While Asian stocks continued their longest rally since August overnight, led higher for the third consecutive day on the back of Japan (+1.3%), Australia (+1.2%) and China (+0.4%) strength, European stocks have as of this moment halted their longest rally since October (Stoxx -0.1%) and U.S. index futures are little changed. Oil slipped from an eight-week high despite yesterday's massive rise in US oil inventories on hopes Saudi Arabia may be forced to cut production as its budget strains grow actue and the kingdom is forced to seek a $10 billion loan, its first material borrowing in a decade.
Today the US economy will get two more important datapoints, initial claims and the Service ISM, leading into tomorrow's key report on nonfarm payrolls giving more clues on the strength of the U.S. economy and the trajectory of interest rates. Some better-than-expected data and optimism China will do more to tackle slowing growth boosted sentiment in the past week, with global equities recouping more than half this year’s losses since sinking to a 2 1/2-year low on Feb. 11. In terms of imminent "stimulus" catalysts, the market is looking at the European Central Bank meeting on March 10 while the Federal Reserve on March 16 may lead to more hawkishness and a negative impact on stocks.
“It’s been a pretty decent couple of weeks and there didn’t seem to be anything to prompt the rally in terms of data,” Ben Kumar, an investment manager at Seven Investment Management in London told Bloomberg. “It’s possible people are taking profit and pausing for breath before the ECB meeting next week.”
S&P 500 futures were little changed after yet another low-volume short squeeze rally pushed the market off the unchanged line and less than 3% down on the year.
Will today see a repeat of the low-volume levitation? Stay tuned.
Markets at a glance:
- S&P 500 futures down 0.1% at 1983
- Stoxx 600 down 0.1% to 340
- FTSE 100 up 0.2% to 6158
- DAX up less than 0.1% to 9779
- German 10Yr yield down less than 1bp to 0.2%
- Italian 10Yr yield down 2bps to 1.44%
- Spanish 10Yr yield down less than 1bp to 1.57%
- MSCI Asia Pacific up 1.4% to 125
- Nikkei 225 up 1.3% to 16960
- Hang Seng down 0.3% to 19942
- Shanghai Composite up 0.4% to 2860
- US 10-yr yield up 2bps to 1.86%
- Dollar Index down 0.01% to 98.2
- WTI Crude futures down less than 0.1% to $34.64
- Brent Futures down 0.5% to $36.74
- Gold spot up 0.2% to $1,242
- Silver spot up less than 0.1% to $14.95
Top Global News
- Shale Pioneer McClendon, Charged in Bid Rigging, Dies in Crash: one-time billionaire wildcatter whose meteoric rise and swift fall traced the arc of the shale revolution, died in a car crash in Oklahoma City on Wednesday morning; McClendon Backer Said to Cut Ties Before Grand Jury Indictment
- Goldman Said Poised to Drop Russia Bond Bid Amid U.S. Pressure: Refraining would bring firm in line with other U.S. banks. State Department had discouraged firms from participating
- Samsonite Nears Deal to Buy Luggage Maker Tumi, WSJ Reports: Acquisition could value company close to $2 billion. Samsonite halts shares trading in Hong Kong, no reason given
- New York Said to Investigate Insurers Over Hepatitis C Drugs: State attorney general probes limited access to treatments. Gilead, AbbVie drugs cost about $1,000 a pill before discounts
- Carson to Skip Debate, Sees No Path to Presidential Nomination: The move is effectively the first consolidation of the field since Jeb Bush dropped out on Feb. 20.
