European stocks rebounded after a downbeat start, aided by a return to the post-Euro open momentum ignition in the USDJPY while Asian stocks rose after China shares surged 1.5%, the most since August. For now S&P futures are fractionally in the red, although we expect them to turn progressively higher as US traders get to their desks to frontrun the now traditional "post open" ramp. Treasuries steadied ahead of today's Fed Minutes release and tomorrow's key weekly political event, the first meeting between Trump and China's president. Elsewhere, oil continued its rise while gold declined from a multi-week high. In an otherwise quiet session, China was the outlier as the Shanghai Composite Index rose 1.48%, the most since August, while Taiwan’s Taiex advanced 1.4 percent as both markets reopened after a holiday. China announced Saturday it would develop an economic zone in Xiongan, Hebei province, prompting prospective buyers to throng to the region, snapping up local construction companies many of which soared by the daily 10% limit, while commodities such as coking coal, iron ore and steel rebar soaring...
For once it was not the US but France that grabbed the political spotlight, where last night we had the second of three live televised presidential debates. As DB's Jim Reid recounts, much like the first it tested viewers’ stamina again with the clock running close to 4 hours in the end. In terms of the key takeaways the general feeling was that it was the six less popular candidates which largely stole the show, frequently questioning and attacking the front runners. Of the candidates in contention, Macron was largely on the defensive for most of the night, standing his ground but never seemingly coming under too much pressure.
Melenchon was the most attacking. Fillon failed to really standout and took on a barrage of attacks on ethics and Hamon was largely in the shadows. Le Pen was heavily questioned at times and looked under pressure and very much in defence-first mode. Le Pen’s comments were also typically defiant and she closed out by making remarks including to “take back our sovereignty”, “civilisation in danger” and also “the owners of their country with the right to a border”.
In terms of the early results an Elabe poll covering 1,024 viewers following the debate found that Melenchon was seen as the most convincing with 25% of the votes followed in order by Macron (21%), Fillon (15%) and Le Pen (11%). A separate Opinionway survey had Melenchon, Macron and Fillon all tied on 18% a piece followed by Le Pen with 11%. So that result would suggest that the debate has done little to further Le Pen’s chances with the Elabe pollster highlighting that the fierce competition on the anti-European issues contributed to Le Pen’s mediocre score. As we said following the first debate though, Hilary Clinton was seen as the comfortable winner in all the US Presidential debates so it’s worth taking these results in context.
Interestingly leading into the debate yesterday the 2y OAT-Bund spread hit a near 5-year high at 47bps, surpassing the high from earlier the year in February when the spread hit 42bps. To be fair this might be as much to do with the supply and demand issues for bunds as anything else.
In any case, with polls showing Marine Le Pen was far from convincing at the latest French presidential debate, risk-off sentiment has lost momentum and risk reversals in EUR/JPY have kept moving higher. Two-week volatility smile steepens in favor of EUR calls, while puts on two-month tenor flatten slightly.
Global markets may have reflected some of this with the the MSCI All-Country World Index climbed 0.1 percent. The Stoxx Europe 600 added 0.2 percent after fluctuating between gains and losses. Futures on the S&P 500 Index were little changed. The underlying gauge advanced 0.1 percent on Tuesday.
Crude continued its advance before DOE oil inventory data which is expected to show U.S. stockpiles retreated from a record. West Texas Intermediate crude climbed 1.2% to $51.64 a barrel, adding to Tuesday’s advance. Base metals increased after a plan to develop an economic zone near Beijing boosted the outlook for demand, with zinc climbing 1.8 percent as a smelter in Peru was also affected by flooding
Oil and gas companies led the Stoxx Europe 600 Index toward a second day of gains after the gauge fluctuated in early trading. The greenback, 10-year U.S. Treasuries and futures for the S&P 500 were all little changed. South Africa’s rand reversed gains after President Jacob Zuma survived calls to quit.
As Bloomberg reiterates, investors and markets remain in a holding pattern, awaiting the next major catalyst to either end or extend the global rally that pushed stocks to a record last month. A series of major data releases this week, culminating in a payrolls report Friday forecast to show 175,000 jobs added by U.S. employers in March, is offering clues to the strength of the world’s biggest economy...
As Reuters notes, the dollar lost its grip on earlier gains as concerns over a North Korean missile test worsened sentiment ahead of the summit between the U.S. and Chinese leaders. Topping the agenda at Trump’s Mar-a-Lago resort in Florida will be whether he makes good on his threat to use U.S.-China trade ties to pressure Beijing to do more to rein in its nuclear-armed neighbor North Korea, which is working to develop missiles capable of hitting the United States. The dollar index, which tracks the U.S. currency against a trade-weighted basket of six peers, was down on the day at 100.48 , as slumping U.S. Treasury yields also gave investors little incentive to buy dollars.
