Lucky 21?

All traders walking in today, have just one question in their minds: "will today be lucky 21?" or the 21st consecutive Tuesday in which the Dow Jones has closed green.

All else is irrelevant.

Speaking of irrelevant data, for those who paid attention over the weekend, recall that Spain's PM Rajoy, in the latest attempt to diffuse social anger and protests, literally promised better jobless figures. Sure enough, in an otherwise data-free European economic session, the only news highlight was that Spanish May jobless claims fell 98,265 in May compared to an estimated 50,000 Fall, and versus a 46,050 drop in April. One can only hope that the improvement in the Spanish economy, most recently decimated with a plunge in imports and a complete collapse in private sector loan creation, is real and not an artefact of BLS-like seasonal adjustment "smoothing." Of course, since the Spanish unemployment rate tracks the level of NFPs, if Rajoy is indeed silly enough to engage in wholesale data manipulation it will be easy enough to figure it out.

In other news, the Nikkei rebounded overnight, rising by 2% on the latest incarnation of the $1.1 trillion Japanese Pension Fund (GPIF) buying "____" rumor. As we posted last night, several months ago said "fill in the blank" was European peripheral bonds, rekindling the carry trade. Not surprisingly this did not happen, as just the jawboning was sufficient to promote frontrunning of an even that never took place. Now, the same GPIF is expected to start reallocating out of bonds and into domestic stocks as support for the BOJ whose impact, and credibility, is fading with every passing day. There are some very big problems with this strawman, however, as we highlighted last night. We expect it will take the market the usual 4-6 days/weeks/month before it figures out "on its own" what we wrote.

That was largely it for the overnight action: in the US, the highlight is the trade balance for April and the IBD/TIPP economic optimism survey. Fed Governor Sarah Raskin will speak on the topic of government and job creation and Kansas City  Fed President George will be speaking on the economy.

In the market, US equity futures are currently red, but this is only transitory: after all today is Tuesday and we must make it 21 out of 21 or else confidence in manipulated, centrally-planned market may start to wan.

Some other key overnight bulletin highlights via Bloomberg:

  • Treasuries steady as JPY falls below 100, global stocks gain; markets waiting ECB and BoE meetings Thursday, U.S. nonfarm payrolls Friday while today brings three Fed speakers.
  • A bipartisan group of U.S. senators are putting the final touches on a plan to liquidate Fannie Mae and Freddie Mac and replace them with a government reinsurer of mortgage securities behind private capital
  • Euro-area producer prices fell 0.2% in April vs est. +0.2%, 0.6% gain in March, suggesting inflation will slow more
  • Reserve Bank of Australia held cash-rate target at 2.75%, said it still has room to cut the benchmark interest rate from its record-low level and judged that the nation’s exchange rate remains high even after the biggest monthly drop since 2011
  • Fed could announce a reduction of its monthly bond purchases as early as September if employment and inflation strengthen enough, according to Goldman economist Jan Hatzius
  • The Abenomics euphoria that’s boosted the Japanese stock market 31% this year has yet to convince chief executives to invest more in factories and equipment in the world’s third-largest economy
  • Zero-bound interest rates and QE programs are “becoming as much of the problem as the solution” with “increasingly negative effects” on the real economy, Pimco’s Bill Gross writes in monthly investment outlook posted on firm’s web site
  • Sovereign yields mostly higher, led by Japan. Nikkei gains 2.05%; other Asian and European stock markets, U.S. equity index futures gain. WTI crude, metals lower
  • Dollar rebounds against most G10 currencies, rising most vs AUD after RBA said it sees scope for further easing even as it left rates unchanged today. USD/JPY climbs back above 100 while EUR/USD found support from improved Spanish unemployment and unexpected expansion in U.K.
  • U.S April trade deficit is forecast to widen to $41.1b
  • Spanish unemployment improves in May; jobless claims falls 98,265 vs. est. 50,000 decline
  • U.K. PMI construction for May climbs to 50.8 vs 49.4 in April
  • RBA held rates unchanged at 2.75% in line with consensus; Governor Stevens says sees scope for further easing and AUD remains high
  • ECB’s Coeure sees positive GDP growth for euro-zone by year-end; consensus est. is for 0.5% contraction
  • BoE Deputy Governor Bailey says weak growth in credit partly reflects need to deal with existing debt, doesn’t necessarily indicate failure of central bank policy
  • Japan’s Chief Cabinet Secretary Suga says FX markets are in adjustment phase, is unperturbed over stock volatility; Economy Minister Amari says currency having “complicated” movements, correction phase natural for weak yen, high stock prices
  • Bank of Canada Deputy Governor Lane says easy monetary policy of U.S., Europe, Japan is boosting global demand and more than offsets impact of currency swings in other countries
  • Foreign holdings of Australian federal govt bonds and bills decline in 1Q to 68.9% of total outstanding, lowest level since 3Q, 2010: official data
  • Funds outflows from Asian equity markets intensified yesterday, according to Bloomberg data
  • South Korean Finance Minister Hyun and BOK Gov. Kim shared the view that uncertainties are increasing amid possible U.S. exit from QE; to preemptively respond to changes in economy


  • Dollar Index up 0.2%; USD gains vs 8 of 10 major currencies
  • USD/JPY rebounds from 4-day decline
  • Treasuries lower; 10Y yields +1bp to 2.13%
  • Bunds, gilts decline while Spanish, Italian bonds gain
  • Euro Stoxx 600 gains first time in 3 days; climbs above 300
  • Nikkei +2%; Asian stocks rise for first time in four days
  • Oil, metals lower, gold little changed
  • Turkey bonds, stocks, lira rebound; yields drop most on record

