Just when the Chinese plunge protection team (and "arrest shortie" task force) seemed to be finally getting "malicious selling" under control, first we saw a crack yesterday when the composite broke the surge of the past three days as a result of yet another spike in margin debt funded purchases, but it was last night's reminder that "good news is bad news" that really confused the stock trading farmers and grandmas, which goalseeked Chinese economic "data" beat across the board, with Q2 GDP coming solidly above expectations at 7.0%, and retail sales and industrial production both beating, but in the process raising doubts that the PBOC will continue supporting stocks.
After all, the only purpose of the stock bubble was to deflect attention from the bursting of the housing bubble and the collapse elsewhere in the economy. So if Beijing is willing to telegraph that the worst is over for the economy, there is no further need for SHCOMP 5000 which can now be carefully deflated, as otherwise a violent bursting threatens China's social stability.
As a result the Shanghai Comp tumbled -3.0% and Hang Seng slid -0.3% with markets showing a subdued reaction as the data does dampen calls for further actions by the PBoC. However that does not do justice to yet another day of Chinese stock insanity. This does:
BREAKING: Chinese stock market ends 3% lower, w/ 1,200+ stocks down 10% daily limit; Chinese media admit gov "failure to boost market" today— George Chen (@george_chen) July 15, 2015
Elsewhere in Asia equities traded mixed following a positive Wall Street close as soft retail sales data casted doubts over the viability of a Fed rate lift-off this year. Nikkei 225 (+0.4%) rose albeit off intra-day highs as the BoJ lowered its GDP and CPI forecasts for 2015, while the central bank also maintained its monetary base target at an annual rise of JPY 80trl. JGBs traded relatively flat in what has been a subdued session for fixed income markets.
European Equites have trended higher after kicking off the session relatively mixed (Euro Stoxx: 0.0%) as many market participants await the main risk events later in the day, namely the Greek parliamentary vote and over in the US, Fed's Yellen's semi-annual testimony.
While Yellen's testimony will hardly provide any major new data points (Fed Dow Jones data driven, ongoing bad news 6 years after the "end of the recession", such as the payrolls and retail sales misses are explained by snow in June and so on) and the only popcorn-worthy moment will be Hensaerling asking Yellen who at the Fed keeps leaking market-moving data to the market (now that Tim Geithner is gone) the best summary we have seen of the upcoming Greek vote, which is expected to pass through the parliament with support of the pro-European opposition parties, is the following:
To be clear: the Greek parliament is voting today on a deal everyone knows is unfeasible, the IMF rejects & Schäuble doesn't want. Right?— Theodora Oikonomides (@IrateGreek) July 15, 2015
Equities have benefitted from positive sentiment stemming from comments regarding the EFSM, with it appearing that Greece will be supported during the interim period ahead of further negotiations for a medium term plan.
In the US, today sees the busiest day of earning season so far, with large cap names scheduled to report including Bank of America, Delta Air Lines, Intel, Kinder Morgan, Nefflix, PNC Financial Services and US Bancorp. Fixed income markets see Bunds trade higher today despite a technically uncovered Bund auction as participants position themselves ahead of the aforementioned Greek parliamentary vote. Bunds are also supported by the aforementioned comments regarding interim support for Greece, with this likely to lead to an increase in demand for fixed income products.
In FX markets the GBP dominates proceedings after worse than expected employment data UK (UK ILO Unemployment Rate 5.6% vs. Exp. 5.5%, Average Weekly Earnings 3.2% vs. Exp. 3.3%) saw the first increase in unemployment rate for over two years. This saw GBP/USD immediately fall 50 pips to give back all the gains of the day which comes after the recent spate of hawkish BoE comments, with a rate hike now looking further away.
Away from GBP, AUD outperformed during Asian hours after the aforementioned better than expected Chinese data, however failed to sustain this move when European participants entered the market. This choppy price action has seen the USD index fairly unmoved on the day (-0.1%) heading into the US crossover, with participants awaiting the key risk events of the day, the Greek parliamentary vote and the semi-annual testimony to congress from Fed's Yellen.
Other notable events today include comments from Fed's Mester and Williams as well as BoC rate decision and US PPI final demand, empire manufacturing and industrial production.
Fed's George (non-voter, Hawk) stated that it is time for a Fed rate lift-off, adding that the central bank will make policy decision on a meeting-by-meeting basis
In commodities, the energy complex trades lower today, still weighed on by the Iran nuclear deal despite yesterday's API crude inventory report showing a drawdown of 7300K vs. the previous drawdown of 958K. Looking ahead, todays DoE crude oil inventories are expected to show a drawdown of 1900k. The metals complex saw copper rise after Chinese GDP and industrial production beat expectations while Dalian iron ore futures rose with Chinese steel mills cutting production to reduce surplus.
