With the rest of the developed world's central banks waiting for the Fed to admit defeat for one more year and delay its proposed rate hike (or launch NIRP/QE4 outright) it was all about China (the same China which a month ago we said would launch QE sooner or later) and hope that its central bank would boost asset prices, when over the weekend the PBoC governor hinted that more easing is imminent to offset the accelerating drag after he admitted that the nation’s growth rate has tumbled "a bit" too much and that policy makers have scope to respond. How much scope it really has now that its bad debt is rising exponentially is a different question. It got so bad, Shanghai Securities News leaked a false rumor earlier forcing many to believe China would announce an unexpected rate cut as soon as today, in the process sending the Shanghai Composite soaring by 2.6%.
- PBOC TO HOLD PRESS CONFERENCE AT 3:30 P.M.: SHANGHAI SEC. NEWS
- PBOC TO MAKE `IMPORTANT' ANNOUNCEMENT AT 3:30 PM BRIEFING: NEWS
This was promptly denied:
- PBOC NEWS OFFICE SAYS UNAWARE OF BRIEFING THIS AFTERNOON
... But the momentum for the dumb money (and we mean dumb money: remember that 30% Of New Equity Investors In China Have Elementary Education Or Less, Bloomberg Says) was already in place, and the already unprecedented Chinese stock bubble just got that much bigger and that much closer to popping.
For now, algos don't care, and the surge in China was quickly carried over to Europe and the US, both of which have seen substantial strength across equity markets, even as the German 10Y Bund dropped to 0.18% earlier, now that every single bank is fighting every other single bank for what little unencumbered "high quality collateral" remains.
But if China's rumors were positive for stocks, oil couldn't care less and Brent extended Friday's selloff into a second day, falling below $56/bbl amid indications bearish pressure from Iran nuclear talks is building, and the upside related to the Yemen proxy war is fading. WTI outpacing Brent decline.
"Further downward pressure may come at any time from a nuclear agreement with Iran,” says Societe Generale head of oil mkt research Michael Wittner. “Talks are reportedly intense, with twists and turns seeming to occur at least daily.”Wittner added that "The conflict in Yemen poses no threat to Saudi production, Yemeni production is small and unimportant, and the risk of a disruption to oil shipments through the Bab el-Mandeb Strait is considered low. We believe there will be continued downward pressure on oil prices.”
Well, the PBOC better step up and fast.
European equities have started the week on the front foot in a continuation of the positive sentiment seen overnight in Asia-Pacific trade with Chinese equities supported by comments from the PBoC Governor who hinted at more easing (PBoC announced new housing measures at 1003BST) and as details emerged over China’s Silk Road economic belt plans which will help boost infrastructure in the country. As such, Hang Seng (+1.5%) rose the most for the year while the Shanghai Comp (+2.6%) touched its highest level since May’08. Furthermore, sentiment in Europe has also been supported by comments out of Athens suggesting the Greek government are increasing their efforts to secure much-needed financing. Additionally, from a technical perspective, German equities were further boosted after the DAX cash broke above 12,000, with German export names also supported by the broadly weaker EUR.
From a fixed income perspective, Bunds have traded higher since the get-go with some suggesting the move higher could be a by-product of increased QE purchases by the ECB. This also comes alongside USTs trading lower, so could help provide some explanation for the move with flows into core European paper. From a supply perspective, focus for Europe will also reside on the upcoming BTP offering from the Italian treasury at 1000BST.
Fitch downgraded Greece to CCC from B. Fitch said the downgrade reflects lack of access to markets and uncertainty regarding potential disbursements from the Troika group of lenders. (RTRS) European finance ministers will probably not meet again before the middle of April to give the country more funds. Officials added that the proposals sent by Greece are lacking the required detail. (WSJ) Conversely EU sources suggest that the talks between the Eurogroup and Greece are `encouraging` and Greece may receive funds in the first three days of the week. (La Republicca) Additionally, sources also suggest Greece could enter into bankruptcy by 20th April if it fails to secure additional financing. (RTRS) Of note, the Syriza party is due hold an emergency cabinet council meeting at 4pm local time. German Finance Ministry Spokesman Jaeger today said that Greek proposals have not yet been submitted. (BBG)
As has been the case over the past few weeks, the USD-index has provided a bulk of the price action with the greenback continuing to pull away from its post-GDP lows, with the higher US yields also providing the USD with a boost, particularly in USD/JPY. Elsewhere, EUR/GBP was initially subject to some month-demand with the cross also led higher by political uncertainty in the UK. Nonetheless, this upside was short-lived after the USD-strength saw EUR/USD trip stops through 1.0850 to the downside. However, it is worth keeping an eye on major pairs as the USD-index pulls away from its best levels heading into the European open, with GBP broadly benefitting from a move higher in GBP/JPY.
