Overnight Sentiment: "Buy In May, And Buy Every Day"

While it is the labor day holiday in most of the world, and as a result volumes will be more subdued than ever (meaning at least a 10 point algorithmic levitation on no volume for the S&P), let's not forget that Benny and the Inkjets are doing their best to make everyone into a professional day trader (the only "wealth effect" transmission mechanism left) so markets being open seems somewhat counterproductive. That said, futures are already up on the usual atrocious economic data out of Asia this time. First China's official manufacturing PMI slipped 0.3pt to 50.6, coming below expectations, suggesting weak momentum going into Q2. Meanwhile, Korea trade data indicated weaker momentum in exports than expected, rising 0.4% on expectations of a 2% bounce courtesy of Abenomics, and hence a lower trade surplus, while inflation defied median expectations of a rise and slowed yet further. Finally, Australia PMI was an absolute disaster printing even worse than the Chicago PMI, plunging from 44.4 to 36.7, meaning that the RBA is about to join the global "reflation effort." Given that most markets in Asia are closed today, there is no market reaction worth mentioning, aside from the fact that the yen which was logically weaker overnight then ramped up into the European open and US pre-trading as it is, after all, the primary source of "beta" for the global stock markets.

May Day has delayed the release of global PMI data until tomorrow, however the Manufacturing ISM will be released today as scheduled. If the leading Chicago PMI is any indication, it is very likely that we will see a sub-50 number, likely plunging to levels not seen since June of 2009 (45.8) - the worst in four years. If that doesn't send the S&P over 1600 we don't know what will. And just to make sure the S&P is well on its way to 1700 on onward too, the ADP Private payrolls number today should be a huge miss sending the ES limit up.

Also later today Ben Bernanke will release the latest FOMC statement however without a following press conference this time, which is even more reason to not expect the Fed to say or do anything notable, and will most likely highlight the recent weakness seen in the economy, thus cementing QE4EVA well into 2016-2017.

Finally, while some are dreading the start of "sell in May and go away" season, what most have forgotten is that never before has May been accompanied by $160 billion per month in central bank de novo liquidity (a number which will only go up- you know, for the wealth effect). Which is why our redefinition of this infamous phrase is "buy in May and buy every day."

The full bulletin summary of the few things taking place today, via Bloomberg:

  • Treasuries little changed before Fed statement, rate decision at 2pm in Washington; 10Y yields yesterday touched lowest level since Dec.  12 before reversing higher amid gains in stocks, Apple’s record $17b debt offering.
  • Fed not likely to change $85b/mo. in asset purchases, will probably put off any decision to taper buying, based on review of selected research
  • ECB rate decision and Draghi press conference tomorrow; U.S. nonfarm payrolls Friday
  • China’s manufacturing expanded at a weaker pace in April in a sign that the slowdown in the world’s second-largest economy is extending into the second quarter; crude and copper decline
  • A U.K. factory index rose more than economists forecast in April, indicating that manufacturing barely shrank
  • Central bank veterans are lining up to highlight the Achilles’ heel of Prime Minister Shinzo Abe’s economic revival plan: the world’s fastest aging society
  • Denmark’s government says it has exhausted all avenues for adding stimulus as the economy shows signs of sinking into its third recession since the global financial crisis started
  • Most European markets, China closed for May Day holiday
  • Nikkei -0.4%, FTSE +0.5%, U.S. stock-index futures gain

As stated not much going on today, but here is what is on the macro list from SocGen:

The European economic calendar will be light today with most markets shut for the May Day holiday and positions light in any case as participants trim positions ahead of tomorrow's ECB meeting. Market attention will essentially focus on UK and US manufacturing PMI and ISM: the release last week of higher-than-expected UK Q1 GDP figures (and better lending data to small businesses) has reassured GBP-based investors and encouraged our UK economists to postpone their call for more BoE QE. An increase in the UK manufacturing PMI today would reinforce such a scenario, but echoes of weaker PMI trends cannot be ruled out (weaker China data overnight and a terrible Australian print of '36.7') . A better number would be all the more GBP-positive should the ECB embark on more accommodative measures tomorrow and so the squeeze higher could have further to run. EUR/GBP-wise, the 0.8400 area remains a key support area. A dovish FOMC statement should help to underpin GBP/USD too, with a close above the 100d ma (1.5561) likely to draw fresh buying.