In summary: European shares little changed, having risen from earlier lows, with the basic resources and utilities sectors outperforming and autos, industrials underperforming. China 2Q GDP growth, June industrial output, June retail sales above estimates. Bank of Japan leaves monetary policy unchanged as forecast. U.K. unemployment above estimates. The Italian and Dutch markets are the best-performing larger bourses, Swedish the worst. The euro is little changed against the dollar. German 10yr bond yields rise; French yields decline. Commodities decline, with wheat, Brent crude underperforming and zinc outperforming.
On the economic calendar today are U.S. mortgage applications, Empire manufacturing, industrial production, capacity utilization, PPI due later.
- S&P 500 futures up 0.1% to 2103.5
- Stoxx 600 up 0.1% to 398.6
- US 10Yr yield up 0bps to 2.4%
- German 10Yr yield up 4bps to 0.88%
- MSCI Asia Pacific up 0.2% to 143.8
- Gold spot down 0% to $1155.7/oz
- 12 out of 19 Stoxx 600 sectors rise; basic resources, utilities outperform, autos, industrials underperform
- Eurostoxx 50 little changed, FTSE 100 little changed, CAC 40 little changed, DAX little changed, IBEX +0.2%, FTSEMIB +0.4%, SMI +0.2%
- Asian stocks rise with the ASX outperforming and the Shanghai Composite underperforming; MSCI Asia Pacific up 0.2% to 143.8
- Nikkei 225 up 0.4%, Hang Seng down 0.3%, Kospi up 0.7%, Shanghai Composite down 3%, ASX up 1.1%, Sensex up 1%
Euro up 0.1% to $1.102
- Dollar Index up 0.02% to 96.66
- Italian 10Yr yield down 5bps to 2.02%
- Spanish 10Yr yield down 5bps to 2.04%
- French 10Yr yield down 4bps to 1.18%
- S&P GSCI Index down 0.5% to 412.7
- Brent Futures down 1.1% to $57.9/bbl, WTI Futures down 0.9% to $52.5/bbl
- LME 3m Copper up 1.4% to $5644/MT
- LME 3m Nickel up 1.4% to $11780/MT
- Wheat futures down 1.1% to 564.5 USd/bu
Bulletin Headline Summary from RanSquawk and Bloomberg
- USD index is flat heading into the North America crossover, while GBP/USD fell 50 pips to give back all gains on the day after disappointing UK wage growth data.
- Shanghai Comp and Hang Seng failed to flourish following strong Chinese GDP, industrial production and retail sales readings, with markets showing a subdued reaction as the data dampens calls for further actions by the PBoC.
- Today sees the Greek parliament vote on their deal with creditors, Fed's Yellen's semi-annual testimony, comments from Fed's Mester and Williams as well as BoC rate decision and US PPI final demand, empire manufacturing and industrial production.
- Treasuries little changed before Yellen testimony, Beige Book as Greece’s Tsipras started pitch for a bailout that’s sparked a Syriza revolt and international officials asked new questions about country’s finances.
- As Tsipras went on TV to argue for a deal that he only agreed to with “a knife at my neck,” European officials were at a loss over how to put together a bridge loan that will keep Greece from defaulting next week
- One person familiar with the matter said that Greece’s finances seem to get worse with every meeting and governments are now reluctant to help out with even short-term funds
- Tsipras’s TV comments undermined trust that Greek govt will take ownership of economic adjustments in new bailout program, German Deputy Finance Minister Jens Spahn said on ARD public TV; “what the Greek prime minister did on Greek television yesterday irritates me”
- China GDP expanded 7% in 2Q, more than expected, with industrial production and retail sales also topping projections, according to government reports
- China’s “triple bubble” of credit, investment, real estate represent biggest risk to global economy, Credit Suisse equity strategists write in note
- The Iran accord that took seven nations almost two years to negotiate now depends on Obama’s ability to defend it against efforts from Capitol Hill to Jerusalem to kill it
- Also now comes the question of whether, after 12 years of debilitating sanctions, a resurgent Iran can avoid escalating its confrontation with a more assertive Saudi Arabia
- Sovereign 10Y bond yields lower. Asian stocks mixed, Shanghai falls 3%, other markets little changed. European stocks mostly higher, U.S. equity-index futures gain. Crude oil lower, copper higher, gold little changed
US Event Calendar
- 7:00am: MBA Mortgage Applications, July 10 (prior 4.6%)
- 8:30am: PPI Final Demand, June m/m, est. 0.2% (prior 0.5%)
- PPI Ex Food and Energy, June m/m, est. 0.1% (prior 0.1%)
- PPI Ex Food, Energy, Trade, June m/m, est. 0.1% (prior -0.1%)
- PPI Final Demand, June y/y, est. -0.9% (prior -1.1%)
- PPI Ex Food and Energy, June y/y, est. 0.7% (prior 0.6%)
- PPI Ex Food, Energy, Trade, June y/y est. 0.6% (prior 0.6%)
- 8:30am: Empire Manufacturing, July, est. 3.25 (prior -1.98)
- 9:15am: Industrial Production, June, est. 0.2% (prior -0.2%);
- Capacity Utilization, June, est. 78.1% (prior 78.1%)
- Manufacturing (SIC) Production, June, est. 0.1% (prior -0.2%)
