Futures Jump On Chinese Trade Data; Oil Declines; Global Stocks Turn Green For 2016

With oil losing some of its euphoric oomph overnight, following the API report of a surge in US oil inventories, and a subsequent report that Iran's oil minister would skip the Doha OPEC meeting altogether, the global stock rally needed another catalyst to maintain the levitation. It got that courtesy of the return of USDJPY levitation, which has pushed the pair back above 109, the highest in over a week, as well as a boost in sentiment from the previously reported Chinese trade data where exports rose the most in over a year, however much of the bounce was due to a favorable base effect from last year's decline. Additionally, as RBC reported, the 116.5% y/y increase in China’s reported March imports from HK likely reflects the growing trend of "over-invoicing", which is merely another form of capital outflow.

In other words, which giving the impression that growth is stabilizing, China was really just covering up for even more outflows. Curiously the onshore yuan fell 0.06%, shrugging off the "better-than-forecast" China March exports data, suggesting that at least the FX market may have been paying attention.

Equities, however, were not, and as a result global stocks advanced higher for one more session, wiping out the year’s declines.

Copper and iron ore were among the beneficiaries, while haven assets including the yen and gold retreated.

“The commodity sector is well supported after the good numbers out of China,” said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland. “Most investors were under-invested or were on the downside, they all thought we should see a bigger correction. Everything can turn around if we see negative numbers from the U.S. banks.”

Additionally, European stocks rose for a fourth day, shares in emerging markets climbed to the highest since November, and China’s equities traded in Hong Kong gained the most worldwide, as the Asian nation’s exports surged. Futures on the Standard & Poor’s 500 Index rose half a percent, as investors awaited earnings from JPMorgan Chase & Co.

This is where global markets stand now:

  • S&P 500 futures up 0.5% to 2066
  • Stoxx 600 up 1.9% to 341.1
  • Eurostoxx 50 +2.2%
  • FTSE 100 +1.5%
  • CAC 40 +2.4%
  • DAX +2.3%
  • Dollar Index up 0.57% to 94.49
  • US 10Yr yield up 1bps to 1.78%
  • German 10Yr yield down 1bps to 0.15%
  • MSCI Asia Pacific up 1.9% to 130
  • Nikkei 225 up 2.8% to 16381.2
  • Hang Seng up 3.2% to 21158.7
  • Kospi up 0.6% to 1981.3
  • Shanghai Composite up 1.4% to 3066.6
  • Brent Futures down 0.9% to $44.3/bbl
  • WTI Futures down 1.3% to $41.6/bbl
  • Gold spot down 0.8% to $1245.1/oz

Global Top News

  • China’s Exports Jump Most in a Year, Boosting Growth Outlook: Shipments +11.5%, imports moderate drop to 7.6%
  • Oil Extends Losses as Speculation Swirls Over Doha Output Talks: Iran’s oil minister won’t attend freeze meeting, Seda reporter says
  • Business Groups Warn ‘Brexit’ Would Hurt Trade and Investment: employer groups from four EU partners urge U.K. to stay in
  • Pound’s Rally if Voters Reject ‘Brexit’ Predicted to Be Fleeting: Pioneer, Julius Baer see maximum 4% gain on vote to stay in EU
  • Euro-Area Industrial Production Plunges Most in 18 Months
  • Panama Prosecutor Raids Mossack Fonseca Office, La Prensa Says: newly created prosecutor carried out inspection yday
  • French Govt Maintains Forecast for 1.5% GDP Growth in 2016: sees govt deficit of 3.3% of GDP in 2016 and 2.7% in 2017
  • Bilfinger Says CEO Resigns, To Be Replaced in Interim by CFO: confident will be able to appoint new CEO shortly
  • McCormick Abandons Bid for U.K.’s Premier Foods Over Price: Premier had rejected three advances from U.S. spice producer

Looking at regional markets, we start with Asia where equity markets took the impetus from a firm Wall St. lead as a resurgence in the commodities complex and firm Chinese Trade data bolstered sentiment. This underpinned large commodity names in the ASX 200 (+1.3%) following oil's surge to YTD highs on reports Russia and Saudi reached a consensus on an output freeze, while iron ore also climbed towards the USD 60/ton level. Nikkei 225 (+2.6%) advanced above 16000 on JPY weakness with index giant Fast Retailing also gaining after a reduction in Uniqlo prices, while Shanghai Comp (+2.1%) completed the optimistic tone following strong trade figures which showed exports rose 18.7% in CNY terms and expanded by the most in a year in USD terms. Finally, 10yr JGBs were pressured following the heightened risk-appetite across the region which dampened safe-haven demand alongside BoJ operations which attracted more selling interest.

