It has been an odd session: after yesterday's unexpected late day swoon despite the ECB launch of "Private QE", late night trading saw a major reversal in USDJPY trading which soared relentlessly until it rose to fresh 6 year highs, briefly printing at 105.70, a level not seen since October 2008, before giving back all gains in overnight trading. It is unclear if it was this drop, or some capital reallocation from the US into Europe, but for whatever reason while Europe has seen a stable, if fading in recent hours, risk bid, and European bonds once again rising and Irish and Italian yields both dropping to record low yield, US equity futures have slumped and are now trading at the lows of the session ahead of a US nonfarm payroll print which is expected to rise and print for the 7th consecutive time above 200K, at 230K to be precise, up from 209K in July (down from 288K in June). It is unclear if the market is in a good news is bad news mood today, but for now the algos are not taking any chances and have exited risky positions, with the ES at the low end of the range the market has been trading in for the past week centered aroun S&P 2000.
In any event, if the equity bid does not recover soon, the ECB's intervention may be the weakest, or most priced in for, central bank intervention in New Normal history.
On the geopolitical front, there are just two thing to keep track of:
•PRO-RUSSIAN REBELS SAY THEY HAVE ENTERED THE CITY OF MARIUPOL IN UKRAINE - RUSSIA'S INTERFAX QUOTES SOURCE AMONG DONETSK SEPARATISTS
and
•UKRAINE REBEL LEADERS ARRIVE FOR PEACE TALKS IN MINSK
So more of the same: peace talks even as the separatists have made their biggest territorial gains since the early summer. Watch the resolution of this carefully as it will likely take place just after NFP when most traders will be on their way out.
Another notable development overnight took place in Japan which announced it is preparing a backup plan for fiscal stimulus. It appears that the BOJ is now fully resolved to not to more QE, which may be what is weighing on the USDJPY.
# Asian equities have taken the US lead overnight with most indices (except China) preparing to end a decent week on a softer note. The Nikkei, Hang Seng and the KOSPI are down -0.1%, -0.2% and -0.4%, respectively. The Shanghai Composite is +0.3% as we type as it heading towards its biggest weekly gain in a year. M&A events in China along with growing optimism around the upcoming HK-Shanghai stock connect. Chinese government’s state run news agency has also been actively publishing articles in the past week advocating equity investments. In credit, the iTraxx Aus, Asia and Japan indices are around 1bp tighter. New issues will be the main focus for Asian credit in coming weeks as the pipeline continues to grow. Most Asian stocks fall, Chinese shares outperform while Japanese stocks fall. MSCI Asia Pacific down 0.4% to 148.2. Nikkei 225 down 0%, Hang Seng down 0.2%, Kospi down 0.3%, Shanghai Composite up 0.8%, ASX down 0.6%, Sensex down 0.1%. All 10 sectors fall, led by healthcare
# European stocks fall from a 2-month high. German shares outperform as the country’s industrial production rose more than estimated in July. U.S. futures drop.
The euro is heading towards its eighth consecutive weekly decline. The DAX has extended yesterday’s gains, now sitting at early July highs as the ECB’s easing measures and lifted by Daimler and Volkswagen shares. Traders look ahead to the expected signing of ceasefire agreement between the leaders of Ukraine and the pro-Russian separatists. Such an agreement could allow current Russian sanctions to be loosened in the near future, with leaders still discussing the measures at today's NATO meeting. The FTSE-100 is the morning’s underperformer, with UK miners ebbing lower on poor iron ore prices, which struck fresh 5yr lows overnight.
The main thing on today's docket is the US nonfarm payrolls and the now largely irrelevant unemployment rate: much more attention will be paid to hourly and weekly wages.
S&P 500 futures down 0.3% to 1991.75...
*) Bulletin Headline Summary from RanSquawk and Bloomberg;
•European equities sit just below yesterday’s highs as traders sit on the side-lines ahead of today’s BLS jobs report
•Today’s Change in Nonfarm Payrolls expected to top 200K for the seventh consecutive month, keeping the Fed on track to conclude QE by October
•Eastern Ukraine hangs in the balance as pro-Russian separatist leaders meet Ukrainian President Poroshenko to officially sign a ceasefire
•Treasuries steady before report forecast to show U.S. economy added 230k jobs in August while unemployment rate held at 6.1%.
•Ukrainian President Petro Poroshenko voiced “careful optimism” that talks today with pro-Russian separatists in Belarus will set the course for a cease-fire after more than five months of deadly fighting
•Draghi’s plans to buy ABS are being greeted with skepticism by investors who have seen the EU1.2t market contract more than 40% as regulators cracked down on the debt blamed for deepening the financial crisis
•Four years after being bailed out by its EU partners, Ireland joined nations from Germany to Austria and Finland as its 2Y note yield dropped below zero for the first time
•New regulation meant to ensure banks have enough easy-to-sell assets to survive a crisis is creating doubt over whether $1.1t of mortgage debt qualifies, potentially hurting demand in a key cog of the U.S. home-finance system
•German industrial output grew 1.9% in July, more than forecast; euro-area 2Q GDP was unchanged from 1Q on a slump in investment, confirming Eurostat’s Aug. 14 estimate
•The Abe administration gave its clearest signal yet of concern about damage to the Japanese economy from this year’s sales-tax increase, with the finance minister saying that a back-up plan for stimulus will be prepared
•The HealthCare.gov website that had an error-plagued debut last year was hacked in July, although no personal data appear to have been taken, according to the U.S. Centers for Medicare and Medicaid Services
•Sovereign yields mostly lower. Asian and European stocks mostly lower, U.S. stock-index futures decline. WTI crude, gold and copper higher....
