A slow week devoid of virtually any macro news - last night the biggest weekly geopolitical event concluded as expected, when Greece voted to pass the bailout bill which "the government does not believe in" just so the ECB's ELA support for Greek depositors can continue - is slowly coming to a close, as is the busiest week of the second quarter earnings season which so far has been largely disappointing despite aggressive consensus estimate cuts, especially for some of the marquee names, and unlike Q1 when a quarterly drop in EPS was avoided in the last minute, this time we won't be so lucky, and the only question is on what side of -3.5% Y/Y change in EPS will the quarter end.
Equities remain in focus today, with earning season in full swing as high profile names Credit Suisse (+6.9%), Daimler (0.5%), Roche (+1.0%) and Unilever (+2.3%) all report their earnings. With macro news relatively light, equities have traded without direction this morning (Euro Stoxx: +0.2%), while on a sector specific basis, energy and material names underperform after the recent weakness in the commodity sector.
Bunds reside in positive territory this morning, with no European supply scheduled for today, while T-Notes are relatively flat on the day as participants await the main US data of the day in the form of the weekly jobs numbers and the US 15bIn 10yr TIPS Auction. While elsewhere today, earnings include McDonald's, Visa, Amazon, Comcast and Bristol Myers.
Asian equities traded mixed following the lacklustre close on Wall Street, where the Nasdaq-100 underperformed following the poor earnings from Apple. Nikkei 225 (+0.4%) traded higher as exporters benefit from a weaker JPY. ASX 200 (-0.4%) fell following the continued slump in commodity prices, while Chinese markets are set for their longest winning streak in 2 months, after the PBoC conducted a net injection of CNY 35b1n into the interbank market.
The only tier 1 data of the European morning saw UK retail sales come out lower than expected in all readings, with Y/Y spending growth the weakest since Q2 2013 (UK Retail Sales Ex Auto Fuel Y/Y 4.20% vs. Exp. 5.10%). As such, GBP saw immediate weakness as GBP/USD broke back below the 1.5500 handle and EUR/GBP broke back above the 0.7000 handle after yesterday's GBP strength on the back of BoE minutes meeting highlighting some members considering a 'fine balance' between voting for a rate hike or not.
Apart from GBP weakness, FX markets have been dominated during the European session by USD weakness (-0.4%) amid no fundamental news with price action in EUR/USD magnetised by the looming option expiry at 1.1000 level (1.9bIn).
Elsewhere, the Greek parliament voted in favour of approving the bailout prior actions bill in a 230 to 63 vote with 5 abstaining, however this was widely expected and saw no reaction in EUR. NZD strengthened after RBNZ cut the OCR by 25bps to 3.00% as expected, which supported the currency as markets were one-sided heading into the decision, while the central bank also omitted its statement that the currency was at an unjustifiable level.
As well as the aforementioned US weekly jobs numbers from the US, today also sees participants look out for comments from ECB's Weidmann.
The commodity complex has seen prices come off their worst levels amid the recent weakness throughout both the metals and energy complexes . Despite residing in positive territory on the day, WTI remains below firmly below the psychological USD 50/bbl handle, while spot has broken above the USD 1100 handle during the European morning on the back of aforementioned USD weakness.
Looking ahead, today sees the EIA NatGas Storage Change (1530BST/0930CDT), which is expected at 68, of note NatGas outperforms its energy counterparts with analysts at BNP attributing the strength to July weather being hotter than expected.
On today's US event calendar we get initial jobless claims, Chicago Fed national activity index, Conference Board leading index and Kansas City Fed manufacturing activity for July will be the main releases. It’s set to be a busy day for corporate earnings meanwhile with General Motors, Amazon, AT&T, Comcast, Dow Chemical, McDonalds and Caterpillar the notable reporters.
In summary: European shares remain little changed with the basic resources and oil & gas sectors underperforming and tech, health care outperforming. Greek government votes to approve bailout bill. Companies including Daimler, Credit Suisse, Unilever, Syngenta, Roche, STMicro report results. U.K. June retail sales fall, analysts had expected a rise. Japanese exports rise most in 5 months. The Spanish and Italian markets are the worst-performing larger bourses, the Swiss the best. The euro is stronger against the dollar. Irish 10yr bond yields fall; French yields decline. Commodities little changed, with nickel, natural gas underperforming and wheat outperforming. U.S. jobless claims, continuing claims, Bloomberg consumer comfort, Chicago Fed index, leading index, Kansas City Fed index due later.