In summary: European stocks slightly pare earlier gains, rise most since March 20 as PBOC head Zhou Xiaochuan indicated that China’s growth rate has slipped, and that the govt is able to respond. Dollar rises with U.S. equity index futures while crude declines. Goldman reiterates overweight call on global equities on 3-, 12-month terms. German Finance Min. says Greece hasn’t yet submitted it’s official list of reforms.
- S&P 500 futures up 0.6% to 2065.5
- Stoxx 600 up 0.9% to 399
- US 10Yr yield little changed at 1.96%
- German 10Yr yield down 2bps to 0.19%
- MSCI Asia Pacific up 0.1% to 146.7
- Gold spot down 1% to $1187.3/oz
- Eurostoxx 50 +1.1%, FTSE 100 +0.5%, CAC 40 +1%, DAX +1.5%, IBEX +0.7%, FTSEMIB +1.1%, SMI +0.9%
- Asian stocks gain slightly with Shanghai Composite outperforming and ASX underperforming.
- MSCI Asia Pacific up 0.1% to 146.7
- Nikkei 225 up 0.7%, Hang Seng up 1.5%, Kospi up 0.5%, Shanghai Composite up 2.6%, ASX down 1.2%, Sensex up 1.9%
- UnitedHealth to Buy Catamaran to Boost Pharmacy Benefit Svc
- Horizon to Buy Hyperion for $1.1b, Gain Rare-Disease Drug
- Euro down 0.34% to $1.0852
- Dollar Index up 0.42% to 97.7
- Italian 10Yr yield down 1bps to 1.34%
- Spanish 10Yr yield down 1bps to 1.32%
- French 10Yr yield down 1bps to 0.49%
- S&P GSCI Index down 1.1% to 398.3
- Brent Futures down 1.7% to $55.4/bbl, WTI Futures down 2.4% to $47.7/bbl
- LME 3m Copper up 0.6% to $6093/MT
- LME 3m Nickel down 1.1% to $13140/MT
- Wheat futures up 0.6% to 511 USd/bu
Bulletin headline summary by Bloomberg and RanSquawk
- Europe trades higher in a continuation of the trend seen during Asia-Pacific trade, with participants also optimistic over Greek/Eurogroup negotiations
- USD-index continues to lead the way for FX markets after recovering from post-GDP lows, although has since given back some of its gains heading into the North American open
- Looking ahead, today sees the release of US personal income, personal spending and pending home sales.
- Treasuries steady before personal income/ spending reports as market’s focus shifts to ADP on Wednesday, nonfarm payrolls on Good Friday.
