It has been a seesaw session with U.S. stock index futures following their dramatic buying burst in the last half hour of market trading yesterday by first rising, then falling, then rising again alongside European equities both driven almost tick for tick with even the smallest move in the carry trade of choice, the USDJPY, even as Asian shares trade near intraday highs after China’s leaders signaled they will take further steps to support growth, including widening the fiscal deficit and stimulating the housing market, to put a floor under the economy’s slowdown according to statements released at the end of the government’s Central Economic Work Conference by the official Xinhua News Agency on Monday.
Monetary policy must be more “flexible” and fiscal policy more “forceful” as leaders create “appropriate monetary conditions for structural reforms" adding that the fiscal deficit ratio should be raised gradually, as reported by Bloomberg.
While the leadership also endorsed structural reforms and reining in China’s increasing reliance on credit, the macroeconomic policy statements indicated concern about letting the economy’s expansion slow too much.
"Although the overall cyclical policy stance is set to be ’steady’, the tone on fiscal, monetary and other policies was modestly dovish," economists at Goldman Sachs Group Inc. led by Song Yu wrote in a note. "The more positive cyclical policy tone from this conference makes us somewhat more comfortable with our forecast of only a moderate growth deceleration in 2016."
Of course, this latest conference promising broad reform, is nothing new and reminds us of the Politburo's 2013 pledge to cut debt by CNY1 trillion only to unleash a 50% debt/GDP expansion in the next 2 years. And while the market admires China's best intentions, it too has learned to ignore them.
Elsewhere, the dollar and copper both fall while gold, silver, metals, most food commodities gain. WTI gains outpace Brent to narrow spread between oil benchmarks to smallest since January.
For now, however, keep an eye on the USDJPY and the all important 121 line, which as always must be defended to prevent a further drop in carry-trade linked equities. If the USDJPY is unable to find a support, this post's title need to add another "... Then Fall Again."
Here is a snapshot of global markets:
- S&P 500 futures up 0.1% to 2017
- Stoxx 600 up 0.2% to 358
- FTSE 100 up 0.3% to 6051
- DAX down 0.3% to 10465
- German 10Yr yield up 2bps to 0.57%
- Italian 10Yr yield up less than 1bp to 1.59%
- Spanish 10Yr yield up less than 1bp to 1.78%
- MSCI Asia Pacific up 0.4% to 130
- Nikkei 225 down 0.2% to 18887
- Hang Seng up 0.2% to 21830
- Shanghai Composite up 0.3% to 3652
- S&P/ASX 200 up 0.1% to 5117
- US 10-yr yield up less than 1bp to 2.19%
- Dollar Index down 0.05% to 98.31
- WTI Crude futures up 0.7% to $36.05
- Brent Futures up 0.1% to $36.39
- Gold spot up less than 0.1% to $1,078
- Silver spot up 0.2% to $14.28
Looking at regional markets, Asian stocks traded mixed despite the positive close on Wall St. with volumes light heading into the Christmas holiday, while there was a mild reprieve in commodity prices with Brent recovering from 11yr lows. As a result, the energy sector was one of the outperformers in the ASX 200 (-0.1%), while the Shanghai Comp (+0.3%) traded in negative territory for the majority of the session. This came after Chinese investors booked profits following yesterday's gains and the Chinese Conference Work meeting failing to inspire positive price action the index, however, a bout of buying towards the close saw the index close in the green. Nikkei 225 (-0.2%) was flat for a bulk of the session after gains in Sharp (+9%) offset the continued weakness in Toshiba (-11 %), although price action has been subdued ahead of tomorrow's Emperor's Birthday holiday. 10yr JGBs traded marginally lower heading into the aforementioned holiday tomorrow, following the weaker than prior 2yr JGB auction.
Top Asian News
- McDonald’s Japan Plunges After Report U.S. Parent May Sell Stake: Shares fell most in almost five years after Nikkei newspaper reported its U.S. parent plans to cut its stake in the loss-making unit.
- China Said to Ask Banks to Test Longer Yuan Trading Hours: Some banks have also been asked to evaluate their market- making systems.
- Brookfield Commits to Sale of Asciano Assets, Regulator Says: Offers to sell freight service and bulk rail operation.
