It has been more of the same overnight, as global stocks piggybacked on the strong US close and rose despite the lack of good (or bad) macro news, propelled higher by the two usual suspects: a higher USDJPY and a even higher oil, if mostly early on in the trading session.
Yes, the oil squeeze higher continues, and as the charts below courtesy of Andy Critchlow show, Brent is now 82% higher in the past 82 days...
... while crude has had its strongest rally since 2010.
However, after rising above $48 for the first time since October, crude finally pulled back modestly and was unchanged at last check while Brent was modestly in the red. This led to equities paring much of their overnight advance. In FX, in addition to the abovementioned spike in the USDJPY now well in the mid-109.50s, the other prominent mover was Australia’s dollar which advanced after central bank officials suggested authorities will hold off on cutting interest rates.
The Stoxx Europe 600 Index was still set for its third day of gains also following the crude jump above $48 a barrel. The British pound climbed by the most in four weeks as a poll indicated support is growing in the U.K. for the country to remain in the European Union. Investors got a reminder of the challenges facing central banks as a report showed U.K. consumer-price growth unexpectedly slowed in April. U.S. data on Tuesday are forecast to show inflation quickened last month. West Texas Intermediate crude was unchanged at $47.74. The pound was 0.6 percent stronger at $1.4486 and the Aussie gained 0.5 percent to 73.25 U.S. cents. US equity futures were unchanged after rising 0.3% around the European open.
"Markets seem to be in a relatively sweet spot with a steadily stronger U.S. dollar and resilient commodities prices,” Angus Nicholson, a Melbourne-based market analyst at IG Ltd., told Bloomberg "Many investors have been predicting a pullback in markets, but despite all the negativity, markets have continued to grind higher."
Spot on: which is why to all those who are itching to short the market here, our advise is to wait for Gartman to go long first.
This is where markets were at this moment
- S&P 500 futures up less than 0.1% at 2063.5
- Stoxx 600 up 0.5% to 337
- FTSE 100 up 0.6% to 6191
- DAX up 0.1% to 9963
- German 10Yr yield up 1bp to 0.16%
- Italian 10Yr yield down less than 1bp to 1.48%
- Spanish 10Yr yield down less than 1bp to 1.6%
- S&P GSCI Index down 0.1% to 367.2
- MSCI Asia Pacific up 0.7% to 127
- Nikkei 225 up 1.1% to 16653
- Hang Seng up 1.2% to 20119
- Shanghai Composite down 0.3% to 2844
- S&P/ASX 200 up 0.7% to 5396
- US 10-yr yield up less than 1bp to 1.76%
- Dollar Index down 0.04% to 94.53
- WTI Crude futures up less than 0.1% to $47.74
- Brent Futures down 0.6% to $48.68
- Gold spot down 0.2% to $1,271
- Silver spot up less than 0.1% to $17.16
Top Global News
- Oil Advances to Seven-Month High as U.S. Stockpiles Seen Falling
- Saudi Arabia’s Treasuries Holdings Are Unveiled After 41 Years
- Soros Cuts U.S. Stock Investments 37%, Buys Barrick Gold Stake
- Hedge Funds Abandon Ex-Darling Valeant and Other 13F Highlights
- LendingClub Subpoenaed by Justice Department After CEO Exit
Looking at regional m,arkets, Asian stocks traded mostly higher following a firm Wall Street close where tech and energy surged after Berkshire Hathaway took a USD 1bIn stake in Apple and WTI rose to fresh 6-month highs. This saw the energy sector underpin ASX 200 (+0.7%) and Nikkei 225 (+1.1%) as WTI extended its advances during Asia hours to above USD 48/bbl, while JPY weakness further bolstered Japanese stocks. Shanghai Comp (-0.3%) underperformed despite the PBoC injecting funds through its Medium-term Lending Facility, as debt concerns continued to linger after Evergreen Holding defaulted on bond repayments to become at least the 10th defaulter in China YTD. 10yr JGBs traded flat with a lack of demand seen amid a positive risk tone in Japan, while today's 5yr auction saw mixed results with the b/c slightly declining from prior although the lowest accepted price was higher than expected. Japanese PM Abe said the sales tax will be increased as planned unless a serious event occurs. PM Abe also commented he will make a decision at an appropriate time which will be based on expert opinions.