Market Wrap:
- S&P 500 futures up 0.2% to 2111.5
- Stoxx 600 down 0.1% to 399.9
- US 10Yr yield down 1bps to 2.32%
- German 10Yr yield down 1bps to 0.74%
- MSCI Asia Pacific up 0.1% to 143.9
- Gold spot up 0.7% to $1101.8/oz
- 7 out of 19 Stoxx 600 sectors rise; tech, health care outperform, basic resources, oil & gas underperform
- Eurostoxx 50 +0.2%, FTSE 100 +0.3%, CAC 40 +0.2%, DAX +0.2%, IBEX +0%, FTSEMIB +0.1%, SMI +1.1%
- Asian stocks rise with the Shanghai Composite outperforming and the Sensex underperforming; MSCI Asia Pacific up 0.1% to 143.9
- Nikkei 225 up 0.4%, Hang Seng up 0.5%, Kospi up 0%, Shanghai Composite up 2.4%, ASX down 0.4%, Sensex down 0.5%
- Anthem Said to Be Nearing Deal to Buy Cigna for $48 Billion
- Pearson Says It’s in Advanced Talks to Sell FT Group
- Euro up 0.59% to $1.0993
- Dollar Index down 0.57% to 97.04
- Italian 10Yr yield down 3bps to 1.91%
- Spanish 10Yr yield down 2bps to 1.97%
- French 10Yr yield down 2bps to 1.04%
S&P GSCI Index down 0% to 395.2 - Brent Futures down 0.2% to $56/bbl, WTI Futures down 0% to $49.2/bbl
- LME 3m Copper up 0.1% to $5366.5/MT
- LME 3m Nickel down 0.9% to $11370/MT
- Wheat futures up 0.9% to 521.5 USd/bu
Bulletin Headline Summary from RanSquawk
- USD has weakened throughout the European session amid no fundamental news, heading into the North American crossover lower by 0.4%
- UK retail sales printed than expected in all readings, with Y/Y spending growth the weakest since Q2 2013
- Despite residing in positive territory on the day, WTI remains below firmly below the psychological USD 50/bbl handle, while spot has broken above the USD 1100 handle
DB's Jim Reid completes the overnight recap
It is quiet at the moment but the renewed weakness in commodities could be a very important macro story as it might end up being the swing factor in forcing the FOMC to delay policy action in H2. So its certainly a big story to watch. Indeed the weakness in commodities was again the overriding theme in markets yesterday, although it was an Apple-led selloff which saw tech stocks tumble leading to another softer session for risk assets yesterday. The S&P 500 (-0.24%) and Dow (-0.38%) both finished down for the second consecutive day, while the NASDAQ (-0.70%) took another leg lower as markets latched on to a poorly taken after-market report from Apple, helping send the share price 4.2% lower on the day. European equity markets saw similar declines with the Stoxx 600 (-0.59%), DAX (-0.72%) and CAC (-0.47%) all closing lower. It was a weaker day for credit also with CDX IG closing 1.2bps wider and Crossover ending 7bps wider.
Looking at bourses in Asia this morning it’s been a fairly mixed follow up with the Kospi (-0.46%) and ASX (-0.22%) both trading lower, while the Nikkei (+0.35%), Hang Seng (+0.38%) and Shanghai Comp (+0.75%) have moved higher – the latter after a soft start. S&P 500 futures (+0.2%) are pointing towards a modestly firmer open, while credit indices in Asia are unchanged. Trade data out of Japan has been the main point of focus. Despite exports rising less than expected (+9.5% yoy vs. +10% expected), the reading was the highest since January helping to shrink the deficit to ¥69bn (vs. expectations of a surplus of ¥45.8bn) from ¥217bn in May. Imports fell 2.9% yoy last month (vs. -4.3% expected), the smallest contraction since November but the sixth straight monthly decline.
