Global Stocks Rise, US Futures Near All Time Highs As Flood Into Emerging Markets Continues

European shares advanced, with gains in automakers  helping Germany’s benchmark DAX Index turn positive for the year for the first time. Stocks rose around the world, led by emerging-markets, as oil climbed further after its best week since April and traders pushed back bets on higher U.S. interest rates. S&P futures advance and Asian stocks little changed as rising oil prices bolstered investor sentiment. That said, volumes are even more lethargic than usual as peak vacation season hits, and the volume for the Stoxx 600 is 70% below average with much of Europe on official holiday due to Assumption day.

While Developed Markets have been sleepy, the MSCI Emerging Markets Index climbed to the highest level in more than a year, with Chinese equities rallying the most since May on speculation of more property takeovers. The MSCI emerging markets gauge rose 0.4% at 10:24 a.m. in London, gaining for an eighth day to the highest since July 2015. The ruble strengthened as oil extended gains on speculation that producers will revive talks to stabilize prices. European shares rose modestly, pushing Germany's DAX into the green YTD for the year for the first time. Helping EMs, the Bloomberg Dollar Spot Index declined for a second day.

Continued expectations of easy monetary policies, meant that global equities are trading near a one-year high as evidence of uneven growth in the world’s biggest economies fuels optimism that central banks will come to the rescue by way of additional stimulus and looser monetary policy. The probability that the Federal Reserve will increase interest rates this year eased to 42% in the futures market on Friday following the release of the disappointing U.S. retail sales figures, from 49% a day earlier.

“Interest rates will stay low and the dollar should be quite stable,” said Hertta Alava, the head of emerging markets at FIM Asset Management Ltd. in Helsinki. “That is supportive for emerging-market currencies. The oil price recovery is supportive for sentiment too.”

Oil prices rebounded in early trading, forcing more shorts to cover after comments by the Russian Energy Minister Novak who stated that Russia are consulting with Saudi Arabia, other countries to achieve oil market stability. However, the initial euphoria has fizzled and oil was largely unchanged at last check.

Among other notable overnight movers, in addition to the ongoing strength in EMs indices, now up for an 8th consecutive day, China's Shanghai Composite jumped 2.4% as a measure of real estate companies had its steepest two-day rally in almost a year after stake purchases by China Evergrande Group fueled optimism of more mergers.  The Stoxx Europe 600 Index added 0.1%, with volume 70 percent lower than the 30-day average for the time of day.

The DAX Index rose as much as 0.8%. Volkswagen added 1.4 percent, helping automakers to a rebound from Friday’s decline to post the best performance of the 19 industry groups on the Stoxx 600. Statoil ASA was among the best-performing oil stocks as crude extended its advance above $44 a barrel. Glencore Plc dragged raw material producers lower. Hennes & Mauritz AB advanced 1.9 percent after reporting a better-than-expected 10 percent increase in July sales.

S&P 500 Index futures advanced 0.2%, after U.S. equities slipped from their highs on Friday following disappointing retail sales and consumer confidence data. Later today, the latest NY Fed "Empire Manufacturing" report is expected to rise modestly by 2, after last month's 0.55 print.

Market Snapshot

  • S&P 500 futures up 0.2% to 2184
  • Stoxx 600 up 0.2% to 347
  • FTSE 100 up 0.2% to 6929
  • DAX up 0.3% to 10742
  • German 10Yr yieldunchanged at -0.11%
  • Italian 10Yr yield down less than 1bp to 1.04%
  • Spanish 10Yr yield down less than 1bp to 0.92%
  • S&P GSCI Index up 0.3% to 354.3
  • MSCI Asia Pacific down less than 0.1% to 140
  • Nikkei 225 down 0.3% to 16870
  • Hang Seng up 0.7% to 22933
  • Shanghai Composite up 2.4% to 3125
  • S&P/ASX 200 up 0.2% to 5540
  • US 10-yr yield down 1bp to 1.5%
  • Dollar Index down 0.08% to 95.65
  • WTI Crude futures up 1.3% to $45.08
  • Brent Futures up 1.1% to $47.51
  • Gold spot up 0.4% to $1,342
  • Silver spot up 0.8% to $19.87