- Yahoo, Snapchat, Dropbox Seen to Sign Brief Backing Apple: NYT
Looking at regional markets, Asian equities traded higher for the 3rd consecutive day with strength in energy and financials supporting global risk-on sentiment. Nikkei 225 (+1.3%) outperformed as JPY weakness supported exporters, with index giant Fast Retailing also reporting strong sales results. ASX 200 (+1.2%) was underpinned by commodity strength as material names led after iron ore rose to its highest since October. Chinese markets have been less decisive and underperform following further weak PMI figures, although the Shanghai Comp (+0.4%) was marginally positive after the PBoC resumed liquidity injections (CNY 40bIn of liquidity via 7-day reverse repos). 10yr JGBs are lower following spill-over selling in T-Notes as upbeat sentiment dampens demand for safer assets, while volatility was observed following a JPY 300BN enhanced liquidity auction for the long and super long end, with 20yr, 30yr and 40yr JGB yields declining to record lows.
Asia Top News
- As China Leaders Gather, Nominal Growth Drop Flashes Warning: Contribution to world growth down to less than half 2013 level
- Moody’s Cuts Credit Outlook on Chinese SOEs, Financial Firms: China Mobile, ICBC among companies with reduced outlooks
- China Policy Moves Risk Property Price Bubble, PBOC Adviser Says: Divergence seen between top tier and lower tier markets
- Kuroda’s Deputy Urges Abe Government to Accelerate Reforms: Nakaso says BOJ has taken monetary policy to next level
- Deutsche Bank Veterans Nichol, Torres Said Poised to Depart: Nichol is in talks about a senior role at a financial firm
- North Korea Fires Short-Range Projectiles After New UN Sanctions: U.S., China agree on UN resolution in wake of nuclear test
- Singapore Air Turns to New Jet to Lure Premium-Paying Flyers: Carrier’s first A350 will be used for Amsterdam flights in May
In Europe equities 5-day win streak has comes to a halt as of this moment with the Eurostoxx (-0.1%) lingering in mild negative territory for much of the European morning, led lower by healthcare names, with large cap Roche (-3.9%) going ex-dividend. Newsflow has come in few and far this morning, however a raft of lacklustre PMI figures from the likes of UK, France and Spain, alongside a slew of poor earnings have somewhat added to the sombre tone.
Elsewhere, Bunds reside in positive territory, despite initial selling pressure in early European trade which saw prices test lows seen on February 23rd. Analysts at Informa note that ahead of tomorrow's NFP release and next Tuesday's Bund expiry, roll activity could be quite noticeable and thus present a factor for consideration for today's price action. Additionally, some had attributed the early downtick due to the supply from Spain and France continuing to pressure EUR rates, with the German benchmark moving higher after the respective auctions.
Top European News
- ECB Brainstorms as Draghi Seeks Boost That Won’t Hurt Banks: Possible options include tiered deposit rate, exemptions. Executive Board will review suggestions before formal proposal
- Adidas Forecasts Sales May Rise at Fastest Pace in Five Years: CEO says co. will finish review of golf business this month. Shoemaker predicts higher consumption, helped by Euro 2016
- U.K. Services Index Plunges to Lowest in Almost Three Years: The Purchasing Managers Index published by Markit fell to 52.7 -- the lowest since March 2013 -- from 55.6; forecast 55.1
- Euro-Area Companies Cut Prices as Recovery Loses Momentum
- BHP-Vale Mine Reaches Accord to Pay for Brazil Dam Disaster: Deal calls for BRL4.4b to be deposited by 2018 in foundation. Companies agreed to pay at least $1.1 billion over next 3 years for damage caused by tailings dam spill
- Accor, HNA Said to Bid for Radisson Owner Carlson Rezidor: Sale of Carlson’s hotel brands could fetch about $2 billion. A buyer for the group may be chosen as soon as the first half
- UBS French Unit Faces Witness-Tampering Probe After Tax Case: Lender says tampering allegations made by former employee. UBS says a claim of harassment was rejected by judges
- AIB Profit Soars as Irish Election Weighs on State Share Sale: CEO says he’s ‘not too worried’ if state share sale delayed. Pretax profit rises 72% to 1.9 billion euros in 2015
- Vonovia 2015 Profit Doubles on Acquisitions, New Revenues: Cash from Failed Deutsche Wohnen Bid to Pay off Debt. Income Jumps From ‘Extensions’ Services Such as Cable TV
In FX, the yen resumed falling against all but one of its major counterparts as improving U.S. economic data damped demand for safer assets. The currency approached the lowest level in two weeks against the greenback as Japanese shares advanced for a third day following gains in U.S. equities on Wednesday. The yen has still strengthened at least 2 percent versus all of its 16 major peers this year as concern China’s economy is slowing roiled financial markets around the world. "The yen is playing catch-up today,” James Purcell, a cross-asset strategist at UBS Group AG’s wealth-management business in Hong Kong told Bloomberg. “Dollar-yen positioning was simply too extreme.”