Greece has also been in focus overnight after the Greek parliament approved a second round of reform measures in another stepping stone towards a third bailout package, passing the vote with a 230 to 63 majority while support from Syriza rose slightly after 36 lawmakers failed to support the legislation, down from 39 in the first vote. Speaking in the early hours this morning, Greek PM Tsipras once again reiterated that he will implement the program that he doesn’t believe in, adding that ‘conservative forces within Europe still insist on their plans to kick Greece out of the Euro’. The result also comes after the latest ECB decision to raise the ELA cap by €900m, keeping the pressure on Greek lenders tight.
Back to yesterday, as well as a softer day for S&P 500 tech names (-1.64%), energy stocks (-0.64%) also contributed to the declines on the back of further weakness in the commodity space. Despite Tuesday’s bounce back, oil markets extended their rough stretch with WTI (-3.28%) and Brent (-1.60%) tumbling to $49.17/bbl and $56.13/bbl respectively. The latest leg down in WTI saw it drop back down below $50 and is now $10 lower than where it was at the end of June, nearing a bear market after losing almost 20% in the last six weeks. The latest inventory numbers out of the EIA yesterday certainly didn’t help after stockpiles rose 2.5m barrels following expectations of a drawdown. OPEC, in their latest update meanwhile said that the latest drop in prices this month is likely to be short term and won’t stop them from maintaining output at high levels to defend market share. It wasn’t just oil markets which felt the pain yesterday as Gold wiped out all of Tuesdays gains (and more) to close 0.64% lower at $1094/oz and at a fresh five year low. There’s been little response in the commodity space this morning. WTI and Brent are +0.12% and -0.09% respectively while Gold (+0.39%) has rebounded a little.
There wasn’t a whole lot to report in sovereign bond markets yesterday. 10y Treasuries closed more or less unchanged (-0.2bps) at 2.324% after a choppy session, while similar maturity Bunds were 3.4bps lower at 0.745% and yields in the periphery fell 2-3bps. It was a slightly firmer day for the Greenback with the Dollar index closing up +0.28%.
Yesterday’s data was focused on more second tier releases in the housing sector in the US. June existing home sales bounced in June (as expected with what the pending home sales suggested), rising +3.2% mom (vs. +0.9% expected) to an annualized rate of 5.49m, the highest level in eight years. The FHFA house price index meanwhile was as expected at +0.4% mom, unchanged from the previous month. Over in Europe the lone releases were centered in France where we saw business (99 vs. 98 expected) and manufacturing (102 vs. 101 expected) confidence indicators both come in ahead of expectations.
The Bank of England minutes from the July meeting was the main point of focus closer to home meanwhile. The minutes reflected more of the hawkish rhetoric that we’ve seen of late from BoE members. The text noted that for a number of members, the balance of risks to medium-term inflation relative to the target was becoming more skewed to the upside with rates at current levels. Interestingly however and unlike what we saw in the latest FOMC release there was more of an acknowledgement to the risks emanating from Greece with the minutes stating that ‘for these members, the uncertainty caused by recent developments in Greece was a very material factor in their decision; absent that uncertainty, the decision between holding the bank rate at its current level versus a small increase was becoming more finely balanced’. It’s worth noting that the last meeting was held before the recent progress in Greece. Sterling had a better day on the back of the minutes, finishing 0.36% higher versus the Dollar.
Before we turn over to today’s calendar, the FT ran an interesting story highlighting that Government debt in the eurozone has now reached a record high despite signs of an (albeit slow) economic recovery, highlighting the legacy left behind by the financial crisis. The latest Eurostat data released yesterday showed that at the end of Q1’15, Debt/GDP reached 92.9%, up from 92.0% at Q4’14 and 91.9% in the same period last year and led by Greece (169%), Italy (135%) and Portugal (130%). Although it’s certainly probable that ultra low rates have enticed greater demand for borrowing, the data still highlights that at an aggregate level, the deleveraging story in Europe is still yet to begin despite it now being 8 years since the first signs of the global financial crisis.
Turning over to today’s calendar now, it’s another relatively quiet day for European data with just Euro area consumer confidence and UK retail sales expected. Over in the US, initial jobless claims, Chicago Fed national activity index, Conference Board leading index and Kansas City Fed manufacturing activity for July will be the main releases. It’s set to be a busy day for corporate earnings meanwhile with General Motors, Amazon, AT&T, Comcast, Dow Chemical, McDonalds and Caterpillar the notable reporters.