Stock Ramp Algos Confused On "Lack Of Tuesday", Cautious On Upcoming Fed Announcement

Since it's not Tuesday (the only day that matters for stocks, of course), call it opposite, or rather stop hunt take out, day. First, it was the BOJ which, as we warned previously, would disappoint and not boost QE (sorry SocGen which had expected an increase in monetization today, and now expects nothing more from the BOJ until year end), which sent the USDJPY sliding, only to see the pair make up all the BOJ announcement losses and then some; and then it was Europe, where first German retail sales cratered, printing at -1.9%, down from 2.0% and on expectations of a 1.7% print, and then Eurozone inflation once again missed estimates, and while rising from the abysmal 0.5% in March printed at only 0.7% - hardly the runaway inflation stuff Draghi is praying for. What happened then: EURUSD tumbled then promptly rebounded a la the flash crash, and at last check was trading near the high of the day.

Still, what happened overnight is largely irrelevant in a day in which first on the US calendar are ADP private payrolls, the Chicago PMI and the first Q1 GDP estimate, all leading up to the 2pm FOMC announcement. And while the peak of Q1 earning season may have passed another 30 companies are expected to report today.

But not even the Fed announcement, which by the way will see the Fed discloses another $10 billion taper cut which may be the first 1000+ word FOMC statement is as important as the fact that it is no longer Tuesday and that there is no POMO today.

Bulletin news summary from Bloomberg and RanSquawk

  • Cautious sentiment dominated the price action, with stocks in Europe mixed (Eurostoxx50, -0.40%) ahead of a slew of macroeconomic events which includes the release of the latest US GDP report and FOMC.
  • Lower than expected Eurozone CPI estimate failed to weigh on EUR/USD, with the pair instead reversing the initial fast money move lower, while Bunds were also weighed on by lessening prospects of QE.
  • Today's FOMC meeting is not expected to deliver any huge surprises, and could be less market-moving than has been seen since the Fed began tapering asset purchases back in December.

Asian Headlines

As expected the BoJ kept its policy stance unchanged overnight, only then to downgrade its economic growth forecasts. At the same time, the Bank kept its CPI forecast for the current fiscal year unchanged at 1.3%. In the press briefing post the event, the governor Kuroda said that no change in stance to make adjustment is needed and that it is too early to discuss easing exit now.

EU & UK Headlines

Focus this morning was firmly on the latest Eurozone CPI data, which in spite of coming in lower than expected failed to inspire EUR weakness. Instead, the fact that the report is subject to seasonality patterns and the core reading was in line with estimates, meant that forward looking inflation expectations actually edged up and the Euribor curve steepened. At the same time, combination of lessening prospects of QE, well received French OAT auctions offset the cautious sentiment that dominated the price action ahead of US ADP, GDP, Chicago PMI, FOMC and are seen lower. In terms of other macroeconomic releases, German unemployment fell for a fifth consecutive month in April.

Barclays preliminary pan-Euro agg month-end extensions for April: +0.10y (March +0.07y)

Barclays preliminary Sterling month-end extensions for April: +0.02y (March -0.02y)

US Headlines

Going forward, apart from digesting a slew of tier 1 macroeconomic releases out of the US, focus will also be on earnings by Time Warner, Metlife and Phillips 66.

Barclays preliminary US Tsys month-end extensions for April:+0.08y (March +0.07y)


European equities trade relatively mixed despite gapping lower at the open ahead of key upcoming risk events. The FTSE 100 has been one of the outperformers despite a number of blue chip stocks going ex-div this morning, with support being provided by Shell (+4%) whose earnings report exceeded expectations and consequently lifted the Oil & Gas sector. Alstom (+10%) shares have resumed trading and are seen higher amid news suggesting the Co. will accept General Electric's USD 13.25bln bid.


Lower than expected Eurozone CPI failed to weigh on EUR/USD, which quickly reversed initial fast money move lower and touched on its best levels of the session shortly after, with the likes of Credit Suisse suggesting that a 0.7% inflation reading is unlikely to push the ECB into action.


After falling to a two-week low as US supplies reached the highest level in 83 years, WTI crude futures have come off the worst levels but remain in firm negative territory ahead of the DoE data due out later today. In terms developments surrounding Russia/Ukraine: Russian President Putin said that sanctions threaten US and EU’s role in Russian energy and other key industries. The Russian government have prepared retaliation sanctions to the west although Putin said that he did not deem them necessary yet.

US API Crude Oil Inventories (Apr 26) W/W 3000k vs. Prev. 519k

- Cushing Crude Inventories (Apr 26) W/W 202k vs. Prev. -781k
- Gasoline Inventories (Apr 26) W/W -49k vs. Prev. -3390k
- Distillate Inventories (Apr 26) W/W 688k vs. Prev. 570k


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DB's Jim Reid recaps the remainder of the story

European inflation, ADP, the FOMC announcement, Q1 US GDP and the Chicago PMI will dominate proceedings today. The first two are probably the most likely to move markets given that Q1 US GDP will be weather influenced and backward looking and that the Fed are expected to meet expectations of a further $10bn taper with little else of significance likely to come out from this meeting. ADP therefore could be the highlight of the day and will give us a decent clue as to what Friday's payroll will bring. Expectations are at 210k across the street (DB 225k) and if we do get a number close to this it will add to the evidence that the US economy is bouncing back in Q2.