"The meetings are expected to be informal, unscripted discussions of how the two countries will address, but not immediately resolve, their differences," said strategists at Morgan Stanley in a note to clients.
"Any commentary on how the US specifically wants to try to reduce the trade deficit with China will be watched by FX investors," the strategists wrote.
Meanwhile, oil climbed to a near one-month high on signs of a gradual tightening in global oil inventories and on concern about a supply outage at a field in the United Kingdom's North Sea that feeds into an international benchmark price.
Brent crude futures the international benchmark for oil, were up 1 percent at $54.73 per barrel. U.S. West Texas Intermediate (WTI) crude futures was also up 1 percent. London copper rallied as Chinese traders returned from a two-day break to buy up metals following brighter global manufacturing reports. Zinc and nickel tracked a rally in steel. Safe-haven gold steadied helped by sluggish moves in riskier assets. Spot gold edged up 0.1 percent.
Key near-term catalyst include minutes from the Fed’s March meeting, scheduled to be released Wednesday, and a similar account of the ECB’s latest policy gathering is due Thursday. China’s president will meet his U.S. counterpart for two days starting Thursday. U.S. non-farm payrolls are due Friday.
*) Bulletin Headline Summary from RanSquawk;
- Energy and material names have soared in early trade to see the commodity-heavy FTSE outperform its European counterparts
- The big data release this morning was the UK services PMI number, which exceeded expectations to print 55.0.
- Looking ahead, highlights include US Services PMI, ADP Employment Change and ISM Non-Manufacturing PMI, DoEs and FOMC Minutes
*) Market Snapshot;
- S&P 500 futures down 0.1% to 2,354.00
- STOXX Europe 600 up 0.06% to 380.24
- Nikkei up 0.3% to 18,861.27
- Hang Seng Index up 0.6% to 24,400.80
- Shanghai Composite up 1.5% to 3,270.31
- German 10Y yield fell 0.7 bps to 0.25%
- Euro up 0.04% to 1.0678 per US$
- Brent Futures up 1.1% to $54.77/bbl
- Italian 10Y yield fell 4.7 bps to 1.981%
- Spanish 10Y yield fell 1.0 bps to 1.607%
- Gold spot down 0.2% to $1,254.00
- U.S. Dollar Index down 0.09% to 100.45
*) Top Overnight News from Bloomberg;
- Trump Officials Alarmed China May Bid for Westinghouse Unit
- North Korea Fires Ballistic Missile Before Xi-Trump Meeting
- Fed Leak Probe Dooms Lacker But Leaves Key Question: Who Leaked?
- Deutsche Bank Loses Senior Executives After Bonuses Slashed
- Zuma Said to Survive Calls to Quit in South Africa’s ANC
- ChemChina Wins U.S. Approval for $43 Billion Syngenta Deal
- Taser CEO to Make Announcement in Live Broadcast Tomorrow
- JAB Holding Said in Advanced Talks to Acquire Panera Bread
- Euronet-MoneyGram Talks Said to Progress Slowly on Data Access
- McDonald’s Names Morgan Flatley as U.S. Chief Marketing Officer
- Cheniere Head Sees 30 New LNG Trains Needed to Meet 2030 Demand
- Energy Transfer Expects Dakota Access in Service in Coming Weeks
- Devon, Chesapeake Get Sierra Club’s Quake Fracking Suit Tossed
- CME Cuts Margin Requirement for Front-Month WTI Oil by 6.9%
- Plains Files Rate for Bridger-to-DAPL Service Effective April 15
- Euro-Area Economy Accelerates Less Than Forecast on Services
*) Asia equity markets traded choppy following the mild gains on Wall St. which was led by the energy sector after WTI crude futures reclaimed the USD 51/bbl level to the upside. ASX 200 (+0.3%) swung between gains and losses as strength in commodity-related sectors was counterbalanced by losses in financials, while Nikkei 225 (+0.3%) saw a similar indecisive tone as USD/JPY and JPY-crosses teetered. Hang Seng (+0.3%) and Shanghai Comp. (+1.5%) were higher on return from holiday despite the PBoC refraining from liquidity injections, with the mainland outperforming amid strength in materials after a 7% surge in coking coal prices due to supply concerns following Cyclone Debbie. 10yr JGBs traded flat amid an indecisive tone in the region, while the BoJ's presence in the market for a respectable JPY 1.135t1n of JGBs failed to spur demand, as the bank also slightly reduced its buying in 1yr-3yr maturities. PBoC refrained from conducting open market operations today, for a net drain of CNY 90bIn.