Top Global Headline News

  • Here comes the Brexit-era British economy in hard numbers; inflation, retail sales, jobs may show how vote impacted U.K.
    • Londoners cut house prices to lure buyers in slowing market
    • British millennials are ‘collateral damage’ as pension gap grows; younger workers will have to save more or work for longer
    • Hedge funds make record bearish pound bets on Brexit pessimism
  • Loonie breaks from oil as bears shift focus to economic woes
  • Yuan tumbles most in six weeks as data reignite economy concerns
  • Honeywell to Buy JDA Software for $3 Billion, WSJ Says; The transaction could be announced as soon as Monday
  • Entertainment One Gains as KKR Weighs Bid to Top ITV’s Proposal; KKR emerged as a potential bidder for the film and television distributor, which rejected a proposal by broadcaster ITV Plc last week.
  • Noble Group’s Liquidity Crunch to Be ‘Temporary,’ Fitch Says: The demphasis on scale to remain until NAES sale, agency says. So-called liquidity ratio seen rising back above level of 1
  • AngloGold Says Dividends May Return Next Year as Cash Flow Rises: Bullion miner’s board will debate new dividend policy. First-half cash flow tripled to $108 million on higher prices
  • Treasuries Fall Behind Company Debt as Pimco Pursues Credit: Corporate bond spread over Treasuries is smallest in a year. Pimco’s Kiesel sees significant opportunity in corporate debt
  • World’s Biggest Shipping Firm Warns Against U.S. Protectionism: Maersk, a Danish conglomerate that owns the world’s largest container shipping company, is voicing concern as a potential shift in U.S. policy threatens to reduce global trade.

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Looking at regional markets, we start in Asia, where sentiment was lifted by the upside in WTI and Brent crude futures with the latter making a break above USD 47.00/bbl, following comments by Russia that it may join Saudi Arabia is limiting production, although the bounce promptly faded shortly after. The Nikkei 225 (-0.3%) was the notable laggard in the wake of the first look at the soft Japanese Q2 GDP figures. ASX 200 (+0.2%) had been weighed on by banking heavyweight NAB following their earnings, however losses were later pared amid the rise in oil prices. Shanghai Comp (+2.4%) and Hang Seng (+0.2%) traded higher amid reports that the Shenzhen-HK stock link could be announced as soon as next week. JGB's continued to extend on losses despite the soft Japanese GDP readings, with some attributing the weakness to Fridays comments where Japan Post announced that they have reduced their JGB holdings again and may invest around half of their JGB redemptions in foreign bonds.

Top Asian News:

  • The Tokyo Whale’s Unstoppable Rise to Shareholder No. 1 in Japan: BOJ set to become top owner of 55 cos. in the Nikkei 225
  • Japan Economy Grew Less Than Expected as Business Spending Fell: 2Q GDP rises annualized 0.2% vs est. +0.7%
  • Singapore Home Sales at Highest in a Year as Prices Drop: Developers sold 1,091 units last month versus 536 in June
  • Wanda Commercial Investors Said to Pass $4.4 Billion Buyout: Decision paves way for Hong Kong’s biggest privatization deal
  • WeChat Coming Soon at 35,000 Feet as China Eases Phone Rules: Standards by early 2017 may allow mobile phone use on planes

In a very quiet morning European equities have traded higher, with volumes very thin due to Assumption day. In major indices, the DAX (+0.3%) has moved into positive territory for the year for the first time, with healthcare and energy names outperforming throughout Europe, while materials remain the laggard. In fixed income market, today sees no major supply and amid the light newsflow Bunds have been trading flat throughout the morning, while today saw 10 year Gilt yields continue their decline to reach 0.50% for the first time, a total fall of 88bps since the Brexit vote just under 2 months ago. Also of note, today we shall be looking out for the BoE's 3-7year Gilt purchase, which could garner particular focus given that last week saw the BoE fail to purchase the full allotment.

Top European News:

  • William Hill Rejects Increased Offer From Suitors 888, Rank: Bidders improve stock element of proposal for U.K. bookmaker. William Hill shares decline as much as 1.7% in London
  • VW Gets German Regulator’s Approval to Fix 460,000 Diesel Autos: Approval includes models of Volkswagen Polo, Seat Ibiza.