- China’s central bank chief said that the nation’s growth rate has tumbled “a bit” too much and that policy makers have scope to respond, underscoring forecasts for further monetary easing in the world’s second-largest economy
- China lowered down-payment requirements for some second homes, further easing mortgage policies as the government seeks to prop up the property market and counter an economic slowdown
- Greece PM Tsipras will update lawmakers Monday on talks held over the weekend in Brussels between Greek officials and representatives of the country’s creditors to secure more funds from the euro area and stave off fiscal collapse
- Shiite Houthis fought forces loyal to Yemen’s embattled president for control of his government’s last stronghold as Saudi Arabia led air assaults on rebel positions and held out the possibility of a ground invasion
- Iran and six world powers intensified efforts to reach a nuclear accord as foreign ministers from all sides met with their deadline less than 48 hours away
- Sovereign 10Y yields mostly lower. Asian, European stocks gain, U.S. equity-index futures rise. Crude and gold decline, copper higher
US Event Calendar
- 8:30am: Personal Income, Feb., est. 0.3% (prior 0.3%)
- Personal Spending, Feb., est. 0.2% (prior -0.2%)
- Inflation Adjusted Personal Spending, Feb., est. 0.1% (prior 0.3%)
- PCE Deflator m/m, Feb., est. 0.2% (prior -0.5%)
- PCE Deflator y/y, Feb., est. 0.3% (prior 0.2%)
- PCE Core m/m, Feb., est. 0.1% (prior 0.1%)
- PCE Core y/y, Feb., est. 1.3% (prior 1.3%)
- 10:00am: Pending Home Sales m/m, Feb., est. 0.4% (prior 1.7%)
- Pending Home Sales NSA y/y, Feb., est. 9.7% (prior 6.5%)
- 10:30am: Dallas Fed Mfg Activity, March, est. -9 (prior -11.2)
DB's Jim Reid wraps up the weekend event summary
As we start Easter week Asian markets have started on a firmer footing. The Nikkei (+0.68%), Hang Seng (+1.50%), Shanghai Comp (+1.62%) and Kospi (+0.43%) are all higher as we go to print. Markets in China in particular appeared to be trading with better sentiment after the PBOC Governor Zhou indicated that the Central Bank still has room to move given that growth has fallen more than desired. Specifically Zhou noted that China can have room to act with both interest rates and quantitative measures. Credit markets are 1- 2bps better this morning.
Geopolitics continues to bubble under the surface however with the Iran nuclear talks attracting plenty of attention over the weekend with tensions continuing to run high and talks appearing near deadlocked. According to the BBC, ahead of tomorrow’s deadline, leaders from Iran and Western diplomats are due to reconvene in an effort bid to finalize an agreement. As per the report, US officials have said that all parties, including Iran, have agreed upon there needing to be ‘a phased step by step reciprocal approach’ in the hope that Iran’s approach to stepping back from its nuclear programme coincides with a phased lifting of sanctions. Negotiations appear to be tense with a conclusion before the deadline far from certain. UK Foreign Minister Hammond commented that ‘Iran has to take a deep breath and take tough decisions’ while Iran’s Deputy Foreign Minister Araghchi noted that ‘the other side must make serious decisions’.
Elsewhere Greece continues to dominate the headlines and on Friday we learned that the government has submitted a list of measures to its creditors. The list - which is more of a ‘staff level agreement’ rather than a submitted list of reform proposals given that the technical teams are still in data collection mode and have yet to have started negotiations – includes a number of revenue raising measures aimed at securing €3bn, including a controversial series of privatizations, raising income tax, increasing levies on alcohol and tax and cutting down on tax evasion. Greek press Ekathimerini also reported that the outline includes a 1.5% budget surplus target for 2015, which is well below the current 3% target in the existing bailout program. After talks between the government and its creditors over the weekend, Reuters quoted a Greek government official as saying that the ‘Brussels Group discussions continue in a good climate of cooperation’ but that ‘we have agreed that we need to draw up suitable policies which will shift the burden from those on the lowest income to the highest’, suggesting that further substance and detail will be required before we see any sort of agreement on reform measures and a subsequent release of funds. Headlines on Bloomberg suggest that PM Tsipras is due to update lawmakers on Monday over the weekend’s talks.
Back to markets and recapping Friday's session, US equities snapped a four consecutive sessions of declines with a +0.24% gain on Friday, taking the index modestly back into positive territory (+0.10%) YTD. Treasuries firmed throughout the session, with the benchmark 10y yield eventually finishing 2.8bps tighter at 1.962% while the Dollar, as measured by the broader DXY, was a touch lower (-0.15%). Despite a relatively muted market move, comments towards the end of the US session from the Fed’s Yellen attracted the bulk of the headlines. In comments at a conference in San Francisco, the Fed Chair said that given an improvement in economic conditions, an ‘increase in the target range for that rate may well be warranted later this year’’. Yellen went on to say that the ‘actual path of policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation’, before going on to say that any move would be gradual (Reuters). Despite being balanced to the more hawkish side, the comments essentially reflected the previous FOMC statement by keeping open the option of a move, but highlighting the data dependency that will essentially determine the date and pace of liftoff.