Top Asian News
- BlackRock’s Fink Says ‘All Have to’ Worry About China Debt
- China to Restrict Trading Halts, Report Says, Boosting MSCI Odds
- ANZ to Cut About 200 Jobs in Australia as Loan Growth Slows
- As China Revamps Regulation, PBOC Gears Up for Central Role
- Aircastle’s Japan Venture to Buy Up to 10 Boeing, Airbus Planes
- Japan to Seek Cheaper Plans From Operators, Official Says
European equities have been climbing higher this morning with Germany and Switzerland returning from their elongated break. Risk on sentiment has been supported by the continuation of the upside in oil prices in which Brent crude futures had sustained a move above USD 49/bbl for a large part of the morning. However, in recent trade prices have tailed off with WTI crude retesting USD 48/bbl to the downside.Additionally, the upbeat tone has also been supported by the gains in Apple yesterday following Berkshire Hathaway announcing a USD 1bIn stake in the Co. As such, gains in equities has seen Bunds on the back foot. Alongside this, a slew of EUR-denominated bond sales is set to continue this week after near record amount of sales last week. Furthermore, as energy markets continue to climb this could continue to hamper fixed income products as markets inflation expectations adjust to the uptick in prices.
Top European News
- U.K. Inflation Rate Unexpectedly Declines to 0.3% on Air Fares: Economists had forecast a rate of 0.5 percent, based on the median estimate in a Bloomberg survey
- Vodafone Beats Estimate With 2.5% Quarterly Network Revenue Gain: Analysts surveyed by Bloomberg expected 1.5 percent growth, on average
- Iliad First-Quarter Sales Increase 6.6% on Wireless Promotions: Revenue rose to 1.15 billion euros ($1.3 billion)
- Barclays’ Ramos Emerges as Best-Value South African Bank CEO: Barclays Africa earned 508 rand ($33) in net income for every rand the Johannesburg-based company paid Ramos in base salary, long-term incentives and bonuses in 2015, according to data compiled by Bloomberg
- Deutsche Bank Names Ex-EDF CFO Thomas Piquemal to Lead M&A: Piquemal, 47, who quit as chief financial officer of French utility Electricite de France SA in March, will be based in Paris and report to corporate and investment banking chief Jeff Urwin
In FX, Asia and early London have been pretty active today, with the ongoing levitation in USDJPY one of the most prominent trades, where a 109 stop hunt unleashed short covering above 109 and pushed the pair as high as 109.60. Cable has also been active with inflation data in both the UK and US today. The UK numbers saw some softness in the more focused-upon core read, with the y-o-y rate registering 1.2% vs median 1.4% expected. Ahead of this, the ORB/Telegraph poll saw the remains showing a significant lead to send the spot rate tearing through the 1.4400's, trading through 1.4500 but holding resistance levels ahead of 1.4550 before the data response saw us lower again. EUR/GBP was testing .7800 early on, but has survived a potential breach of the figure level. Elsewhere, the post RBA (minutes) recovery in AUD looks to have been short-lived as the spot rate sinks back into the low .7300's. US inflation now set to determine whether we test through the figure, with EUR/USD also mid-range ahead of the release. USD/JPY is higher on the positive risk tone, with the quest for 110.00 back on. USD/CAD has duly found anticipated support in the mid 1.2800's to return through 1.2900, coinciding with a turn-back in WTI through $48.0 and Brent below $49.0.
In commodities, WTI and Brent have fallen off session highs after eyeing the USD 50.00/bbl level. Gold and silver have also been falling alongside the rest of the commodities complex as the USD has been strengthening in the EU session. Elsewhere, copper and iron prices were underpinned and were in minor positive territory amid the global risk sentiment.
On today's US calendar, the big focus will be on the April inflation data. Market expectations are for a +0.3% mom headline print which should be boosted by higher oil prices and a +0.2% mom print at the core. Elsewhere this afternoon we’ll also get April housing starts and building permits data – both of which are expected to rebound. Finally we’ll cap the day off with more important data in the form of industrial production (+0.3% mom expected), capacity utilization and manufacturing production. Fedspeak wise we’ll also hear from Williams and Lockhart at noon in a joint interview, as well as Kaplan (at 1.15pm EDT) later on while the ECB’s Praet and Nouy are scheduled to speak this morning.
Bulletin Headline Summary From RanSquawk and Bloomberg
- European equities trade higher as European equities take the lead from their US and Asian counterparts with elevated energy prices also underpinning sentiment
- GBP has been a key focus for FX markets as UK CPI fell short of expectations, while the latest polls develop a further bias for remaining in the EU
- Looking ahead, highlights include US CPI, Housing Starts, Building Permits and API Inventories, ECB's Praet, Fed's Williams, Lockhart and Kaplan
- Treasuries trade slightly lower overnight, led by belly, amid rise in global equities while crude oil is off session-highs; U.S. data includes CPI and housing starts.