SocGen shares what is on the mind of all macro observers:

generally speaking markets are in a state of flux as we are all hostage to the ‘will they or won't they' debate on Fed tapering. This theme engulfed markets last month and will be with us over the summer with each data point subject to the most intense scrutiny. We still have the ISM non-manufacturing and ADP surveys to come before payrolls on Friday and FX vols are likely to stay bid before that, with positions generally light allowing the kind of squeezes to occur that we observed yesterday in JPY crosses. The ISM has now dropped for three months on the trot (we have to go back to June 2009 to find a number lower than yesterday's, i.e. 45.8 when EUR/USD traded at 1.4100 and the S&P was stuck below 1,000) and of course there is now a risk that payrolls do not live up to bullish expectations on Friday. However, based on the steady ISM employment sub component (50.1), the bearishness should not be exaggerated, but there will be no getting away from the jitters today as FOMC voters Raskin and George take to the speakers' circuit. The 82.26 support level is key for the Dollar Index.

The RBA left its key rate unchanged as expected at 2.75% overnight and in the accompanying statement the central bank did not offer any direct clues on the next move, though the door to lower rates has not been closed. The AUD has started to trim heavy losses incurred in May but is still well down this quarter and with China's manufacturing PMI limping along below 50, there is not much that appeals to AUD bulls beyond the dead cat bounce

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Highlight recap from Deutsche Bank's Jim Reid

The Nikkei (+2.05%) has managed a better performance overnight after yesterday’s 3.7% fall which brought the index into correction territory (-14% from last month’s peak). This morning’s performance is more impressive in light of the move in dollar yen, which yesterday dipped below 100 for the first time in more than 3 weeks. Providing some support to Japanese equities this morning is a report suggesting that Prime Minister Abe will seek a review of the investment strategy of the Government Pension Investment Fund and about 100 other semi-government funds. The intention of the review is to boost holdings of equities and foreign assets, which will affect a pool of assets of over $2 trillion (Reuters). The review may be announced by Mr. Abe on Wednesday, when he is expected to announce a raft of other structural initiatives to boost growth. In other positive news for “Abenomics”, monthly wages including overtime and bonuses rose 0.3%yoy to
USDJPY273,427 ($2,746) in the month of April, marking the first positive reading in 12 months, and the highest reading since Mar2012.

Elsewhere in Asia, markets are trading with a cautious tone across equities and credit despite the strong finish in US markets yesterday. The Shanghai Composite (-1.2%), Hang Seng (-0.3%) and KOSPI (-0.35%) are lower across the board, while S&P500 futures are 0.2% lower as we type. After rallying 2%+ against the greenback yesterday, the Australian dollar is about 0.5% weaker overnight at 0.9725 - the RBA’s decision to hold rates constant today was widely expected by markets and economists alike.

Returning briefly to yesterday’s price action, it was a day of contrasts with European markets closing weaker despite consensus-beating PMIs, while US equities finished strongly amidst lukewarm US dataflow. As we wrote last week, each day’s data seems to bring a different opinion on central bank easing and yesterday appeared to be another one of those days. Starting with Europe, the final Euroarea manufacturing PMI for May came in at 48.3 which, although still firmly in contractionary territory, was revised upwards from the flash estimate of 47.8 and is 1.6pts above last month’s reading. DB’s economists noted that May’s PMIs are set to be the first to post an improvement across all euro area countries (pending the release for Ireland today) since mid-2009. The improvement in the periphery PMIs was widely noted with Spain up 3.4 points to 48.1 (vs 45.5 forecast) and Italy up 1.8 points to 47.3 (vs 46.2 forecast). The improvement in PMIs provided further weight to those calling for no policy changes at this Thursday’s ECB meeting, which probably helped explain some of the latter session weakness in European equities. European insurance stocks (-1.2%) were amongst the laggards as Germany, Austria and the Czech Republic begin counting the cost from flooding.

Across the Atlantic, the S&P500 managed to close at the day’s highs of +0.6% despite the manufacturing ISM printing as its lowest level since June 2009 (49.0  vs 51.0 expected). Indeed, the data came as a negative surprise to those expecting strength from last week’s robust Chicago PMI to carry through to the ISM.  DB’s Joe LaVornga noted that the employment component of the ISM remained broadly unchanged (50.1 vs 50.2) prompting him to leave his forecast for this Friday’s payrolls unchanged at +125k. Construction spending was also on the softer side, coming at 0.4%mom for the month of May versus consensus estimates of 0.9%. The weaker dataflow saw a slide in the US dollar index (-0.8%) and a jump in gold prices (+1.7%) on reduced expectations of a near-term tapering in Fed QE. 10yr USTs were broadly unchanged on the day, but did rally abut 10bp at one stage following the release of the ISM.

In the EM space, the weaker dollar helped some EM assets find a floor, including the South African rand which rallied 2.7% against the greenback. But it was a different story for Turkish equities where the fifth day of protests brought a 10.5% plunge in the Istanbul National 100 index. What started as a small environmental protest has quickly escalated to nationwide protests with government data showing approximately 1,500 arrests in Ankara, 300 in Izmir, and another 370 in the southern town of Adana, according to the Guardian. US secretary of state John Kerry urged a full investigation into reports of excessive use of force by Turkish police. Yesterday’s stockmarket performance was also the worst one-day performance for Turkish equities in more than 10 years. Over the last week, the index has lost 15% and 10yr bond yields are 75bp higher, in a poignant reminder of the impact of geopolitical risks.

Looking at the day ahead, the European data calendar looks relatively light with Spanish unemployment the main data release. In the US, the highlight is the trade balance for April and the IBD/TIPP economic optimism survey. Fed Governor Sarah Raskin will speak on the topic of government and job creation and Kansas City  Fed President George will be speaking on the economy.