Away from Yellen and on the data front, the third Q4 GDP reading was unchanged at +2.2% saar, although below expectations of +2.4%. Personal consumption meanwhile was revised up 20bps to +4.4% qoq as expected while the Core PCE print was unchanged at +1.1% qoq (as expected). The final March reading of the University of Michigan consumer sentiment reading was encouraging with the reading revised up 1.8pts to 93.0, a point ahead of expectations.
Elsewhere there was something of a reversal in oil markets on Friday, as WTI (-4.98%) and Brent (-4.70%) gave up most of Thursday’s gains to close at $48.57/bbl and $56.41/bbl respectively. The +4.94% weekly return for WTI in particular however did snap three consecutive negative weekly returns. Equity markets in the Middle-East closed firmer over the weekend, led by markets in Saudi Arabia (+1.9%) having been supported by comments from the Saudi King Salman who told a group of leaders in the region that the coalition would continue its offensive until stability is restored. Meanwhile, Reuters has reported further airstrikes overnight with key rebel military targets struck. The same article also quoted a Saudi spokesman as saying that the coalition would step up the pressure on the Houthis and their allies over the coming days and haven’t ruled out the potential for ground force. Despite a unified front from the coalition to restore some sort of stability, geopolitical risk remains high with the Iranian finance minister pleading for a stop to the airstrikes on Friday and the BBC reporting that Iran is alleged to be providing support to the rebel Houthis.
Moving on, it was a similar story in Europe on Friday with bourses a touch firmer at the close. Indeed, the Stoxx 600 (+0.24%), DAX (+0.21%) and CAC (+0.55%) all closed higher following a somewhat volatile week in which most major markets closed lower. Bond markets were largely mixed. 10y Bunds closed 0.8bps tighter at 0.206% while markets in Italy and Spain were 4bps and 6bps wider respectively. Data offered little in the way of surprises on the whole. French consumer confidence for March printed in line with consensus at 93 and at the highest level since November 2010. Elsewhere, Italian retail sales (+1.7% yoy vs. -0.3% expected) and the German import price index came in ahead of expectations (-3.0% yoy vs. -4.4% expected).
Wrapping up, it’s a busy calendar in a holiday-shortened week. We start in the UK this morning with mortgage approvals, money supply and net consumer credit data and follow this up with confidence indicators for the Euro-area as well as the preliminary March CPI reading out of Germany. It’s no less quiet in the US this afternoon where we get personal income and spending data, along with the PCE deflator reading, pending home sales and the Dallas Fed manufacturing activity reading. Tuesday kicks off in the Asia timezone where we get a host of readings for Japan including cash earnings, housing starts and private sector credit. Closer to home, the all-important advanced March Euro-area CPI print will be front and centre while we’ve also got French PPI and consumer spending, German unemployment and Q4 GDP in the UK to look forward to. Data in the US on Tuesday includes the ISM Milwaukee, S&P/Case Shiller, consumer confidence and Chicago PMI. We start the new month on Wednesday in Japan with the Tankan survey while the official and HSBC manufacturing print in China will also be due up. Manufacturing PMI’s dominate the data docket in Europe on Wednesday too with the final March prints for France, Germany and the Euro-area as well as the preliminary releases in the UK and Italy. The afternoon focus in the US will be on the ADP employment changed print, along with the final reading for the manufacturing PMI, ISM manufacturing and prices paid, vehicle sales and finally construction spending. The calendar takes a breather on Thursday with no releases due in Europe. Across the Atlantic however Challenger job cuts and initial jobless claims kick off the session, followed by the February trade balance, ISM NY and factory orders. With it being a public holiday for most markets on Friday, we’ve just got the services and composite PMI’s due in China and Japan in the morning. The likely main highlight of the week comes on Friday afternoon however in the US where we get the March payrolls number and associated employment indicators with it. Finally, there’ll be no shortage of Fedspeak this week with George, Lacker, Lockhart, Mester and Kocherlakota all due to speak.