- UBS Toughens Australian Research Compliance After ASIC Inquiry: Bank restricts e-mails, chat from Australian researchers.
- Funds With $3 Trillion Take Rain Check on Emerging Stocks: 10 out of 12 surveyed say they won’t boost allocations.
- Taiwan Nov. Unemployment Rate at 3.84%; Median Est. 3.8%
- China Nov. Leading Economic Index Rises 0.6% M/m to 342.9
European equities have spent much of the session so far in positive territory, although have come off their best levels in recent trade to reside in negative territory (Euro Stoxx: -0.30%). "It’s effectively job done for [Draghi]," said Gavin Friend of National Australia Bank in London. "He reset the dial. He undid that a little bit by not really delivering in December, but the euro is still lower now because of what he’s done and what the Fed is doing. The ECB will be very content to see activity levels where they are."
In terms of a sector breakdown, energy and material names are among the best performers amid a period of reprieve in the commodity complex while utilities underperform. As a result of recent commodity strength, the FTSE 100 (+0.20%) is the best performing major European index, while the IBEX 35 (+0.10%) also trades higher today after the significant losses seen yesterday in the wake of the Spanish election.
Top European News
- ECB Diaries Show Investor Meetings Curbed Before Decision: ECB diaries suggest Executive Board members have curbed meetings with banks, asset managers in days, hours before monetary-policy decisions.
- Credit Suisse Filed Claim Against UBS Over Staff, WSJ Says: Credit Suisse filed an arbitration claim with Finra alleging that a UBS unit unfairly poached staff from its U.S. private-banking business over past several months.
- Europe’s Largest Debt Collector Steps Up Takeover Ambitions: Intrum Justitia plans to step up pace of acquisitions as it aims to increase its presence in credit management services in coming years, according to acting CEO Erik Forsberg.
- Swiss Watch Exports Fall in Nov. on Steep Hong Kong Decline: Shipments slid 5.6% to CHF1.95b, according to figures released today.
Fixed income markets have been particularly quiet today with just 66k contracts having been traded so far with no supply due from Europe. Also of note, purchases by the ECB's PSPP program will be suspended from today up until and including January 1st.
In FX, price action in FX markets has also remained subdued so far today, with EUR/USD having been dictated by around 3Bn of option expiries in the pair at 1.0900, however prices have since moved away from this level towards the North American crossover. Similarly, there is 1.38bIn in USD/JPY at the 121.00 handle which is also set to roll off at the 1500GMT NY cut. Elsewhere, Commodity-linked currencies continued to receive bids following the reprieve seen in metal and crude prices, which have seen AUD/USD extend gains past 0.7200 and NZD/USD recapturing 0.6800.
Gold traded range bound during the European session holding on the gains seen yesterday, where a weaker USD led to a mild reprieve in commodity prices. Elsewhere, copper prices have continued to pull-back from 5-week highs, while Dalian iron ore futures saw mild pressure alongside a resumption of declines in steel prices. WTI and Brent have continued in their upward trend of the past two sessions, with Brent having come off 11year lows and WTI spending much of the session above the USD 36.00 handle.
On Today's US calendar we have the tertiary reading of US Q3 GDP as well as US existing home sales, while the latest API crude oil inventories are scheduled for release after the close - another dramatic build like last week's, will quickly end the most recent attempt at a bouncing dead cat.
Top Global News
- China’s Leaders Signal More Stimulus After Top Economic Meeting: Call for more “flexible” monetary policy to support reforms.
- Deutsche Bank Tally of Suspect Russia Trades Said at $10b: Bank has identified up to $4b in suspicious transactions related to its Russian operations, in addition to $6b in so- called mirror trades it is examining, according to people familiar.
- Qatar National Bank to Buy Turkey’s Finansbank for $2.95b: Deal to buy NBG’s 99.8% holding in Finansbank subject to regulatory approvals, expected to close in 1H 2016.
- Japan’s Recruit to Acquire Dutch Employment Firm USG People: Recruit Holdings agreed to buy USG People of the Netherlands for EU1.42b as Japan’s biggest provider of temporary staff seeks to boost growth in Europe.
- NetApp Acquiring SolidFire for $870m to Boost Flash: Co. to buy SolidFire to boost its presence in growing market for systems that can retrieve, store vast amounts of data at rapid speeds.