- 10:00am Fed’s Yellen testifies to House Financial Services Committee
- 10:00am: Bank of Canada rate decision, est. 0.75% (prior 0.75%)
- 12:00pm: Fed’s Williams speaks in Phoenix
- 12:25pm: Fed’s Mester speaks in Columbus, Ohio
- 2:00pm: Fed’s Beige Book
DB's Jim Reid completes the overnight event summary
Today the lens will be firmly focused on Janet Yellen at the first of her semi-annual testimonies in front of the House Financial Services Committee. The reality is that she will probably keep all her options open but will probably want to get across that the committee expects the normalisation process to start soon. Whether or not it can in reality is another matter and it will be interesting to hear how much she comments on recent events in Greece and China. While I acknowledge the reasons why the Fed feel they ought to raise rates I can't help but think that with nominal activity still so weak relative to history, in another time and another place the argument could be actually spun towards more easing being required rather than hikes. In an ideal world this perhaps would be more directed at the real economy rather than asset markets but it’s worth remembering that a hike at these low levels of normal activity is almost unprecedented in the history of the Federal Reserve. However I appreciate that further easing is certainly not up for any discussion in this world but it does feel to me that the narrative is slightly too skewed towards the fact that they have to raise rates simply because they've been at rock bottom levels for too long and not because of the normal drivers of rate rises (ie a combination of growth and inflation).
The retail sales number yesterday encouraged investors that a more patient approach might be considered by the Fed which both equity and bond markets generally liked across the globe. The number saw broad-based softness across the board with the June headline (-0.3% mom vs. +0.3% expected), ex auto and gas (-0.2% mom vs. +0.4% expected) and retail control (-0.1% mom vs. +0.3% expected) prints all declining more than expected with the headline reading in particular also seeing two-tenths downward revisions to May and April. The data helped take 10y Treasuries 5.3bps lower to 2.402% and halt three consecutive days of rising yields. Fed Funds Dec 15, 16 and 17 contracts fell 1.5bps, 3.0bps and 3.5bps in yield respectively. The Dollar index also dropped immediately following the print, initially falling as low as -0.7% although paring those losses slightly into the close to eventually finish -0.21%. US equities rose steadily over the course of the day meanwhile, with the S&P 500 and Dow finishing +0.45% and +0.42% after energy stocks in particular gained following a turnaround in oil markets on the back of the Iran nuclear agreement which we’ll touch on shortly.
Before we get there though, China’s monthly data dump has been the focus of attention this morning and it’s made for better reading after Q2 GDP printed at 7.0% for the quarter, in line with Q1 and ahead of expectations of 6.8%. The rest of the data has been supportive also. Retail sales (10.6% yoy vs. 10.2% expected), industrial production (6.8% yoy vs. 6.0% expected) and fixed asset investment (11.4% ytd yoy vs. 11.2%) have all come in ahead of consensus with retail sales and IP in particular at YTD highs and showing signs of momentum. With the data perhaps lessening the need for more aggressive stimulus however, Chinese equities have marched lower with the Shanghai Comp (-2.40%), Shenzhen (-2.30%) and CSI 300 (-2.43%) all falling. The Hang Seng (-0.41%) is also down but the Nikkei (+0.29%), Kospi (+0.55%) and ASX (+0.93%) have all firmed. S&P 500 futures (+0.1%) have reversed earlier losses while China-sensitive industrial metals including Copper (+0.4%) and Zinc (+0.8%) are both up in Shanghai this morning. The data has also helped support the AUD (+0.3%) while oil markets are around +0.6% firmer. There’s been little change in the Yen meanwhile after the BoJ left policy unchanged but trimmed its inflation outlook for the 2016 fiscal year.
Closer to home, there was some reasonably hawkish rhetoric out of the BoE yesterday. It was interesting to see a Fed-like reference from policymaker David Miles in particular who said that ‘the time to start normalisation is soon’ and that ‘I attach more weight to the risks of waiting too long and then not being able to take a gradual path’. These comments were backed up Governor Carney who, citing above normal growth and higher wages, suggested that a hike may not be too far away after saying ‘the point at which interest rates may begin to rise is moving closer with the performance of the economy, consistent growth above trend, a firming in domestic costs, counter balanced somewhat by disinflation imported from abroad’. The comments suggest that the BoE is set to look through another soft CPI print last month (0.0% vs. +0.1% expected), taking the annualised rate down to zero after a modest rise to +0.1% yoy in May.