# Top Asia News;
- China Market Access in Spotlight as First Trump-Xi Meeting Nears
- China Likely to Be Named Currency Manipulator by U.S.: StanChart
*) Energy and material names have soared in early trade to see the commodity-heavy FTSE outperform its European counterparts on what has been an otherwise dreary morning for equities. Other than the FTSE 100, indices are flat across Europe, with little in the terms of a tangible trend in direction so far this week. On a more macro scale, services PMIs have been the main focus of the session, with French and Eurozone readings both printing lower than the preliminary readings, however any impact on financial markets has been offset by the German composite beating on Exp. As such fixed income markets have been particularly muted, with Bunds lower by a modest 10 ticks. Gilts slipped on the latest services PMIs, with the stellar reading seeing the June'17 futures slips below yesterday's 128.22 nadir with bears now eyeing a potential test of a minor Fib retracement level at 127.91.
# Top European News;
- U.K. Services Grow Faster Than Forecast; Price Surge Intensifies
- Sick of Brexit Limbo, Foreign Bankers Are Asking to Be Sent Home
- German Cabinet Backs Facebook Bill to Counter Fake News, Hate
- Wood Group Gains After Raising Expected Synergies From Amec Deal
- EU’s Juncker Says No Brexit Deal Would Mean Everyone Loses
- Serb Protests Against ‘Dictatorship’ Spread After Vucic Elected
- OATs Gain With Small Relief Rally as Le Pen Struggles in Debate
- EU’s Verhofstadt: Brexit Is a Cat-Fight That Got Out of Hand
- Seadrill Plunges for Second Day Amid Speculation Over Bankruptcy
# In currencies, the Bloomberg Dollar Spot Index was little changed after a two-day gain. The euro edged lower to $1.0668. The pound climbed 0.3 percent to $1.248, advancing for the first time in three days as U.K services grew faster than economists expected. The South African rand jumped as much as 1.1 percent before falling 1.1 percent. The big data release this morning was the UK services PMI number, which exceeded expectations to print 55.0. This went against the manufacturing and construction components as new orders were attracted by the weak exchange rate, but despite this, thin market conditions have made for a tight range in Cable, as support ahead of 1.2400 has been tempered by sellers coming in ahead of 1.2500. Similarly in EUR/GBP, .8545-50 and 0.8600 limits contain. Range bound markets further highlighted by a 25 tick range in EUR/USD, where a test of 1.0700 on the upside was rebuffed. The USD perspective has been largely behind this, with US Treasury yields grinding higher, but to a modest degree as yet. This has produced a tentative move higher in USD/JPY, but we continue to trade south of the 111.00 level, but we have now twice survived a test on 110.00. A modest recovery in Copper has given AUD some relief after yesterday's selling across the board. No real change in sentiment at the RBA, citing concerns over domestic debt levels but cautiously optimistic on the global outlook, so yield plays will carry favour here when the risk mood is calm. The same goes for the NZD, but we are getting pulled further away from 0.7000, but 0.6900 will be hard fought.
# In commodities, the Bloomberg Commodities Index rose to a one-month high, buoyed by oil and base metals. West Texas Intermediate crude climbed 1.2 percent to $51.64 a barrel, adding to Tuesday’s advance. Base metals increased after a plan to develop an economic zone near Beijing boosted the outlook for demand, with zinc climbing 1.8 percent as a smelter in Peru was also affected by flooding. With oil tipping above the $51.50 mark, we could see some renewed consolidation inside these limits, but traders will be looking ever closely to the inventory data for signs of further impact from the production cuts. The market is still hoping for an extension to the agreement, and this hope reflects some of the recent gains seen. Base metals are up right across the board, with Copper up another 1.5% today, but outpaced by Nickel which is up near 2.0% so far. Gold has come back off the highs, where $1260 looks to be providing some clear resistance. Silver continues to stall ahead of the USD18.40-50 area, with USD resilience weighing on both.
# Looking at the day ahead, this morning in Europe the main focus should be on the final March services and composite PMI revisions where we’ll also get a look at the data for the UK and periphery. This afternoon in the US we will also get the final PMI revisions along with the ISM non-manufacturing for March (expected to decline to 57.0 from 57.6) and the ADP employment change print for March. The consensus for the latter is 185k while our US economists are forecasting a below market 140k. Later this evening we will also get the aforementioned FOMC minutes from the March 15th meeting. Away from that there is no Fedspeak today although over at the BoE policy maker Vlieghe is due to speak this afternoon in London....