier the Fed rise the less they might end up doing or being allowed to do. However pre-US numbers there was already a reasonable global fixed income flight to quality bid as Greece continued to worry investors, and the Spanish election results continued to gently reverberate. We also heard from Fed VC Fischer who suggested the pace of Fed rises could be slower than expected if the global economy was weaker than anticipated. This is a little bit like saying that if you put on weight after a suit fitting then the suit won't fit you but hey it seemed to attract attention.
The batch of better data also supported a strong bid for the Dollar as the DXY rose 1.34%, although much like the Treasury move the index was already firming in the European session before marking its highest level in nearly a month. That strength didn’t help equity markets as the S&P 500 and Dow declined -1.03% and -1.04% respectively with energy stocks (-1.58%) leading the losses after a tumble for Brent (-2.75%) and WTI (-2.83%). Gold was also a notable decliner after falling 1.60% to close at $1187/oz. The flight to quality bid was evident in core European bond markets as 10y Bunds ended -5.6bps at 0.544%, while similar maturity yields in France (-3.9bps), Sweden (-6.2bps), Netherlands (-4.3bps) and Switzerland (-3.7bps) all fell. There was clear weakness in the periphery however as 10y Italy (+9.3bps), Spain (+9.5bps) and Portugal (+10.0bps) yields all rose as the Greece/Spain combination added some nervousness to the morning session. European equity markets largely mirrored their US counterparts as the Stoxx 600 (-0.73%), DAX (-1.61%) and CAC (-0.66%) all fell.
In terms of the details on yesterday’s data, it was the April durable goods report which generated much of the headlines. Despite an, as expected, -0.5% mom headline reading, the ex transportation print rose a greater than expected +0.5% mom (vs. +0.3% expected) and the core capex orders rose +1.0% mom, also ahead of expectations of +0.3% with a decent upward revision to the March reading (+1.5% mom from -0.5% previously). Core shipment orders (+0.8% mom vs. +0.2% expected) also saw a similar beat. Other notable releases included a decent jump in the May consumer confidence index, the reading rising 1.1pts (albeit from a downwardly revised March print) to 95.4 (vs. 95.0 expected). New home sales data was also encouraging for April as sales rose +6.8% mom (vs. +5.6% expected) to an annualized rate of 517k, backing up the recent strong housing starts and building permits data. Elsewhere, we also got some now slightly outdated house price data with the March FHFA house price index (+0.3% mom vs. +0.7% expected) and S&P/Case-Shiller index (+0.95% mom vs. +0.90% expected) slightly more mixed. Meanwhile, there was some softness to come out of the flash PMI’s for May as the services print fell 1pt to 56.4 (vs. 56.5 expected) to the lowest reading since January. In turn this meant that we saw the composite fall 0.9pts to 56.1 – also a four month low. Finally, manufacturing indicators were somewhat contrasting for May. The Richmond Fed manufacturing index jumped 4pts to 1 (vs. 0 expected) for the month while the Dallas Fed manufacturing activity index fell 4.8pts to -20.8 (vs. -12.4 expected), the lowest reading since June 2009 although the details suggested a rosier picture for expectations of future business conditions.
Following yesterday’s stronger durable goods orders data, the Atlanta Fed GDPNow model raised its Q2 GDP estimate to +0.8% from +0.7% previously, although the level is still well behind the current market consensus. The data yesterday did little to move the dial on Fed Funds contracts with the Dec-15, Dec-16 and Dec-17 contracts 5bps, 5bps and 4bps lower in yield respectively. Back to Fischer’s comments quickly, as well as noting that the pace of tightening may slow in the face of weaker than expected global growth, the Fed VC also noted that ‘the actual raising of policy rates could trigger further bouts of volatility, but my best estimate is that the normalization of our policy should prove manageable’. After market hours we also learned that the Fed’s Yellen will not be participating at this year’s Jackson Hole event on August 27th-29th, important perhaps for those who were hoping that the meeting could provide some clues ahead of the potentially pivotal September FOMC meeting.
In terms of the follow up in markets in Asia this morning, bourses are largely tracking the weakness in the US and trading lower as we type. The Hang Seng (-0.57%), Kospi (-1.56%) and ASX (-0.78%) in particular have declined. China equity markets are a tad more mixed however, with the CSI 300 -0.49% lower but the Shanghai Comp +0.16%, supported partly by April industrial profits data for the region which showed a +2.6% yoy rise in April and the first positive print since September last year. Meanwhile in Japan, the Nikkei (+0.24%) has reversed earlier losses after BoJ Governor Iwata said that the Central Bank ‘currently expects that the CPI rate is likely to reach around 2% in the first half of fiscal 2016’. Iwata noted that this timing is somewhat delayed from the previous projection, but that the underlying trend in inflation itself has been rising steadily with QQE working as envisaged.
Moving on, talks continued between Greece and its creditors again yesterday but appeared to yield similar results with little suggestion of any material progress or agreement being made. Instead, we heard from Finance Minister Varoufakis who played down fears that the June 5th IMF repayment won’t be made, instead saying that he expects a deal to be made by then which will subsequently release funds for the government to repay its obligations. There were also suggestions, according to the WSJ, that the Greek government has issued a decree ordering the transfer of funds in inactive bank accounts of public sector bodies to be transferred to the Bank of Greece in a bid to raise funds, as well as a proposed tax on undeclared deposits abroad in a sign of how tight the cash position is. In a report put out by the MNI meanwhile, the EC’s Juncker reiterated that June is an ‘obvious deadline’ and that he ‘will do everything to avoid scenarios that include capital controls’. Juncker then went on to say that Greek PM Tsipras is ‘becoming increasingly responsible’ before then questioning his party colleague Varoufakis by saying that he is ‘not helping the process’. Greek officials are due to meet today in Brussels while the saga is expected to be a talking point at the 3-day G7 meeting beginning today.
Following on from the weekend’s regional and local elections in Spain, DB’s Marco Stringa yesterday published a report looking at the impact of what this may now mean for Spain. Marco notes that Spain’s economy is outperforming most euro-area economies and that maintaining medium-term success depends on maintaining economic and political equilibria. Sunday’s local election for the most part confirmed the recent trend in opinion polls that have pointed to an unprecedentedly fragmented parliament and a potentially fragile government. He expects difficult negotiations to now commence and potentially unstable local governments which as a result means we shouldn’t see much improvement in regional deficits (and therefore the general fiscal deficit). Importantly however, Marco notes that this should not necessarily be taken as a map of what will happen after the year-end election. After the general election, the newer parties may have a greater incentive to cooperate and form a coalition. Besides this, both opinion polls and Sunday’s local elections suggest that the likelihood of Podemos being the predominant parliamentary force has decreased materially in his view.
Looking at the day’s calendar, it’s fairly quiet on the whole with the start of the G7 Meeting of finance ministers and central bankers in Dresden potentially generating some Greece related headlines. Aside from that, data wise we’ve got just consumer confidence data for both Germany and France due. After a busy afternoon yesterday for data in the US, there are no notable releases due this afternoon.