- Even as the VIX sits 25 percent below its bull market average, investors are using futures on the index to hedge against trouble in equities six months from now
- After spending years fighting the European Union, Ryanair Holdings Plc CEO Michael O’Leary has turned into one of its biggest defenders, and he’s even decorating his airplanes to prove it
- The pound rallied the most in two weeks after the ORB/Telegraph poll showed 55 percent of respondents were in favor of remaining in the European Union, while 40 percent wanted to leave
- U.K. inflation unexpectedly slowed in April, highlighting the struggle Bank of England policy makers face to revive price growth
- Chinese stocks traded in Hong Kong rose the most in a month, with commodity producers gaining as oil prices climbed and President Xi Jinping vowed to press ahead with plans to cut capacity at state-owned enterprises
- As China’s leaders consider ways to improve market oversight and avoid the kind of boom and bust in equities that shook investors around the world last year, the PBOC is already extending its oversight to areas beyond its traditional focus
- BlackRock Inc.’s Laurence D. Fink, who oversees the world’s largest money manager with $4.7 trillion of client assets, said “we all have to be worried” about China’s mounting debt amid slowing growth, even as he remains bullish on the economy in the long run
- Ray Dalio’s $154 billion Bridgewater Associates became the first foreign hedge fund manager to win approval to set up a wholly owned investment-management business in China, according to Shanghai-based consulting firm Z-Ben Advisors
- Sovereign 10Y yields mostly lower; Asian, European equities higher; U.S. equity-index futures higher; WTI crude oil rises while precious metals fall
US Event Calendar
- 8:30am: Housing Starts, April, est. 1.125m (prior 1.089m)
- Housing Starts m/m, April, est. 3.3% (prior -8.8%)
- Building Permits, April, est. 1.135m (prior 1.086m, revised 1.076m)
- Building Permits m/m, April, est. 5.5% (prior -7.7%, revised -8.6%)
- 8:30am: CPI m/m, April, est. 0.3% (prior 0.1%)
- CPI Ex Food and Energy m/m, April, est. 0.2% (prior 0.1%)
- CPI y/y, April, est. 1.1% (prior 0.9%)
- CPI Ex Food and Energy y/y, April, est. 2.1% (prior 2.2%)
- CPI Index NSA, April, est. 239.119 (prior 238.132)
- CPI Core Index SA, April, est. 246.450 (prior 246.095)
- Real Avg Weekly Earnings y/y, April (prior 1.1%)
- 9:15am: Industrial Production m/m, April, est. 0.3% (prior -0.6%)
- Capacity Utilization, April, est. 75% (prior 74.8%)
- Manufacturing (SIC) Production, April, est. 0.3% (prior -0.3%)
- 12pm: Fed’s Williams, Lockhart speak in Washington
- 1:15pm: Fed’s Kaplan speaks in Midland, Texas
- 4:30pm: API weekly oil inventories
DB's Jim Reid concludes the overnight wrap
Yesterday was all about Apple and oil. Starting with the former, Apple’s share price gained close to 4% yesterday and the most in over two months following the news that Warren Buffet’s Berkshire Hathaway has bought a $1bn slice of the company. That comes as other high-profile money managers have recently cut or exited their positions in the tech giant (including Carl Icahn). That said, after trading just above $130 in the summer of 2015, shares have since collapsed into the low $90’s and while Buffet has for a while typically avoided investment in the tech sector, the move will been as a something of a vote of confidence that Apple can halt the recent slide in sales.
Meanwhile, the other big headline grabber yesterday was Oil. An upbeat broker report suggesting that the market has moved into a deficit quicker than expected following some of the recent supply disruptions (including Nigeria, Canada and Venezuela) helped fuel a +3.27% for WTI and so taking it to close to $48/bbl and the highest close since November 3rd. Brent was up a similar amount and is edging closer to the $50/bbl mark (hovering around $49.26/bbl this morning). With the moves this morning it means that the unrelenting rally for WTI since the February intraday lows has seen it surge an impressive 84% in that time.
Unsurprisingly then it was energy and tech names which led the S&P 500 to a +0.98% gain yesterday, while the Nasdaq finished up a slightly higher +1.22%. While Oil has been on a one-way track since February, it does appear that US equities have however hit a bit of a stumbling block this month even after considering yesterday’s strong performance. In fact in the nine sessions prior to yesterday, the S&P 500 had followed three days of consecutive losses, with three days of gains and then three more days of losses again with the index back to flat for the month of May (which compares to a 4% return for Oil). So while the old adage ‘sell in May and go away’ hasn’t quite been completely true, it’s proving to be a much more directionless month for US equities compared to the positive performance of March and April.