Top Asian News

  • PBOC Seen Averting Cash Shortage as $155 Billion Leaves Market: Central bank may extend loans, ease reserve ratio
  • Japan’s Economic Recovery Is Still Weak, Says BOJ’s Harada: He sees consumption is probably flat, GDP increasing slightly
  • Singapore Set to Skip Easing to Save Tools for Brexit, China: No reason to change policy now, Nomura’s Chan says
  • China Steelmaker Misses 3rd Bond Payment as Defaults Spread
  • JPMorgan Said to Trim 5% of Jobs at Asia-Pacific Wealth Unit: Bank has cut about 30 jobs at the business
  • Wall Street Gives Up on India Funds as JPMorgan Joins Exodus:Goldman Sachs, Morgan Stanley have already exited India funds

European equities are in a bullish mood underpinned by the better than expected China trade data, subsequently dispelling concerns over slowing global growth. Also, gains across Europe has been attributed to the upside in the region's largest oil producers as energy prices remain near 4-month highs. This had been inspired by yesterday's source reports that Russia and Saudi Arabia have come to a consensus regarding a freeze in oil production. However, one of the notable underperformers this morning is Tesco (-4.5%) after cautious comments on their near-term outlook despite returning to profit. Elsewhere, Bunds initially bounced back from the softer open amid unwinding of the recent supply concession, coupled with support from redemption flow. Additionally, analysts at IFR note an absence of leveraged selling providing a reprieve for German paper.

Top European News

  • Tesco CEO Lewis Gives Reality Check as Turnaround Progresses
  • Deutsche Bank Said to Hire Citi’s Boyle to Help Lead Derivatives: Boyle to co-head equity derivatives, run Asia Pacific equities
  • Medivation Said to Have Rebuffed Sanofi Takeover Approach: Drugmaker Sanofi hasn’t ruled out hostile bid for U.S. company
  • VW Chairman Said to Accept Bonus Cut to Quell Board Unrest: Unions, govt called for reduction in management payouts
  • Tata Steel Said to Set May 28 Date for U.K. Ops Sale: FT: Tata Steel plns to close down its UK arm if it is unable to negotiate a viable sale by that date
  • RWE Sees U.K. Profit Recovering as It Seeks to Win Back Clients: plans to cut U.K. workforce by 21% after posting 2015 loss
  • Fnac Is Studying Possible New Offer for Darty, Le Figaro Says: co. believes that many Darty holders are willing to accept its shares as part of a new offer
  • Dassault Aviation CEO Hopes to Sign India Rafale Deal Soon: CEO Eric Trappier speaks on Radio Classique
  • Berkeley Wins Approval for 652 Homes in West London Project: The project was approved late Tuesday by Westminster council
  • Elekta Names Richard Hausmann New CEO: Hausmann will join May 1 and take over as CEO on June 10

In FX, a morning of correction for USD/JPY, pushing through the 109.09 highs from Friday and on course for a potential test towards 110.00, but progress is slow. That said, the USD index is in recovery mode, and this has been largely facilitated by the EUR/USD push on 1.1300 lower down. A break below here threatens a stop loss sell off, and we suspect this will materialise as USD momentum is building up. EU industrial production was softer than expected, prompting the move down to 1.1307, and the bounce has been minimal at best. The commodity currencies are faring well, with AUD and NZD having reclaimed .77 and .69 respectively, though the former struggling to hold on to better levels. Oil has turned back off the highs post API, and this looks to have given USD/CAD a bid under 1.2750. 1.2800+ a struggle, and will remain so into the BoC later. US retail sales key.

In commodities, heading into the North American crossover, WTI and Brent crude futures trade in modest negative territory. In terms of recent news flow, according to Al Hayat, the Saudi Oil Minister has ruled out cut in crude output, while source reports note that the Iranian Oil Minister is to not attend the Doha meeting which is to no overall surprise. Given that Iran have remained firm in their decision to not take part in the freezing of oil output as they look to increase output to pre-sanction levels. However, conflicting reports later noted that the Iranian Oil Minister has yet to make a decision to attend the April 17th talks.

Some more details on China commodity trade data:

China March crude imports were at 7.68min, which is just off the February record of 8min bpd. China Q1 crude imports rose 13.4% Y/Y to 7.31 min bpd.

China March iron ore imports rose 16.5% to 85.77min tons vs. Prey. 73.61 min tons in February, March copper imports rose to 570k tons vs. Prey. 420k tons in February and China steel products exports rose 23.1 % to 9.98min tons vs. Prey. 8.11min tons in February, according to China customs bureau. Furthermore, China Jan-Mar iron ore imports rose 6.5% Y/Y, Jan-Mar copper imports rose 30.1% Y/Y and Jan-Mar crude oil imports rose 13.4% Y/Y.