The US economic calendar will be heavier than that of Europe today with all the attention centred on the FOMC. Before that, the ADP report will give some colour ahead of Friday's NFP. Although the correlation between the two reports is not very strong on a long historical series comparison, both indicators ran out of steam last month with the ADP dropping back from 237k to 158k. Can they both edge back north this month? The gradual improvement in the labour market, subdued inflation and a slight softening in the manufacturing ISM (latest report also due today) are three messages the Fed has factored in its economic scenario and so a reaffirmation of its dovish stance can be expected this evening when the FOMC meeting concludes. Overall, we do not think the policy stance should alter significantly compared with the previous meeting, and thus impact on global financial markets should be limited. The ECB meeting (tomorrow) and the NFP (on Friday) are likely to be the main market movers over the closing stages of the week where light liquidity has the capacity of magnifying intra-day moves.

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And the comprehensive overnight summary courtesy of DB's Jim Reid

Today will likely be fairly quiet as it seems like most of Asia and much of Europe are on holiday. This is delaying Global PMI day until tomorrow. We do have US ISM though (previewed below) and this morning we've already seen China's official PMI manufacturing falling slightly to 50.6 in April from 50.9 the month before. This is broadly consistent with market expectations (50.7) as the series continues to move sideways (range: 50.1-50.9 in the past 7 months). One of the few Asian markets open - the Nikkei - is a little softer (-0.2%) but credit continues to rally with the Aus iTraxx a little over 1bp tighter on the day.

Those who (like us) are in the office today will see an important day for US data. The ADP Employment report will be the first main release to hit the wires today (1.15pm London) ahead of April’s ISM manufacturing print (3pm London). The latter will be followed closely especially after the very disappointing Chicago PMI print (49.0 v 52.5 expected) yesterday. Given the recent weakness in regional activity data our economists have lowered their ISM call to 49.5 from 51.0 previously (market at 50.6). The last time the ISM dipped below 50 was in November 2012 (49.9) and before that in July 2009 (49.9), June 2009 (45.8) and May 2009 (41.7). So if Joe Lavorgna is correct then we could be looking at the poorest ISM report in nearly four years (for details see Data Flash - US: Chicago PMI is a downer; confidence is stronger dated Apr 30). The ADP report may serve as an interesting preview of Friday’s payroll. Will it be another weaker than expected report? Even ahead of this, DB has revised down the headline payrolls forecast for April by 50k to 140k.

After the data we have the FOMC meeting statement at 7pm London time. Markets will have to read between the lines as there won’t be a Bernanke press conference to follow this time. In short, DB’s Peter Hooper is not expecting much out of the statement today and the Fed will most likely pass on making any major changes in their guidance to markets. The tone will likely be slightly more dovish given the recent softening in activity and inflation data but with things not yet weak enough to warrant a change in their policy stance.

Indeed the data weakness yesterday failed to deter another record high close for the S&P 500 (+0.25%). Credit spreads also edged tighter but the focus was on Apple’s $17bn jumbo bond issue across 6 different tranches. The deal size managed to top Roche’s $16.5bn 9-part deal seen in February 2009. In Europe, equity markets were mostly softer across the board although OATs performed strongly with its 10-year yield dipping to a fresh record low of 1.7%.

Staying in Europe, Slovenia’s delayed bond offer was one of the interesting market stories yesterday. The government had initially planned to issue 5-year and 10-year US$ bonds after having received good feedback from bond investor meetings but at the end decided to delay the offering following Moody’s negative rating action. The agency downgraded Slovenia’s sovereign rating to Ba1 from Baa2 and the outlook remains Negative. Moody’s said the action reflects the state of Slovenia’s banking sector, the marked deterioration of Slovenia’s government balance sheet and uncertain funding prospects that heighten the probability that external assistance will be needed. Moody’s two notch downgrade means its rating on Slovenia is now multiple notches below S&P’s A-/Stable and Fitch’s A-/Neg.

According to a Bloomberg article, the said 5-year and 10-year debt were initially being offered in the region of 5% and 6.12% respectively, according to Bloomberg. Staying in the region, yesterday was a mixed day for European data with the most recent retail sales and unemployment numbers in Germany as well as Euro area CPI all coming below expectations. Spain’s economy contracted 0.5% in Q1 as expected although on a positive note Italian unemployment surprisingly fell in March while French consumer spending also rose much stronger than expected. That said all these are perhaps seen as a side show for now as all eyes will be what the ECB does tomorrow and Draghi’s performance at the post-meeting press event.