In Addition To China, Here Is What Other Central-Banks Moved Overnight Markets

While the biggest news of the day will certainly be China's rate cut (and the Dutch secret gold repatriation but more on the shortly), here is a list of all the other central-banking events which have moved markets overnight, because in the new normal it no longer is about any news or fundamentals, it is all about the destruction of the value of money and the matched increase in nominal asset values.

As RanSquawk recounts, European equities opened in the green in a continuation of the Wall Street close and positive performance overnight in Asia-Pacific equities with little else in the way of macro newsflow to dictate the price action. However, this subdued start to the session was short-lived as ECB’s Draghi took the stage in Frankfurt and presented an increasingly dovish tone. More specifically, the ECB head said the inflation situation in the euro area has become increasingly challenging and will seek to raise inflation as fast as possible, with participants taking these as comments as one of the clearest indications yet that an ECB QE programme is increasingly likely. This subsequently saw European stocks surge higher with gains in excess of 1% amid hopes of further liquidity while Bunds staged a fast-money move higher to print session highs and the Euribor strip was also seen bid following the dovish rhetoric. On a stock specific basis in Europe this morning, newsflow remains relatively light. However, energy and basic material names lead the way higher alongside the recent modest recovery seen in commodity prices.

Overnight Buletin Headlines form Ransquawk and Bloomberg

  • European price action has been largely controlled by particularly dovish rhetoric from ECB’s Draghi.
  • As such EUR/USD prints a weekly low, while European equities enter the North American crossover firmly in the green.
  • Looking ahead, today’s session sees a lack of tier 1 US data, with Canadian CPI the main event.
  • Treasuries headed for second consecutive weekly loss amid gains for stocks, surge in corporate issuance including Alibaba’s $8b, largest USD- denominated sale by an Asian issuer.
  • China cut interest rates for the first time since July 2012,    lowering the 1-year deposit rate to 2.75% from 3.00% and the    one-year lending rate by 0.4ppt to 5.6%
  • Draghi said the ECB must drive inflation higher “as fast as possible,” and will broaden its asset-purchase program if needed to achieve that
  • Japan’s finance chief said the yen has been weakening too fast over the past week, the strongest statement yet by one of the nation’s top policy makers as the central bank’s expanded stimulus drives down the exchange rate
  • Obama lifted the immediate threat of deportation and opened the way to better jobs for about 5m undocumented immigrants, thrusting a long-simmering fight to the forefront as he takes on a Republican-controlled Congress
  • The U.S. health secretary, Sylvia Mathews Burwell, said her agency made a mistake when it added dental-plan customers to recent figures on Obamacare enrollment.
  • Russia is seeking to build a high-speed rail link to further bolster ties with China after agreeing on the biggest natural gas supply deal in history
  • The U.K. Independence Party dealt a new blow to Prime Minister David Cameron as it won a second seat in Parliament from his Conservatives in six weeks
  • U.S. prosecutors are seeking to settle criminal currency- rigging cases with multiple banks at the same time, allowing lenders to avoid being singled out for industrywide conduct, according to people familiar with the matter
  • Sovereign yields lower. Asian stocks gained. European stocks, U.S. equity-index futures higher. Brent crude, gold gain; copper falls

US Event Calendar

  • 11:00am: Kansas City Fed Manufacturing Activity, Nov., est. 6 (prior 4)
  • 10:00am: Senate subcommittee hearing on New York Fed

FX

In terms of FX moves, until the PBOC shocker just before 6 am eastern time, the comments from Draghi have dictated a bulk of the price action, with EUR/USD breaking back below 1.2500. This subsequently provided USD with a strong bid which lifted USD/CHF and subsequently saw EUR/CHF reach its highest level in 9 days, with some also citing SNB intervention alongside the move in the cross. Elsewhere, overnight, USD/JPY was dragged lower following the pair failing to break above 119.00 yesterday, with the move to the downside exacerbated by comments by Japanese Fin. Min. Aso who said the speed of JPY weakening has been too fast, with this move also resulting in heavy selling in EUR/JPY and GBP/JPY. Once the PBOC hit the tape, the AUD soared against all pairs, and as a result lifted all AUDJPY carry driven trades, which as we showed yesterday, was the key correlation pair for E-Mini algos, thus sending the S&P to new all time highs.

COMMODITIES

Elsewhere, the commodity complex has been particularly subdued. Early in the European session spot gold failed to break above USD 1,200 before being dragged further away from the handle following the broad-based USD strength. WTI and Brent crude futures enter the North American crossover in modest negative territory with participants looking ahead to the OPEC meeting, ahead of which analysts at Commerzbank said OPEC are unlikely to cut 30mln bpd target next week, while SocGen sees Saudi Arabia leading 1mln b/d to 1.5mln bbd OPEC cut.

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DB's Jim Reid concludes the overnight news recap

Yesterday was certainly a day for the data-watchers with a host of prints across Europe and the US. The result was, perhaps unsurprisingly, a mixed bag and continues the theme we’ve seen recently with less than encouraging PMI prints out of Europe in the morning being met with a generally solid set of releases in the US in the afternoon. Starting in the US, CPI came in modestly ahead of consensus as the flat mom October CPI headline print was a tad above the -0.1%mom expected, whilst the core reading showed further acceleration to +0.2%mom (+0.1%mom expected) from +0.1% previously. Our US economists interestingly pointed out that the continually deflating goods prices recently have been offset by ongoing gains in services prices – this in turn has raised the core inflation print by a tenth to 1.8% in year-over-year ended terms.