With the rebound in oil we thought we'd update our long-term chart of the average real price of oil back to 1861. When we last published back in January we remarked that for the first time in a decade oil was actually cheap relative to its long term value. 4 months on and with the large rally its back just above its 155 year long term real adjusted average (around $47). The chart is in the PDF today for those interested.
Switching our focus now to the latest in Asia this morning, bourses are largely following the US lead with the majority advancing. The Nikkei (+0.77%), Topix (+0.76%), Hang Seng (+0.31%), and ASX (+0.56%) are all up, while it’s China which is the standout underperformer with the Shanghai Comp currently - 0.37% although it’s not obvious what has triggered that. The poor weekend data was largely ignored yesterday but perhaps it's causing a drag today. Credit markets are benefiting from the general better sentiment with indices in Asia and Australia a couple of basis points tighter. In FX markets the Aussie Dollar (+0.80%) is the big mover following the RBA minutes from the meeting earlier this month which indicated that the decision to cut rates was actually more balanced than maybe first thought.
Moving on. Aside from the Apple and oil focus there wasn’t a great deal else to drive markets yesterday although the US data did turn a few heads. Specifically it was the May Empire manufacturing print which attracted attention after the data was reported as tumbling from its recent April high by nearly 19pts to -9.0 (vs. +6.5 expected). That monthly change was actually the most since October 2014 and of further concern was the weakness in the components with new orders, shipments and inventories all negative. Our US economists highlighted that this has resulted in their ISM-adjusted manufacturing survey index now falling below 50 after two successive monthly >50 readings. The ISM manufacturing print is due to be released on June 1st but for now yesterday’s reading will see much attention placed on Thursday’s Philly Fed manufacturing survey. Meanwhile the other data yesterday was the NAHB housing market index which also came in lower than expected at 58 for May, albeit unchanged relative to the prior month.
There was also some Fedspeak to mention yesterday and it came from Richmond Fed President Lacker. The Fed official said that while he would never completely make up his mind prior to a meeting, he noted that ‘at this point it looks to me as if the case for raising rates looks to be pretty strong in June’. Lacker made mention of inflation moving ‘decidedly toward 2%’ as well as there being further evidence of tightening in labour markets. He also said that the downside risks which dominated at the beginning of the year ‘have dissipated’. The US Dollar was little changed by the end of play yesterday although there was a reasonable move in the Treasury market with the benchmark 10y finishing up over 5bps higher in yield at 1.754% and wiping out Friday’s move lower.
Wrapping up the rest of the price action yesterday, with a number of public holidays it was an unsurprisingly quiet and low volume session in Europe reflected by just the +0.01% return for the Stoxx 600. Credit markets in the region were a touch wider (Crossover +4bps) although the stronger day for risk in the US saw CDX IG finish nearly 2bps tighter. It’s the new issue market which is still taking up much of the attention - particularly the mega deal from Dell. Bloomberg is reporting that the $16bn deal will be split across 8 tranches and is set to possibly price today but notably the same article suggests that the order book has already run past the $60bn mark, with the company suggesting that it is weighing up whether or not to upsize the deal.
Before we move on to the day ahead, the latest The House View titled “A challenging road” came out overnight. Despite rising concerns about global growth, the team expects only a modest deceleration into year-end from the US, China and the eurozone in aggregate. This, coupled with central banks taking a backseat in the coming months and geopolitical risk events approaching, leaves them holding a short-term neutral view on most markets.
Moving now to today’s calendar, this morning in Europe we’re kicking off in the UK where we’ll get the April inflation docket including CPI, PPI and RPI prints. Current expectations for CPI are for a +0.3% mom headline reading. The only other notable data this morning is the Euro area trade balance reading. Across the pond this afternoon the big focus is on the April inflation data. Market expectations are for a +0.3% mom headline print which should be boosted by higher oil prices and a +0.2% mom print at the core. Our US economists have a +0.1% mom forecast for the core as they expect further moderation in the growth rate of residential rents to keep a lid on inflation. Elsewhere this afternoon we’ll also get April housing starts and building permits data – both of which are expected to rebound. Finally we’ll cap the day off with more important data in the form of industrial production (+0.3% mom expected), capacity utilization and manufacturing production. Fedspeak wise we’ll also hear from Williams and Lockhart this evening (due at 5.00pm BST) in a joint interview, as well as Kaplan (at 6.15pm BST) later on while the ECB’s Praet and Nouy are scheduled to speak this morning.