Futures Rebound On Latest Chinese Intervention, Renewed Hopes For "Moar From Mario"

After last week's sleepy, holiday-shortened week, the coming week sees a surge in global macro developments and catalysts, with all eyes on the ECB and Yellen's latest speech on Thursday, what may be the "most important ever" nonfarm payrolls report on Friday, and OPEC delivering a repeat of last year when it announced it would not change its oil production policy despite constant jawboning, but first in a few hours the IMF will announce that China's currency will finally join the SDR basket, the only question being whether the weighing of the CNY will be in the expected 14-16% range, or a snub to Beijing at 10% or lower.

So it is quite ironic - not to mention amusing - that in the day when we celebrate China's return to "free markets", and the liberalization of its various assets, that the PBOC intervened massively not only in the offshore Yuan which soared overnight...


... but in the Shanghai composite as well, which had been sliding as much as 3% led by various brokers and banks as a result of ongoing, spreading probes within the sector, before a bout of PBOC intervention in the traditional last hour of trading pushed the market back into the green, sending the most hurt sector surging, and added even more to the "National Team's" holdings of Chinese stocks.

And so without a rerun of last Friday's Chinese stock market rout, European traders could focus on what "really matters", namely how much of the ECB's upcoming 20 bps rate cut and €20 billion QE expansion (with Commerzbank saying Draghi may even hint at Europe's QE3) is priced in, and whether the ECB's actions are just modestly priced in, or more than fully, and just how big the "sell the news" event will be.The result: the Euro falls to a new 7 month low, the dollar spot index hits a new all time high, and European stocks and US futures stage another remarkable overnight comeback on the usual low volume levitation and central bank intervention.

This is where global markets stood at last check:

  • S&P 500 futures up less than 0.1% to 2091
  • Stoxx 600 up 0.4% to 385
  • MSCI Asia Pacific down 1.1% to 132
  • US 10-yr yield up 2bps to 2.24%
  • Dollar Index up 0.24% to 100.26
  • WTI Crude futures down 0.2% to $41.62
  • Brent Futures down 0.2% to $44.75
  • Gold spot down 0.2% to $1,056
  • Silver spot up 0.1% to $14.11

European stocks are hovering around a three-month high, the euro touched its weakest level since April and the yield gap between German and U.S. notes reached the widest in nine years as traders prepared for the European Central Bank to ramp up stimulus later this week. As Bloomberg notes, while carmakers led gains in Europe stocks, miners fell as shares in BHP Billiton Ltd. dropped to the lowest since November 2008 after iron ore futures in Singapore sank below $40 a metric ton for the first time.

BHP Billiton tumbled 5.6 percent in London as Brazil sought as much as 20 billion reais ($5.2 billion) compensation for a dam collapse at an iron-ore venture co-owned with Vale SA. Delta Lloyd NV sank 6.5 percent as the Dutch insurer said it will raise as much as 1 billion euros ($1.06 billion) by selling stock in a rights offer. Aberdeen Asset Management Plc fell 4.4 percent after the money manager reported quarterly outflows. On the upside, Volkswagen AG and PSA Peugeot Citroen advanced more than 2 percent. Aryzta AG, a Swiss owner of bakery chains, jumped 7 percent after reporting quarterly sales that met analysts’ estimates.

Continuing the rundown of key events, the ECB’s monetary-policy decision on Thursday is just one of a slate of key economic events this week. The International Monetary Fund will decide whether to grant China’s yuan status as a reserve currency, OPEC members will meet to discuss oil production, Federal Reserve Chair Janet Yellen will appear before Congress, and then on Friday, the monthly U.S. payrolls report is due. With the odds of a U.S. interest-rate increase in December holding above 70 percent, the focus is shifting to policy divergence and how other central banks may respond to Fed tightening.

“It’s all about assessing your positions ahead of the ECB this week,” Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen told BLoomberg. “While I think Draghi will deliver, the market has already been priced quite aggressively for a deposit-rate cut.”

Looking at regional markets, Asian stocks began the week lower amid continued weakness in the commodities complex, while China fell following its worst loss in 3-months, only to rebound in the last hour of trading on another government intervention. ASX 200 (-0.7%) saw losses in materials exacerbated by news that index heavyweight BHP Billiton is facing a USD 5.2bIn lawsuit. Nikkei 225 (-0.7%) traded lower following mixed data releases where industrial production was weaker than expected, while retail trade and sales beat estimates. Shanghai Comp. (+0.3%) was initially lifted by utilities following news that Chinese authorities are to reform the power sector and conduct a study into establishing power futures and derivatives market. 10yr JGBs traded lower despite the BoJ entering the market to purchase JPY 1.08trl in govt bonds after BoJ's Kuroda refused to commit to further loosening on policy. The IMF is widely expected to seal the approval of the CNY's inclusion in the special drawing rights (SDR) basket, when the IMF meet on Monday, which will mark the start of China's full integration into global financial markets.