In FX, the dollar weakened against most of its major peers amid receding chances of a Fed rate increase this year. The greenback fell 0.4 percent against the yen. China’s yuan dropped 0.12 percent to 6.6408 against the dollar, according to prices from the China Foreign Exchange Trade System. China’s broadest measure of new credit grew the least in two years in July, a report showed on Friday, after data indicated industrial production and investments also weakened. Sterling reached a one-month low Monday before reports on inflation, retail sales and unemployment benefit claims for July, which will provide more detail on how the economy is faring after the June 23 Brexit referendum. Hedge funds were the most bearish on the pound on record in the week ended Aug. 9, after the Bank of England cut interest rates and boosted its stimulus plan the previous week. The pound fell to as low as $1.2901 on Monday, the weakest level since July 11. Russia’s ruble led gains among the world’s 32 major currencies, climbing 0.7 percent versus the dollar. The Mexican peso advanced 0.6 percent, and South Africa’s rand 0.4 percent. Thailand’s baht climbed 0.6 percent after a report showed the economy grew a more-than-estimated 3.5 percent in the second quarter.

In commodities, both WTI and Brent crude futures enter the North American crossover in positive territory, albeit off best levels. Initial upside for prices emanated from comments by the Russian Energy Minister Novak who stated that Russia are consulting with Saudi Arabia, other countries to achieve oil market stability. With newsflow otherwise relatively light, prices have also been tracking some of the fluctuations seen in the USD-index as participants await any further commentary from OPEC/non-OPEC producers on what to expect next month. Elsewhere, precious metals markets have seen a particularly subdued session overnight with silver remaining below USD 20/oz. Gold rose for the first time in three days as the dollar traded near its lowest level since June, boosting demand for a haven. Bullion for immediate delivery rose 0.3 percent to $1,339.97 an ounce. In base metals, copper prices in London printed a one-month low as demand concerns continue to hamper prices with price action otherwise relatively contained.

It is a quiet session in US economic data, with just the NY Fed Empire manufacturing survey (+2.00 expected; +0.55 previous) and NAHB housing market index (60 expected; 59 previous) for August to watch.

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Bulletin Headline Summary from Bloomberg and RanSquawk

  • European equities enter the North American crossover in positive territory alongside modest upside in energy prices
  • FX markets continue to remain rangebound with newsflow once again light and Europe celebrating Assumption Day Holiday
  • Looking ahead, the main highlight on the calendar is the NY Empire State Manufacturing Index at 1330BST
  • Treasuries mostly steady in overnight trading, global equities rally to near one-year highs while WTI crude near $45/barrel amid Saudi stabilization rhetoric.
  • Global markets may be muted due to Assumption Day
  • Japan’s economy grew less than forecast in the three months through June 30 as business spending contracted for a second-straight quarter and exporters struggled with the resurgent yen
  • In a sign of how worried it is about Japan’s economy, the International Monetary Fund is urging the country to resurrect a radical strategy once employed by former U.S. presidents Nixon, Ford and Carter -- only in reverse
  • The European Union is considering adding to protections for banks’ riskiest debt securities by requiring that lenders pay coupons on such bonds before stock dividends and staff bonuses
  • Speculators are the most bearish on the pound since records began as they await data that will give the clearest picture yet of the effects of Britain’s decision to leave the European Union
  • Taliban militants captured a key district about 100 miles north of Afghanistan’s capital, which itself was hit by a bombing on Monday, a blow to the government in Kabul that’s coming under further pressure from a renewed surge in fighting

US Event Calendar

  • 8:30am: Empire Manufacturing, Aug., est. 2.00 (prior 0.55)
  • 10:00am: NAHB Housing Market Index, Aug., est. 60 (prior 59)
  • 4:00pm: Total Net TIC Flows, June (prior -$11b); Net Long-term TIC Flows, June (prior $41.1b)

DB's Jim Reid completes the overnight recap

British, this week will be where we get our first major glimpse of hard post-Brexit data following a raft of weak sentiment surveys released so far. First up is July inflation (CPI and PPI) tomorrow and although it might be too early to see too much of an impact of a 12% trade weighted decline in sterling since the referendum it'll be interesting if we get a few clues as to higher inflation ahead. I suppose the Euro and Yen have had big bouts of depreciation in the last couple of years without lasting impacts on inflation but the UK imports more relatively. It's also interesting that gilts have been one of the best performing assets since the referendum (50 years up over 30% and well over 50% YTD) even as inflation forecasts have risen. That's financial repression for you. Over the rest of the week the UK highlights are July unemployment (Wednesday), retail sales (Thursday) and the public finance data (Friday). The latter being interesting as we edge closer to the Autumn statement where looser fiscal policy is expected.