Gold prices have been pressured for much of the morning amid the heightened risk-appetite across the region following firm Chinese trade data, allied with the uptick in the USD-index. The aforementioned better than expected Chinese trade figures also bolstered copper and iron ore prices with the latter gaining as much as 5% alongside similar advances in steel.

On today's calendar we get retail sales numbers there will also be a close eye kept on the March PPI report, while business inventories are also due. Later this evening we’ll see the Fed’s Beige Book released. As highlighted earlier, JP Morgan is the highlight of today’s earnings releases.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European stocks edge higher on the back of firm Chinese trade data, while Tesco underperforms amid cautious profit guidance.
  • USD-index pulls away from its recent near 8-month lows to weigh on its major counterparts.
  • Looking ahead, highlights include Bank of Canada Rate Decision, US Business Inventories, PPI Final Demand, and Retail Sales.
  • Treasuries lower in overnight trading, global equity markets surge higher as Chinese trade data cheers investors; week’s auctions continue with $20b 10Y notes, WI 1.795%; last sold at 1.895% in March, compares with 1.73% in February.
  • China’s exports rose 11.5% in dollar terms in March, the most in a year, and declines in imports narrowed, adding to evidence of stabilization in the world’s second-biggest economy
  • China’s regulators are considering allowing global investors freer access to the nation’s market
  • U.S. coal giant Peabody Energy Corp. filed for bankruptcy on Wednesday, the most powerful convulsion yet in an industry that’s enduring the worst slump in decades
  • Russia sees a deal to freeze oil output as possible when it meets other producers including Saudi Arabia this weekend, regardless of Iran’s stance
  • The regulator that helps oversee U.K. banks and brokerages proposed changing the process for initial public offerings to reduce favoritism and ensure that investors are better informed
  • European Central Bank Governing Council member Klaas Knot called for “patience and reality” over ultra-loose monetary policy as concerns mount over the impact on pensions and savings
  • Euro-area industrial production fell 0.8% in February, the most in 18 months, giving up some of the surge seen at the start of the year
  • Sovereign 10Y bond yields mixed with Greece +16bp; European, Asian equity markets higher; U.S. equity-index futures rise. WTI crude oil, precious metals drop; copper rally

US Event Calendar

  • 7:00am: MBA Mortgage Applications, April 8 (prior 2.7%)
  • 8:30am: Retail Sales Advance m/m, March, est. 0.1% (prior -0.1%)
    • Retail Sales Ex Auto m/m, March, est. 0.4% (prior -0.1%)
    • Retail Sales Ex Auto and Gas, March, est. 0.3% (prior 0.3%)
    • Retail Sales Control Group, March, est. 0.4% (prior 0%)
  • 8:30am: PPI Final Demand m/m, March, est. 0.2% (prior -0.2%)
    • PPI Ex Food and Energy m/m, March, est. 0.1% (prior 0%)
    • PPI Ex Food, Energy, Trade m/m, March, est. 0.1% (prior 0.1%)
    • PPI Final Demand y/y, March, est. 0.3% (prior 0%)
    • PPI Ex Food and Energy y/y, March, est. 1.3% (prior 1.2%)
    • PPI Ex Food, Energy, Trade y/y, March (prior 0.9%)
  • 10:00am: Business Inventories, Feb., est. -0.1% (prior 0.1%)
  • 11:30am: U.S. to sell $20b 10Y notes in reopening
  • 2pm: Federal Reserve Releases Beige Book

DB's Jim Reid concludes the overnight wrap

While earnings season is about to spring into life, the current focus for markets remains on Oil which determined much of the direction yesterday as WTI rallied +4.48% and nearly $2 to close above $42 (at $42.17/bbl to be precise) for the first time since late-November. It's now rallied a fairly remarkable near-20% off the April lows. All the noise yesterday came from the multiple reports suggesting Russia and Saudi Arabia were in agreement on a production freeze without the participation of Iran. As we move closer and closer to the Doha production meeting this Sunday it’s starting to feel like we’re getting almost daily headlines like this but ultimately much will hinge on Sunday’s outcome. For now though, those moves were enough to drive equity markets to reasonable gains yesterday. The S&P 500 finished +0.97% while in Europe the Stoxx 600 closed with a +0.53% gain. In credit Main and Crossover iTraxx indices ended 1bp tighter, while the US outperformed after CDX IG closed nearly 2bps tighter.