Yesterday's German inflation didn't bounce back as strongly as expected which helped push the Euro lower (down 0.28% to 1.3812) as QE expectations got a boost. This sets up an interesting reading today for the Euro area wide CPI which is expected to recover from March’s 54-month low of 0.5% to around 0.8%. But we suspect that more recent estimates are a touch lower than 0.8% following yesterday’s below consensus German CPI. Either way, given the Easter and base effect distortions, this month’s CPI numbers will be viewed with some caution. May's readings should be much cleaner.

Ahead of this, Asian markets are trading with some caution ahead of a number of risk events today and with May Day holidays across much of the region starting tomorrow. The Hang Seng (-1.2%) and HSCEI (-1.0%) are trading weaker as markets digest earnings from a number of mega-caps including two of China’s largest banks both of which reported earnings below Bloomberg consensus estimates and showed a modest uptick in NPLs. A number of China’s individual provinces have published GDP data in the last couple of days with sharp drops in some industrial-focused provinces such as Hebei (4.2% growth in Q1 vs 8.2% prior) and Inner Mongolia (7.3% in Q1 vs 9.9% a year ago). This highlights some of the challenges that the central government faces in meeting its 7.5% growth target. In Japan, the Nikkei (+0.24%) is playing catch up following the Japanese holiday yesterday. The BOJ concluded its latest policy meeting by unanimously voting to keep policy unchanged.  Japanese stocks were little changed following the announcement with dollar-yen shifting about 5pips higher. Attention now turns to the BoJ’s semi annual outlook report which will be released shortly.

Yesterday proved to be one of the less volatile days of late with the S&P500 (+0.48%) spending the majority of the session in a 3.5pt range and the VIX falling firmly back below the 14 level. The flurry of M&A stories continued to ripple through a number of sectors. Perhaps the more interesting price action came after the closing bell when Twitter and eBay reported their quarterly earnings. Although both beat analyst estimates, their stocks dropped 11% and 5% respectively in extended hours trading. Despite reporting a surge in Q1 revenue, Twitter stock fell back towards its IPO price after disappointing on user numbers which edged up only 6% to 255m over the first quarter of 2014. There were a couple of other interesting snippets from their result, particularly in terms of user behaviour. On average, users refreshed their Twitter feeds “only” 614 times a month during the quarter, which was about the same as that recorded in the previous quarter but 8% less frequent than that recorded a year ago. Indeed, it’s been a rough 2014 for Twitter shareholders with the stock down by more than one-third in the year to date. This has occurred ahead of May 5th when roughly two-thirds of Twitter’s diluted shares exit insider lockup. Probably more relevant for macro investors, eBay frustrated some shareholders after forecasting Q2 revenues that came just short of consensus analyst expectations. Interestingly, eBay decided to incur a $3bn tax charge to repatriate $9bn in offshore cash to the US to fund domestic investment opportunities. The company eschewed what seems to be the more popular trend of late which is for US corporates to keep foreign earnings offshore and instead raise capital via the domestic debt capital markets at close to record low funding costs.

Banks on both sides of the Atlantic were in the headlines yesterday. A Federal Reserve spokesperson said that they would review whether other banks had made errors in their capital planning and stress testing submissions, following BofA’s announcement of an accounting error earlier in the week. Bank of America itself rebounded about 2%, after dropping 6.3% on Monday, and there was talk that the bank could still increase dividends if it scrapped its $4bn share buyback plan (Bloomberg). In continental Europe, the EBA released the parameters of their upcoming stress tests which was judged to be harsher than similar exercises run in the past. Under the European Banking Authority's adverse scenario, the EU economy would slip into a two-year recession, shrinking by 0.7% this year and 1.5% next year. EU unemployment would reach a record 13% in 2016. House and stock prices would collapse, while interest rates on government and corporate debt would spike. To pass, banks have to maintain a buffer of common Tier 1 capital equivalent to at least 5.5% of risk-weighted assets (WSJ). Banks that do not pass the stress tests will have less than one year to raise the additional capital. After the European markets had all but closed, S&P announced that it was placing the credit ratings of 15 European banking groups on negative outlook in anticipation of the incoming EU bail-in laws. The rating agency said that it will likely remove the expectation of government support from the banks’ ratings ahead of the January 2016 implementation of the bail-in laws.

Taking a look at the dataflow, US consumer confidence slipped slightly to 82.3 (vs. 83.9 in April and 83.2 expected), mainly due to a modest decline in consumers’ assessment of the present situation (78.3 vs. 82.5 prior). Expectations were nearly unchanged (84.9 vs. 84.8). Stocks sold off briefly after the release of the confidence numbers, but losses were quickly retraced. US Case-Shiller home prices for February rose +0.8% (in line with exp), which puts the 20-city composite index up +12.9% compared to the same period last year.

In terms of other news, yields on 5- and 10-year bonds auctioned on Tuesday morning by the Italian treasury set a euro-era record low at 1.84% and 3.22% respectively. In China, the country is set to overtake the US in terms of the size of its economy measured in PPP terms, according to World Bank data. Staying in China, the FT reports that a growing number of retail investors have arrived at the Beijing headquarters of China Construction Bank to protest over the recent default of a trust product distributed by the bank (FT).

Looking ahead to today, we start with German retail sales (exp -0.7% MoM) and Spanish GDP (exp: 0.4%). Spain also reports its CPI (exp: +0.3%) which will be followed shortly after by the German labour report. The Eurozone CPI will be published at 10am London time, together with the Italian inflation report. The ECB also publishes its latest bank lending survey. The US data flow begins shortly afterwards starting with ADP employment, then GDP and finally the Chicago PMI. The FOMC statement is the last major macro event today. In the micro world it’s another heavy day on the corporate reporting calendar with around 30 S&P500 companies and a similar number of Stoxx600 companies reporting.


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