Key Asian Data:

  • World’s Biggest Pension Fund Loses $64 Billion on Stock Rout: GPIF posted worst quarterly loss since at least 2008
  • Offshore Yuan Advances on Intervention Bets Before IMF Decision: China will keep offshore-onshore difference small, says DBS
  • Foreign Investors Going Off the Beaten Track for Japanese Stocks: Investors want to find “smaller but interesting Japan stocks”
  • Stevens Rate ‘Chill Out’ Rattled as Australia Easing Case Builds: Traders see a 50% chance of a rate cut in 2016
  • India’s Top Forecaster Sees Rajan Stymied by Deficit, Food Costs: Central bank to keep benchmark rate unchanged Tuesday: survey
  • Watch These Five China Bond Deadlines as Brokers Wave Red Flags:Haitong, Guotai Junan flag 5 cos. on liquidity
  • S. Korea Oct.Industrial Output Rises 1.5% Y/y; Est. +2.2%
  • Japan Oct. Retail Sales Rise 1.1% M/m; Est. 0.3%
  • Japan Oct. Output Rises 1.4% M/m; Est. +1.8

European markets have kicked off the week in volatile fashion today with Euro Stoxx (+0.4%) shrugging off initial weakness to rise out of negative territory to trade firmly in the green . This comes amid generally higher than previous CPI readings out of German regions. However the FTSE 100 (-0.3%) continues to underperform, weighed on by material and energy names amid continued softness going through the commodity complex, with WTI trading below USD 42.00/bbl and gold continuing to reside around 5 year lows. In line with equities after the aforementioned German regional CPI readings, Bunds reside firmly in negative territory to pare some of the strong performance seen last week. At the same time, touted profit taking is also said to be weighing on prices, while this week sees approx. EUR 9.5bIn worth of supply, which is equivalent to 95k Bund futures. This comes ahead of the widely anticipated ECB rate decision on Thursday, with the central bank expected to provide further stimulus in some form, with most expecting a 10bps cut in the deposit rate.

Key European Data:

  • AB InBev Said to Consider Selling SAB’s Peroni, Grolsch Brands: Said to considering sale as co. works to gain regulatory clearance to combine the world’s biggest brewers
  • Delta Lloyd Plans to Raise $1.06 Billion in Rights Offer: Sale will begin shortly after Feb. 24, when the company reports full-year results; final 2015 dividend is suspended
  • Aberdeen Hit by $19.1 Billion of Outflows in Fourth Quarter: co. reported GBP12.7b of net outflows in 4Q as investors continued to pull money from the firm’s emerging-market funds
  • Sweden’s Economy Grew Twice the Estimated Pace Last Quarter: Exports and consumer spending gained, easing pressure on the central bank to deliver more stimulus
  • Bank of England Worries From Property to Debt May Need Action: Governor Mark Carney will reveal on Tuesday just how worried he is about parts of the U.K. financial system
  • Swedish 3Q GDP Grows 0.8% Q/Q; Est. 0.4% Growth
  • Danish preliminary 3Q GDP down 0.1% q/q, worse than est.
  • U.K. Oct. mortgage approvals rise to 69,630; est. 69,900

In FX, the euro fell as low as $1.0563, its weakest level since April. The currency has weakened 3.9 percent in November, its biggest loss since a 4.2 percent decline in March, when the ECB embarked on its 1.1 trillion-euro asset-purchase program.

Turkey’s lira rose 0.5 percent after its biggest weekly decline since March and the Borsa Istanbul 100 Index gained 0.2 percent. The EU pledged to restart Turkey’s membership bid and a package of 3 billion euros in assistance for refugees in return for Turkey bolstering its border controls.

In commodities, WTI and Brent trade in positive territory despite strength in the USD, as participants await the important bi-annual OPEC meeting on Friday. Gold has also traded flat, coming off worst levels, but continuing to reside around 5 year lows. Elsewhere, base metals prices were weaker on reports of planned production cuts from Chinese smelters, while iron ore futures were also pressured on expectations of further reductions of China steel production and increased stockpiles at Chinese ports.

Looking ahead, today sees the release of national German CPI, as well as US Chicago PMI and pending home sales. The event of the day, however, will be the induction of the Yuan into the IMF's Special Drawing Rights currency basket and its formal inauguration is a world reserve currency.