- Musk Greets SpaceX Reusable Rocket With ‘Welcome Back, Baby’: SpaceX made a Falcon 9 booster first piece of an orbital rocket to land back on Earth after launching satellites into orbit.
- Icahn Takes Lead in Pep Boys Battle With $918.7m Bid: Pep Boys said its board has decided that Icahn’s offer made Friday evening was superior to an earlier bid from Bridgestone Corp.
- Citigroup $1.13b Mortgage Settlement Approved by N.Y. Judge: Court approves settlement reached in April 2014 with Citigroup to resolve liabilities for loans bank packaged, sold in run-up to 2008 financial crisis.
- Apple Says U.K. Surveillance Law Would Endanger All Customers: Co. outlined opposition to proposed U.K. surveillance law, saying threats to national security don’t justify weakening privacy, placing data of hundreds of millions of users at risk.
- Google Teams With Ford to Build Self-Driving Cars: Yahoo Autos: Cos. will establish JV to build vehicles with Google technology.
- CBS CEO Moonves Said in Line to Become Chairman After Redstone: Leslie Moonves would become broadcaster’s chairman upon death of Sumner Redstone under agreement with Redstone’s daughter Shari, according to person familiar.
- Goldman Sachs Names Three Bankers to Management Committee: Gregg Lemkau, Marc Nachmann, Jim Esposito were appointed to panel, according to memo
Overnight Media Digest from Bloomberg and RanSquawk
- As a result of recent commodity strength, the FTSE 100 (+0.20%) is the best performing major European index
- Commodity-linked currencies continued to receive bids following the reprieve seen in metal and crude prices, which have seen AUD/USD extend gains past 0.7200 and NZD/USD recapturing 0.6800
- Looking ahead, this afternoon sees the Turkish rate decision, the tertiary reading of US Q3 GDP as well as US existing home sales, while aftermarket the latest API crude oil inventories are also scheduled for release.
- Treasuries little changed in quiet overnight trade amid gains in crude oil, headed for a yearly gain amid global growth concern even as the Fed has increased interest rates.
- China’s leaders signaled they will take further steps to support growth, including widening the fiscal deficit and stimulating the housing market, to put a floor under the economy’s slowdown; PBOC auctioned CNY30b of 7-day reverse repos at at a yield of 2.25%, up from CNY10b a week earlier
- The world’s biggest iron ore exporter cut its price forecast for next year by 19% as supply continues to swell and slowing growth in China hurts demand in the biggest user
- Amid the uncertainty over Spain’s political future after Sunday’s inconclusive election result, one thing is clear: the country’s budget-deficit targets are at risk as 3 of the 4 biggest parties in the new parliament promised voters they’d persuade the EC to ease Spain’s budget limits
- Finland should never have joined the euro, according to foreign minister Timo Soini, who is also the leader of The Finns party; says the country could have resorted to devaluations had it not been for its membership
- Authorities investigating a fake bomb left in the lavatory of an Air France jet released a man who had been held for questioning over the hoax
- No IG or HY deals expected for remainder of year. BofAML Corporate Master Index OAS +1 to +175, YTD range 180/129. High Yield Master II OAS widens 5bp to +725 after reaching +733, new YTD wide, last week; YTD low 438
- Sovereign 10Y bond yields increase. Asian stocks mostly higher, European stocks mixed, U.S. equity-index futures decline. Crude oil higher, gold little changed, copper falls
US Event Calendar
- 8:30am: GDP Annualized, q/q, 3Q T, est. 1.9% (prior 2.1%)
- Personal Consumption, 3Q T, est. 2.9% (prior 3%)
- GDP Price Index, 3Q T, est. 1.3% (prior 1.3%)
- Core PCE, 3Q, est. 1.3% (prior 1.3%)
- 9:00am: FHFA House Price Index, m/m, Oct., est. 0.5% (prior 0.8%)
- 10:00am: Existing Home Sales, Nov., est. 5.35m (prior 5.36m)
- 10:00am: Existing Home Sales, m/m, est. -0.2% (prior -3.4%)
- 10:00am: Richmond Fed Mfg Index, Dec., est. -1 (prior -3)
- 11:30am: U.S. to sell 4W bills