Looking further ahead, our colleagues expect that it’ll be difficult for core inflation to move lower given that core services prices accounts for a chunky 75% of overall core CPI inflation. With core goods prices moving lower as a result of a significant deceleration in non-petroleum import prices, we’ve seen core goods decline year-over-year since April 2013. On the other hand core services prices have consistently grown well above +2.0% for the last three years (with the current run rate at +2.5%). This is largely as a result of shelter costs that we mentioned yesterday which have once again risen in October to a +3.1% yoy growth rate, now a recession high. Given the expected further decline in the rental vacancy rate, we should see shelter costs continue to rise in the near term which should offset any downwards goods sector pressure and hold inflation above 2%. All-in-all the divergence in the two factors of CPI highlights the current inflationary conditions in the US and is worth keeping a keen eye on as we move through 2015.

Away from the CPI readings, there were further positive prints in the housing market with existing home sales increasing 1.5%mom, ahead of expectations of a small decline. As well as this, the Philadelphia Fed survey was Strong with the solid 40.8 reading up from 20.7 in October. Claims were largely mixed although the flash manufacturing PMI was the slight blip in an otherwise encouraging day for the region with a 1.2pt fall to 54.7 weaker than expected. Finally October’s leading index showed a +0.9%mom rise, ahead of consensus.

Looking at how the market reacted, the +0.20% close in the S&P yesterday somewhat hides the +0.6% bounce off the lows, closing just shy of Wednesday’s record highs. Treasuries weakened modestly with the curve some 2-3bps wider whilst the Dollar closed down slightly weaker (DXY -0.06%).

Before all this yesterday, there was little for the market to get encouraged about in Europe following disappointing PMI’s. The Eurozone November flash print of 51.4 was materially down on expectations of 52.4 and last month’s 52.1 reading. However, this is largely explained by a drop in the German composite to 52.1 (54 expected) from 53.9 previously and comes after what had been an encouraging recent ZEW survey. Just on the German reading, the most disappointing reading was perhaps a fall in the services index to 52.1 from 54.4, marking the lowest level since July 2013. The weakness in these numbers backs up our German economists’ view that GDP is set to stagnate through the next two quarters with the potential for a risk of a negative quarter. Away from Germany, France didn’t fare much better with the composite coming in below expectations at 48.4 (vs. 48.7), although the services print improved from Octobers reading. Looking forward, our European economists see the overall PMI outcome consistent with their GDP growth call in 2015 of +0.8% as well as providing further strength around the argument that that the ECB will have to include government bonds in its QE programme to meet its inflation target. Over the last few weeks of touring round Europe its been noticeable how sentiment has changed towards QE. Two months ago at the start of my recent travels, most people were still skeptical that the ECB could ever sanction Government bond QE. Fast forward to the present day and the vast majority think it’s an inevitability.

In terms of market reaction in Europe yesterday, 10yr Bunds closed some 5bps wider whilst the Stoxx 600 (-0.26%) and DAX (+0.12%) initially weakened some -0.9% post PMI’s only to rally into the close following the better sentiment out of the US. Credit markets largely reflected the equity moves, Xover closing some 4.5bps wider on the day.

Whilst on the subject of credit markets, the latest weekly fund flows are in. A look at the HY mutual fund flow numbers shows that the past week saw further outflows in Europe (-$143mn or -0.3% of NAV). We have now seen just one week of inflows in the past eight with 15 of the past 19 weeks seeing outflows. Net outflows over the 19 weeks have totaled $4.1bn (around 10% of NAV). US HY funds also saw outflows over the past week (-$809mn or -0.3% of NAV) breaking a streak of four consecutive weeks of inflows. Overall it does seem that flows have stabilised but we probably need inflows to encourage fund managers to exploit the wider and quite attractive levels - especially those in Europe. Maybe the US small set back is not being helped by the continued Energy sector concerns.

Just wrapping up the data prints yesterday, industrial orders out of Italy came in weaker than expected (-1.5% mom vs. -1.0% mom expected) although October retail sales in the UK surprised to the upside. The headline print including auto’s came in at +0.8% mom (vs. +0.3% mom expected and -0.3% previously) whilst the core reading (excluding auto’s) was above market at +0.8% mom. Finally, DB’s George Buckley noted that the picture painted by the UK’s CBI survey painted something of a mixed picture, with two key forward-looking activity measures in expected output and total orders – moving in opposite directions.

Elsewhere, Bloomberg has reported that the ECB has put together the necessary requirements to start purchasing ABS from as soon as today. This follows on from earlier comments from ECB member Mersch who commented that the central bank may start purchasing the securities this week. Rounding out central bank news, SNB board member Zurbruegg has defended the national banks cap of 1.20 to the Euro whilst commenting that the bank won’t hesitate to enact supplementary measures.

Before we look at the day ahead, markets in Asia this morning are generally firmer. In particular Japan appears to be trading well ahead of the anticipated dissolving of the lower house today. The Nikkei is currently +0.36% higher whilst the JPY has strengthened +0.21% versus the Dollar to 117.96 buoyed somewhat by comments from the Finance Minister that the currency’s decline had been too fast. Elsewhere bourses in China, Korea and Hong Kong are +0.76%, +0.35% and +0.19% better respectively as we go to print.

In terms of the day ahead, after yesterday’s raft of data releases the market could get something of a breather today with just the Kansas City Fed manufacturing index in the US to look forward to after we get public finances data in the UK and hourly wages out of Italy. Perhaps of more interest however, we will hear from both the ECB’s Draghi (commenting on ‘Reshaping Europe’) and Nouy (commenting on Banking and Regaultion) this morning as well as the Fed’s Williams later so we will keep an eye out for anything interesting.