Staying with data, disappointments in the US on Friday halted the recent rally in equity markets. Over in Europe the STOXX (-0.13%) and DAX (-0.27%) slipped from their post-Brexit highs while the FTSE (+0.02%) was largely flat. US markets also saw the S&P 500 (-0.08%) dip from all-time highs in the face of broadly weak data (discussed later). On the whole the week did see the European markets gain with the STOXX up +1.38% while the S&P see-sawed to essentially end the week flat.

European credit saw iTraxx Main largely unchanged on the day and the week as a whole, while Crossover tightened by -3bps on the day and by nearly -9bps on the week. US CDX indices were fairly static on the day and pretty much flat on the week.

Soft data appeared to impact rates markets the most as German 10Y and US 10Y yields dropped by -2bps and -5bps respectively on the day, falling by -4bps and -8bps on the week after the post payrolls spike the Friday before. UK yields continued to drop to fresh new lows, with 10Y yields dropping by -2bps on the day and -15bps on the week. UK 30Y yields however rose by +2bps from their all time lows, bringing their cumulative drop to about -25bps on the week.
Asian stocks are mostly higher this morning with the Nikkei (-0.3%) an exception after Japan GDP came in below expectations (+0.2% vs +0.7% annualised QoQ). Chinese stocks climbed to a seven-month high (up 2-3% across the board) with activity high as property developers saw M&A hopes and reports that the delayed exchange link with Hong Kong will be announced shortly. There is also talk that weak new credit numbers late on Friday, which rounded off a soft monthly data dump from earlier in the day, increases the likelihood of more stimulus before YE. Oil is up +0.75% overnight after climbing +6.4% last week as hope that a production freeze might be possible next month at a side meeting at the international energy summit in Algeria.

Digging into the data on Friday now. The US saw a busy session of broadly weak data reinforcing the tepid growth story. July retail sales numbers disappointed (0.0% mom vs. +0.4% expected), although June’s numbers were revised higher (+0.8% mom vs. +0.6% before revisions). Auto sales helped support the headline number as ex-auto sales contracted by -0.3% mom (vs. +0.1% expected). This slowdown in consumer spending is certainly concerning given that it was the primary driver of US growth in the past quarter. Producer inflation also unexpectedly fell into deflationary territory in July (-0.4% mom vs. +0.1% expected; +0.5% previous) with the biggest drop in the index since last September. US business inventories for June also clocked in marginally above expectations (+0.2% mom vs. +0.1% expected; +0.2% previous) as the inventory to sales ratio remains elevated. The UMichigan consumer sentiment indicator for August picked up but less than forecast (90.4 vs. 91.5 expected; 90.0 previous) as the current economic conditions index declined to a five month low of 106.1 (vs. 109.5 expected; 109 previous). Inflation expectations for the next year also declined to 2.5% (vs. 2.7% previous).

Earlier in Europe we saw some preliminary Q2 GDP numbers, with Germany slowing but still beating expectations (+0.4% QoQ vs. +0.2% expected; +0.7% previous) while Italy unexpectedly stagnated (0.0% QoQ vs. +0.2% expected; +0.3% previous). Eurozone growth was in line with expectations (+0.3% QoQ vs. +0.3% expected; +0.3% previous). The final July CPI numbers for Germany (+0.4% mom vs. +0.4% expected) and Spain (-1.3% mom vs. -1.3% expected) held no surprises. Eurozone industrial production surprised on the upside in June (+0.6% mom vs. +0.5% expected) after growth rebounded back into positive territory (-1.2% previous).

Taking a look now at the week ahead. It’s a quiet start today with nothing notable out of Europe and just the NY Fed Empire manufacturing survey (+2.00 expected; +0.55 previous) and NAHB housing market index (60 expected; 59 previous) for August to watch in the US. Tuesday will see nothing significant out of Asia, but Europe is busier with the aforementioned UK inflation data dump for July and the German ZEW survey report for August due. Over in the US we will see housing starts, industrial production and CPI data for July. Wednesday brings us labour data for the UK in the form of jobless claims, earnings and unemployment numbers. There’s no data out of the US but the Fed will release the minutes for the July FOMC meeting. Thursday kicks off in Asia with trade data out of Japan. Over in Europe we will see July retail sales data out of the UK and July CPI numbers for the Eurozone. The US will see more jobless claims numbers for the second week of August, as well as the Philadelphia Fed Business Outlook for August. It’s a quiet end to the week, as Friday opens in Japan with the June print for the All Industry Activity Index due. Over in Europe we will see the July PPI print for Germany while there is no data due in the US.