In Europe, GBP has taken centre stage once again, with the key UK services PMI release (52.7 vs. Exp. 55.1) prompting some selling through the morning, though much of this was ahead of the data, as Cable rejected 1.4100 aggressively. Strong offers above the figure were targeted, but after failing to break through the spot rate dropped back into the mid 1.4000's. Post data, the sell off met demand from 1.4030, but grinding higher again, we are finding resistance at 1.4180-85 levels. Elsewhere, USD/JPY is struggling on a 114.00 handle, but the pullback has found support in the upper 113.00's. The overall risk mood is steady, with Euro bourses flat. Oil prices are also steady, keeping the CAD near its recent highs, but 1.3400 here proving an obstacle over the last few days. AUD continues to hold strong though, with NZD hanging onto its coattails despite soft local data of late and growing talk of potential RBNZ rate cuts.
In commodities, oil slipped from an eight-week high after data showing U.S. refineries boosted their use of crude, while the nation’s stockpiles expanded by 10.4 million barrels to the highest level in more than 80 years. Brent lost 0.6 percent to $36.70 a barrel, while West Texas Intermediate crude fell 0.1 percent to $34.64.
Industrial metals gained, with copper advancing 0.5 percent to $4,814 a metric ton, for a third day of gains. Nickel rose 1.2 percent and zinc added 1 percent as investors anticipated the annual China policy conference might signal that further stimulus is likely. Gold extended a three-week high, rising 0.1 percent to $1,241.60 an ounce. The metal is up 17 percent this year as financial market volatility and concerns over global growth boosted demand for haven assets.
In the US the bulk of the attention will be placed on the aforementioned services ISM print in what is a bumper day for data. We’ll also get the final revisions to Q4 nonfarm productivity and unit labour costs, along with durable and capital goods orders for January and the services and composite Markit PMI’s for last month. Alongside this we’ll also get last week’s initial jobless claims (important in the context of tomorrow’s payrolls) and January factory orders. Fedspeak wise it’s the turn of Kaplan (at 3.45pm) at an event in Texas, while the BoE’s often controversial Haldane will be speaking later this evening.
Bulletin Headline Summary from RanSquawk and Bloomberg
- European equities shrug off Asian strength to spend much of the European morning in mild negative territory
- Bunds trended higher in Europe, with the German benchmark heading back toward the 165.50 level
- Highlights today include US services PMI, ISM Non-manufacturing data, factory orders, durable goods, Fed's Kaplan and BoE's Haldane
- Treasuries lower in overnight trading as global equity markets mixed ahead of today’s heavy U.S. economic calendar which will include nonfarm productivity, services PMI and factory orders.