Those comments helped take Gilt yields modestly higher yesterday 5y (+1bp) and 10y (+0.5bps) while the Pound gained just shy of a percent (+0.96%) versus the Dollar. Elsewhere in Europe it was fairly subdued for the most part with markets taking something of a breather before the Greek parliamentary vote and Yellen’s testimony. 10y Bunds closed -1.8bps lower in yield at 0.834% while the peripherals ended 1-5bps lower. A late boost from energy stocks helped European equities close in positive territory with the Stoxx 600 (+0.46%), DAX (+0.28%) and CAC (+0.69%) all up. Meanwhile in the oil complex, Brent (+1.14%) and WTI (+1.61%) surged 4 and 5% off the day’s lows respectively on the back of the Iran nuclear accord developments. With a deal finally reached after nearly two years of negotiations with world powers, the complex initially dropped on fears that the removal of sanctions would see a surge in supply, however these concerns soon abated as more details emerged that a supply response would likely be gradual and unlikely to happen before 2016 which in turn helped to lift oil off its lows.
In terms of the remainder of data yesterday, along with soft US retail sales the June NFIB small business optimism survey (94.1 vs. 98.5 expected) and import price index (-0.1% mom vs. +0.1% expected) were also disappointing, while business inventories printed in line at +0.3% mom. Meanwhile the Atlanta Fed were busy revising their Q2 GDP forecast following the recent batch of data since the last forecast of 2.3% on July 7th. After an initial boost from Friday’s wholesale data (to 2.5%) and Monday’s Treasury Statement (to 2.6%), yesterdays softer retail sales and import price data offset some of that move higher and saw the model revised back down to 2.4%, still at the bottom end of current market expectations. Elsewhere in the US both JP Morgan and Wells Fargo kicked off earnings season for the major banks with beats, while we saw suggestions of a stronger Dollar as being the reason for a drop in revenue for Johnson & Johnson yesterday. Data wise in Europe, there were no surprises to the final June CPI reading for Germany which stayed unchanged at -0.1% mom and +0.3% yoy. There was some upside surprise to the July ZEW survey however with both the current situations (63.9 vs. 60.0 expected) and expectations reading (29.7 vs. 29.0 expected) ahead of consensus, although both continuing a downward trend. Euro area industrial production for May disappointed at -0.4% mom (vs. +0.2 expected).
Surprisingly it’s taken us until the 7th paragraph to run through the latest Greek developments, but in truth this reflects what was a relatively quiet day for headlines in the saga ahead of today’s Greek parliament vote today. In an interview on Greek TV, Greek PM Tsipras admitted that he takes ‘full responsibility’ for mistakes over the last six months while also saying that his priority now is to make sure the agreement is finalised. There was also some focus on an IMF paper which showed Greece needs debt relief ‘far beyond’ what the Creditors have so far been willing to consider on the back of the bank closures and capital controls enacting a ‘heavy toll’ on Greece’s finances with the Fund suggesting a 30-year interest rate holiday period may be needed. Meanwhile, talks continue around bridge financing with Eurogroup President Dijsselbloem saying that ‘we are looking at all the instruments and funds that we could use’. For now though focus will be on the Greek vote in parliament tonight with Bloomberg suggesting that this will take place around 10pm Athens time. With opposition in the Syriza ranks as well as in the coalition partners Independent Greeks, it is likely that any changes in government are decided after the vote with the possibility of a minority government or government of national unity being put in place.
Before we take a look at today’s calendar, yesterday’s ECB quarterly bank lending survey showed further support for a recovery in bank credit conditions with the pace of easing now only slightly behind the strongest reading in the history of the survey (in 2006). In particular, net demand for housing loans was said to have ‘continued to increase substantially’ while credit standards on loans to households for house purchases ‘eased considerably’ with Italy in particular the standout performer from a country perspective after a material acceleration in easing pace pointing to potential upside to Italian growth.
Looking ahead to today’s calendar now, French CPI and various UK employment indicators will be the highlight in the European session this morning. The focus this afternoon will of course be on Yellen’s semiannual testimony while it’s also a busy session for data in the US with PPI, empire manufacturing, industrial production, capacity utilization and manufacturing production all expected. The Fed’s Beige Book is also due to be released tonight. As well as Yellen we’ve also got George, Mester and Williams due up while the corporate earnings highlights are Bank of America and Intel.