Europe Rebounds From Chinese Rout After Stellar PMIs; US Closed For Holiday

Nothing can keep the BTFD spirit at bay in Europe this Thanksgiving morning.

Having started the session on the back-foot after the biggest Chinese stock market tumble in 17 months (the SHCOMP dropped -2.3%, most since June 2016) amid tighter liquidity conditions as a result of today's Thanksgiving holiday in the US and attempts by regulators to rein in asset management firms and the micro-loan market, the negative sentiment was short-lived however, a slew of blockbuster November Eurozone PMIs, among which the highest output print in 79 months, with the highest employment number in 17 years, helped revive sentiment in Europe - and brought the Eurostoxx back to green on the session. Among the notable composite PMI prints:

  • France 60.1 vs est. 57.2
  • Germany 57.6 vs ext. 56.7
  • Euro zone 57.5 vs est. 56.0

Markit noted this was a multi-year highs seen for all main indicators of output, demand, employment and inflation

Commenting    on    the    flash    PMI    data,  Chris  Williamson,   Chief   Business  Economist   at  IHS Markit said: “The  message  from  the  latest  Eurozone  PMI  is clear: business is booming. Growth kicked higher in November to put the region on course for its best quarter since the start of 2011. The PMI is so far running  at a  level  signalling  a  0.8%  increase  in GDP  in  the  final  quarter  of  2017, which would round - off the best year for a decade."

Helping sentiment was an overnight report from Bloomberg that Germany's SPD is "open to talks" with Merkel on forming a government, while a subsequent unconfirmed tweet by an Economist journalist suggested that SPD leader Martin Schultz may resign today, opening the way for another grand coalition.

In terms of sector specific performance, utilities are the notable underperformers with Centrica (-15%) issuing a profit warning this morning after losing 823k customers in the last 4 months.

And so, with European optimism and upward momentum undented by China's mini crash, FX markets predictably saw the EUR/USD back firmly above the 1.1800 handle vs the Dollar and eyeing recent highs at 1.1861, which forms the base of chart resistance up to 1.1880.

As RanSquawk points out, the GBP/USD edged back above 1.3300 despite UK GDP printing in-line with expectations and soft business investment data with some highlighting selling already seen heading into the release and firmer personal consumption numbers. Elsewhere, the USD-index has slumped further, through recent lows and now only just holding above 93.000. USD softer as some FOMC members appeared less convinced about a December rate hike on inflation grounds, and more importantly share Fed Chair Yellen’s concerns about whether downside price pressures are likely to persist.

As the EURUSD rose, bund futures dipped, and peripheral spreads widened marginally though volumes are poor. The latest foray above the big figure in Bunds looked half-hearted from the outset, and with no follow-through from 163.11 to really challenge recent peaks the path of least resistance has proved to be down again. Sellers could have been encouraged by better than forecast Eurozone flash PMIs, but in truth there was little conviction off the Eurex open to tackle the closest upside chart target at 163.14. On the flip-side, support is seen at 162.85 and the 162.89 low so far suggests that level is protecting revisits of yesterday’s deeper troughs. Conversely, Gilts remain elevated having edged a marginal new Liffe high at 125.20 (+20 ticks) just before the UK data showing unchanged growth rates from the 1st readings, but some weak internal metrics. At the short end, some Euribor buying noted in small clips and turnover light across the board for obvious reasons.

Commodities trading has been relatively uneventful thus far with prices taking a breather from the prior day’s advances. This saw mild profit taking in gold with WTI giving back the recently reclaimed USD 58/bbl level, although oil prices remain near their best levels in over 2 years as several OPEC members including Saudi are jawboning about a 9-month output deal extension. Spot gold moved inside the range of yesterday’s session highs.

US stocks are, of course, closed today for the Thanksgiving holiday.