- One week before a long-awaited stimulus decision, ECB officials’ chief concern is that negative interest rates, especially if cut further, might squeeze banks’ profitability to the extent they pull back on lending; Add negative interest rates to the list of monetary- policy tools hampering liquidity in sovereign-bond markets. One measure of market liquidity in Europe has fallen by more than half since late 2014, according to JPMorgan
- Three European giants — Credit Suisse, Deutsche Bank, and Royal Bank of Scotland — each racked up billions of dollars in losses in 2015. RBS has lost money every year since the 2008 crisis
- The more money Mario Draghi prints in his quest to raise inflation, the more the euro area’s banks struggle to find a place to put it, with lending picking up from a long slump only slowly
- A U.K. Purchasing Managers Index fell to 52.7 -- the lowest since March 2013 -- as concerns about global growth, market volatility and the possibility of a British exit from the European Union rattled the biggest part of the economy
- Canadian Prime Minister Justin Trudeau is urging global leaders to rely more on government spending and less on monetary policy to spur growth as he prepares a budget that will push his country into deficit
- Goldman Sachs Group Inc. will probably join the list of international banks refraining from helping Russia sell debt after U.S. officials urged Wall Street to stay out of the deal, according to a person briefed on the situation
- $13.975b IG corporates priced yesterday, 3rd straight double-digit session; brings WTD to $48.175b, YTD to $325.025b; no HY priced, YTD $16.355b
- Sovereign 10Y bond yields mixed with Greece 4bp lower; European, Asian markets mixed; U.S. equity- index futures rise. WTI crude oil steady, copper, gold up.
US Event Calendar
- 7:30am: Challenger Job Cuts y/y, Feb. (prior 41.6%)
- 8:30am: Non-farm Productivity, 4Q F, est. -2.9% (prior -3%); Unit Labor Costs, 4Q F, est. 4.3% (prior 4.5%)
- 8:30am: Initial Jobless Claims, Feb. 27, est. 270k (prior 272k); Continuing Claims, Feb. 20, est. 2.250m (prior 2.253m)
- 9:45am: Markit US Services PMI, Feb F, est. 50 (prior 49.8); Markit US Composite PMI, Feb. F (prior 50.1)
- 9:45am: Bloomberg Consumer Comfort, Feb. 28 (prior 44.2)
- 10:00am: ISM Non-Mfg Composite, Feb., est. 53.1 (prior 53.5)
- 10:00am: Factory Orders, Jan., est. 2.1% (prior -2.9%)
- Factory Orders Ex Trans, Jan. (prior -0.8%)
- Durable Goods Orders, Jan. F (prior 4.9%)
- Durables Ex Transportation, Jan. F (prior 1.8%)
- Cap Goods Orders Non-def Ex Air, Jan. F (prior 3.9%)
- Cap Goods Ship Non-def Ex Air, Jan. F (prior -0.4%)
- 11:00am: U.S. to announce plans for auction of 3M/6M bills, 3Y/10Y notes, 30Y bonds
DB's Jim reid concludes the overnight wrap
Yesterday’s better than expected ADP employment change reading for February (214k vs. 190k expected) did little to dampen expectations ahead of tomorrow’s report, while at the same time contributing to helping send Fed tightening expectations up another couple of basis points. In fact the market is now back to pricing a 66% chance of a Fed rate hike this year (from 64% on Tuesday) after at one stage pricing in as low as 11% back on February 11th. We’re still a way off the 1-2 hikes which the market was pricing late last year but nevertheless the swing is evidence of how quickly sentiment can turn when we see a run of reasonable data and a bit of stability in Oil and risk assets.
Yesterday was case in point with US equities in particular continuing to extend their surge off the February lows which has coincided with better data and this decent run for Oil. A late Oil-injected bounce helped the S&P 500 close +0.41% and take the recovery from the intraday February low point (on February 11th) to nearly 10%. US credit has followed a similar pattern with CDX IG (-0.5bps yesterday) now 25bps off the wides last month, while iTraxx European senior and sub fins are 38bps and 106bps tighter respectively in the same time frame with the latter in particular now back to pretty much where it started in February after a roundabout month for banks.With regards to Oil, despite bearish crude inventory data, WTI (+0.76%) closed higher for the third consecutive session and fifth time in six days to edge closer to that $35/bbl mark with the respective bounce off the lows for the current on-the-run contract now past 20%.