Global Top News from Bloomberg

  • Momentum for Climate Deal Grows as Obama Joins Xi in Paris: more than 140 world leaders including U.S. President Barack Obama and Xi Jinping of China are gathering in Paris
  • French Police Detain Hundreds After Violent Clash in Paris
  • Paris Hosts Anti-Terror Allies Vying to Unpick Syria Puzzle
  • JPMorgan Said to Leave Bonus Pool for Traders, Bankers Unchanged: Said leaving bonus pool roughly unchanged from 2014, adding to pressure on weakened rivals
  • ECB Left With No Choice But Action After Draghi Warns Market: Economists surveyed by Bloomberg unanimously predict the European Central Bank will boost stimulus again this week; U.S. Note Yields Near 9-Year High to Germany Before ECB, Jobs
  • There’s a Big Drop in U.S. Treasury Debt Supply Coming in 2016: Net issuance of U.S. notes and bonds will tumble 26% next year, according to estimates by primary dealers
  • Offshore Yuan Jumps on Suspected Intervention Before IMF Vote: Rebounded on suspected intervention by central bank as IMF to decide whether to add China’s currency to reserves basket
  • Oil Set for Monthly Decline as OPEC Seen Standing Firm on Supply: Set for largest monthly drop since July as Iran signals OPEC won’t reduce production target at meeting this week
  • BTG Partners Said to Seek Esteves’s Stake as Arrest Extended: Partners said to be still trying to work out details for purchase as seek to insulate bank from Esteves
  • Clicks Defeat Bricks During Retailers’ Black Friday Weekend: Online shoppers outnumbered their brick-and-mortar counterparts during U.S. retailers’ pivotal Black Friday weekend
  • Billionaire Philanthropists Boost Climate Change Investment: Bill Gates, fellow philanthropists revealed details of a fund for clean energy technology

Bulletin headline summary from Bloomberg and RanSquawk

  • European markets have kicked off the week in volatile fashion today with Euro Stoxx shrugging off initial weakness to rise out of negative territory to trade firmly in the green
  • FX markets have also volatility in European trade, as EUR/USD and GBP/USD both residing around 7 month lows
  • Looking ahead, today sees the release of national German CPI, as well as US Chicago PM! and pending home sales
  • Treasuries decline as market waits events expected to push monetary policy in opposire directions: ECB meeting and Nov. payrolls report later this week, FOMC decision on Dec. 16.
  • China’s stocks erased steep losses in the last hour of trading, led by financial companies, as a second day of wild price swings tested the government’s plan to trim support for the equity market
  • Economists surveyed by Bloomberg unanimously predict the ECB will boost stimulus again, less than halfway through a EU1.1t bond-buying program, and most foresee multiple measures
  • Paris will become the nexus of diplomacy on Syria this week as leaders including Russia’s Putin use the opportunity of UN climate talks to discuss the regional conflict that has become the epicenter of Islamic State terrorism and the refugee crisis
  • JPMorgan is leaving its bonus pool roughly unchanged from 2014, adding to pressure on weakened rivals, according to people with knowledge of the plan
  • Credit Suisse plans to cut bonuses while some bankers at Barclays will see their bonuses slashed to zero, the London-based Sunday Times reports, citing sources that weren’t named
  • Online shoppers outnumbered their brick-and-mortar counterparts during U.S. retailers’ pivotal Black Friday weekend, underscoring the challenges facing American malls this holiday season as Amazon.com Inc. exerts more pressure
  • No IG or HY deals priced Friday. BofAML Corporate Master Index OAS holds at +163, YTD range 180/129. High Yield Master II OAS widens 1bp to +638, YTD range 683/438
  • Sovereign 10Y bond yields higher. Asian stocks mostly lower, European stocks mixed, U.S. equity-index futures decline. Crude oil and copper lower, gold little changed

US Event Calendar

  • 9:00am: ISM Milwaukee, Nov. (prior 46.66)
  • 9:45am: Chicago Purchasing Manager, Nov., est. 54 (prior 56.2)
  • 10:00am: Pending Home Sales m/m, Oct., est. 1.5% (prior -2.3%); Pending Home Sales NSA y/y, Oct. (prior 2.5%)
  • 10:30am: Dallas Fed Mfg Activity, Nov., est. -12 (prior -12.7)

DB's Jim Reid completes the overnight wrap

With regards to the ECB, expectations are high. According to our rate strategists, depending on the assumptions made, they estimate that 14 to 20bp of rate cuts, QE extension of 6 months and arguably an increase of EUR 10-15bn in the monthly pace of purchases is priced in. DB’s Marco Stringa, in a note on Friday outlined our economists' view for this Thursday and expects the pace of QE to increase by EUR 10bn (along with increasing the range of assets), a six month extension to QE and thirdly a 10bp cut in both the deposit rate and refi rate as well as the removal of the yield floor from the asset purchase programme. Importantly now, Marco highlights that the ECB cannot afford to under-deliver - this would likely lead to a tightening of fixed income and FX markets and also and more importantly, increase the risk of dis-anchoring inflation expectations. It seems to us that this is the bare minimum required to stop the market from being disappointed.