Speaking of credit markets, Valeant was back in the limelight last night when after the closing bell we got the announcement that the company has received a notice of default from one of its largest bondholders. According to the WSJ, Centerbridge Partners have filed the notice, which given their roughly 25% issue bondholding in Valeant allows them to do so. This comes after Valeant had reportedly breached a provision in its docs for failing to disclose its 10k report. A 60-day grace period now starts in which Valeant will have to file its annual report, and if not may be forced to repay bondholders. Valeant’s shares were down up to 3% in extended trading, although it’ll be interesting to see how the bonds trade when markets kick into gear this morning, particularly given its relative size in the US HY market as one of the biggest issuers.

Switching over to the latest in Asia now where we’ve got some important Chinese trade numbers to sink our teeth into. The data makes for relatively supportive reading, with exports rising +11.5% yoy in USD terms last month and more than expected (+10.0% expected), which comes after that sharp decline in the prior month (-25.4% yoy). The rate of decline for imports has slowed meanwhile to -7.6% yoy (vs. -10.1% expected) from -13.8%. While favourable base effects appear to be playing a role, the export print is still the highest in over a year, while in CNY terms the data showed a similar trend.

Markets have reacted positively to the data, with Chinese equity markets currently rallying. The Shanghai Comp is +2.20%, while the CSI 300 is +2.30%. Elsewhere we’ve seen the Nikkei (+2.64%) bounce with further weakness for the Yen, while the Hang Seng, Kospi and ASX are up between 1 and 2%. Credit markets have tightened while base metals have also been given a boost post the numbers.
Recapping the rest of yesterday now. Along with the moves for Oil, base metals put in a strong performance with notable gains for Copper (+2.21%), Iron Ore (+4.59%), Aluminium (+1.62%) and Zinc (+4.15%). Unsurprisingly it was commodity-sensitive currencies which led the way, while the big rally for the Yen finally took a pause for breath with the currency closing -0.56% weaker which was the first time it has weakened this month. Meanwhile sentiment was sapped in rates markets where we saw the vast majority of core government bond markets weaken (10y Treasury yields in particular closing 5bps higher at 1.777%).

There was also some fairly mixed Fedspeak for us to digest after we heard from a number of officials. Some of the more cautious commentary was from Harker and Kaplan (both non-voters) with the former in particular saying that his current considerations ‘make me a bit more conservative in my approach to policy, at least in the very near term’ and that ‘it might be prudent to wait until the inflation data are stronger before we undertake a second rate hike’. This was in contrast to San Francisco Fed President Williams who said that assuming there are no surprises in the data, then he see’s two to three rate hikes as being reasonable. Richmond Fed President Lacker played up recent improvement in the inflation numbers which makes a ‘persuasive case for increasing the target range for the federal funds rate’, although Lacker did balance this with his view that a gradual pace of tightening is still appropriate for now.

Elsewhere, the IMF was also the focus of some attention after the Fund cut its global growth forecast for this year to 3.2% from the previous 3.4% forecast made in January. In its semi-annual World Outlook which was published yesterday, the IMF made mention to the fact that there has been a renewed episode of global asset market volatility and some loss of growth momentum in the advanced economies, as well as headwinds for emerging markets.

Further downside risks remain in their view, while the fund also made mention to the possibility of the UK leaving the EU as causing ‘severe global damage’ and an ‘extended period of heightened uncertainty.'

Just wrapping up the data yesterday, in Germany there were no surprises to the final revisions for the March CPI report which was confirmed at +0.8% mom and +0.3% yoy. The inflation docket out of the UK showed a slightly higher than expected CPI print of +0.4% mom (vs. +0.3% expected) which had the effect of lifting the YoY rate two-tenths to +0.5%, while retail prices also came in a touch above consensus (+0.4% mom vs. +0.3% expected). In the US the NFIB small business optimism reading declined an unexpected 0.3pts last month to 92.6 (vs. 93.5 expected) which is the lowest now since February 2014. The import price index came in at a slightly lower than expected +0.2% mom (vs. +1.0% expected), while the March Monthly Budget Statement revealed a modestly wider than expected deficit ($108bn vs. $104bn expected).

Looking at the day ahead now, this morning in Europe and shortly after we go to print we’ll get the final confirmation of the March inflation data for France. Shortly following this will be the February industrial production report for the Euro area (where expectations are for a fairly lowly -0.7% mom reading), while we’ll also receive the Bank of England’s latest credit conditions and bank liabilities survey. Stateside this afternoon, as well as those retail sales numbers there will also be a close eye kept on the March PPI report, while business inventories are also due. Later this evening we’ll see the Fed’s Beige Book released. As highlighted earlier, JP Morgan is the highlight of today’s earnings releases.