The move for Oil yesterday perhaps reflecting an interesting article on Reuters which suggested that Saudi Arabia was in talks with international banks for a loan of up to $10bn in what would be the first material borrowing from the Gulf nation in a decade and a clear sign of deepening budget deficit concerns. While energy markets have attracted the headlines it’s not the only commodity that has impressed recently though with Copper now at a three-month high, Aluminum nearing a four-month high and Iron Ore above $50/tn and approaching a five-month high. As a result its commodity-sensitive currencies which have quietly gone about positing some decent returns. In fact since that 11thFebruary low for risk assets, we’ve seen the Russian Ruble gain nearly 10%, Colombian and Mexican Peso rally over 7%, and currencies in Chile, Canada, Brazil and Australia all return over 2.5%.
Glancing at our screens this morning the positive sentiment has largely continued in the Asia session as Oil markets hold onto the gains last night. In Japan the Nikkei is +0.78% while there are also gains for the Kospi (+0.43%) and ASX (+1.19%). Mainland China bourses have been a bit more choppy although the Shanghai Comp (+0.49%) and CSI 300 (+0.26%) are eeking out a small positive return just after the midday break. That’s despite the news that 38 Chinese SOE’s have been put on negative outlook this morning post the Moody’s outlook change on China’s sovereign rating yesterday. On top of that, the Caixin non-official PMI data has confirmed the subdued official prints we saw on Tuesday. The non-official services print was confirmed at a 1.2pt decline this month, which has seen the composite fall 0.7pts to 49.4 and back in contractionary territory.
Moving on. Yesterday’s Fedspeak was centered on San Francisco Fed President Williams who, unlike Dudley the day prior, was a lot more upbeat with regards to his comments around the outlook for the US economy. The Fed official made mention to the US being able to ‘power through’ headwinds from abroad while also citing that he sees no signs of fragility in the economy creeping in and that ultimately his outlook hasn’t changed by more than a fraction relative to the end of last year. Williams refused to comment on the rate path he expects the Fed to take, while also shooting down negative interest rate talk.
Away from this and in what was a fairly data-light day for the most part yesterday there was also a little bit of positivity to be taken from the Fed’s Beige Book last night. The US economy was said to have expanded in most districts, while growth in wages was reported as being ‘flat to strong’. Modest growth in the labour market was also a feature, auto sales remained at ‘elevated levels’ while encouragingly most districts also reported modest increases in loan demand, stable credit quality and unchanged credit standards. On the flip side weakness was attributed to the usual suspects with manufacturing and energy related issues still very much a factor, the former in particular citing the stronger dollar and weakening global outlook as factors.
Prior to all this in the European session equities (with the exception of the UK) closed broadly higher with the Stoxx 600 in particular finishing with a +0.66% return, in turn marking the fifth consecutive daily gain – the longest such run since October. Meanwhile there was some attention placed on the ECB Coeure’s comments yesterday. The ECB official made mention to the call for a creation ‘of a shock-absorption capacity at the euro area level to complement the automatic stabilizers of Member States’. Coeure went on to opine that the current euro area set-up which is based on fragile public finances and modest economic growth ‘casts doubt on the euro area’s capacity to face future economic shocks’ and that instead ‘a move towards more fiscal risk-sharing in EMU would therefore require a commensurate shift towards increased joint decision-making within strong common institutions’.
Turning to the day ahead now. This morning in Europe the focus will be on the revisions to the final February services and composite PMI’s for the Euro area, Germany and France, while we’ll also get the first look at the UK, Italy and Spain equivalents. Euro area retail sales covering the January month are also due out this morning. Over in the US the bulk of the attention will be placed on the aforementioned services ISM print in what is a bumper day for data. We’ll also get the final revisions to Q4 nonfarm productivity and unit labour costs, along with durable and capital goods orders for January and the services and composite Markit PMI’s for last month. Alongside this we’ll also get last week’s initial jobless claims (important in the context of tomorrow’s payrolls) and January factory orders. Fedspeak wise it’s the turn of Kaplan (at 3.45pm) at an event in Texas, while the BoE’s often controversial Haldane will be speaking later this evening.