Moving on. While it was a pretty quiet end to last week for markets in Europe and the US on Friday – the latter in particular of course closing early – it was the moves in Chinese equity markets shortly after we went to print which dominated most of the headlines. Bourses closed materially lower with the Shanghai Comp finishing -5.48% and CSI 300 (-5.38%) and Shenzhen (-6.09%) down similar amounts with much of the weakness being attributed to the news that the Chinese securities regulator is investigating some of the country’s major brokerages for suspected breaches over the signing of margin trading contracts and short selling in particular. The brokerages being investigated include Citic Securities, Haitong Securities and Guosen Securities. Haitong finished nearly 4% lower on Friday before trading was suspended while Citic and Guosen were both 10% and limit down.

This morning, bourses in China have continued to move lower with more decent falls for the Shanghai Comp (-1.77%), CSI 300 (-1.65%) and Shenzhen (-2.20%). Bourses in Japan are lower too with the Nikkei -0.69%. That’s after some mixed data for Japan with October industrial production (+1.4% mom vs. +1.8% expected) coming in below market, but retail sales (+1.1% mom vs. +0.3% expected) far exceeding expectations. Elsewhere in the region this morning, there’s declines also for the Hang Seng (-0.24%), ASX (-0.69%) and Kospi (-1.78%) – the latter also down on some softer than expected IP data.

There’s not been too much newsflow over the weekend, but some of the focus has been on the early US retail sales numbers from Black Friday and the Thanksgiving weekend. According to the National Retail Federation’s survey, 102 million people were said to have shopped in bricks and mortar stores over the holiday weekend, which is just less than the 103 million who were said to have shopped online. In fact, overall numbers that shopped this weekend (at 151 million) was higher than the 136 million that was expected according to the survey. A change in methodology means that it’s hard to tell if this was the first year online shoppers exceeded those deciding to shop in-store.

Recapping the rest of Friday, despite kicking off on the back foot following those moves in China, European markets pared back a decent slug of the early declines to finish mainly with just modest drops. The Stoxx 600 closed -0.18% (having traded as low as -0.70% early on) while over in the US and with volumes some 60% or so below average, the S&P 500 (+0.06%) and Dow (-0.08%) were close to flat in a holiday-shorted the session.

Those moves were fairly modest considering, once again, the steep falls throughout the commodity complex on Friday. In Oil markets, WTI was back below $42 having declined over 3% on Friday (it’s little changed this morning). Gold had a rough day, closing -1.39% and at a fresh 5-year low as the US Dollar (+0.16%) continued to strengthen relative to the Euro. The more severe moves were in the industrial metals which gave up a decent amount of Thursday’s gains with Copper (-1.36%), Aluminium (-2.90%), Zinc (-3.43%) and Nickel (-4.57%) all plummeting. It’ll be interesting to see how Copper in particular trades over the course of today (it’s currently trending lower in Asia) with the news from the weekend that China’s biggest smelters are weighing potential cuts in output next year in response to falling prices. Also of note, Friday’s OPEC meeting in Vienna is another important date for the diary this week with the WSJ highlighting that it’s set to be one of the most contentious meetings in years with discontent and tensions building inside the cartel and pressure on Saudi Arabia to start curtailing production.

In terms of the data on Friday, there was no change to the second revision of UK Q3 GDP, sitting at +0.5% qoq and +2.3% yoy. As expected the main drag came from net trade which subtracted 1.5% from the growth rate, with Q3 exports of +0.9% qoq offset by a big rise for imports of +5.5% qoq. Offsetting this were the contributions from both private consumption (+0.5% qoq) and government spending (+1.3% qoq). Meanwhile, German consumer confidence edged slightly lower (down 0.1pts to 9.3) but there was a positive take away from the latest Euro area economic confidence reading for November, up to 106.1 (vs. 105.9) which included an upward revision to October and a new cyclical high. Services confidence edged higher also, although industrial and business climate indicators were a tad lower. Over in France consumer spending data for October was a bit more disappointing than expected at -0.7% mom (vs. -0.1% expected).

Away from the data, as mentioned earlier the IMF is due to meet today on the decision on whether or not to add the Chinese Yuan to its SDR basket. Tuesday will see the BoE results from the latest round of stress tests, with Carney scheduled to speak in the morning while on Friday the OPEC meeting in Vienna will be closely watched.

It’s a busy week for Fedspeak too. Fed Chair Yellen being the highlight on Wednesday and Thursday. Also speaking during the week will be Evans tomorrow, Brainard, Lockhart and Williams on Wednesday, Vice-Chair Fischer on Thursday and finally Bullard and Kocherlakota on Friday. In Europe the Draghi press conference post the ECB decision on Thursday is the obvious highlight.