After the best quarter for US stocks since 2015, global equities have started off Q2 on the right foot, despite caution about the upcoming meeting between President Trump and China's Xi Jinping later this week, and Fed Minutes which are expected to be more hawkish than the FOMC statement. European shares opened broadly higher, with Europe's Stoxx 600 rising 0.3%, its 5th day of gains - following a rally in Asian markets on upbeat final PMI data and after a report that Chinese President Xi Jinping will create a new economic zone. S&P futures were modestly in the green, pointing to a higher open for the S&P on the first day of the new quarter. A second PMI survey on China's manufacturing on Saturday came in below market expectations but still showed a healthy expansion after a similar survey by the government on Friday pointed to strong growth in the sector. In Japan, the first major data release showed confidence among Japan’s large manufacturers rose for a second consecutive quarter in the first three months of the year after the BOJ's "tankan" survey showed that business sentiment improved, albeit slightly less than expected (more below). US futures are pointing to a modestly higher open with oil price holding above $50/barrel, thanks to a flat dollar after NY Fed President Dudley doused speculation of a more aggressive pace of policy tightening. As the second quarter gets going, political developments threaten to cloud the improving global economic outlook, according to Bloomberg.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2% , while Japan's Nikkei gained 0.8% after hitting a seven-week low on Friday. U.S. stock futures also indicated a positive open for Wall Street shares, while focus turned to a meeting on Thursday and Friday between the U.S. and Chinese presidents.
The Stoxx Europe 600 Index gained as much as 0.4 percent before paring the advance, while the euro looked set to end its longest run of losses versus the dollar since February. Energy companies led a gain in emerging-market shares as oil held above $50 a barrel.
German manufacturing growth reached an reached an almost six-year high in March, Markit's PMI for manufacturing showed on Monday, pushing the Dax to new record highs...
Manufacturing activity in France and Italy also rose, adding to signs of a pickup in momentum in the global economy. Overall, the final Euro area manufacturing PMI was unchanged from the flash estimate. Relative to the February release, the Euro area manufacturing PMI increased 0.8pt. There were minimal revisions in the manufacturing PMIs relative to the flash estimates (Euro area, Germany and France). The Italian figure increased +0.7pt from February, while the Spanish figure fell 0.9pt (there is no flash estimate for these countries). The breakdown of the area-wide figure showed gains in output (+0.2pt), new orders (+1.0pt) and employment (+0.8pt).
- Euro area: Manufacturing PMI (Mar): 56.2, Cons/Flash: 56.2, Previous: 55.4
- Germany: Manufacturing PMI (Mar): 58.3, Cons/Flash: 58.3, Previous: 56.8
- France: Manufacturing PMI (Mar): 53.3, Cons/Flash: 53.4, Previous: 52.3
- Italy: Manufacturing PMI (Mar): 55.7, Cons: 55.1, Previous: 55.0
- Spain: Manufacturing PMI (Mar): 53.9, Cons: 54.7, Previous: 54.8...
The pound fell for the first time in three days against the dollar as U.K. manufacturing growth unexpectedly cooled for a third month in March and may weaken further this quarter. IHS Markit PMI declined to 54.2 from revised 54.5 in February, below economists’ expectations for an uptick to 55...
Still, the growth wasn't uniform as the following summary from Markit shows...
South Africa’s rand slumped for a sixth day after Finance Minister Pravin Gordhan was dismissed in a political shake-up.
"Despite the solid gains seen so far this year, there is some evidence that the rally in U.S. markets is looking a little tired given President Trump's trials and tribulations in Congress," said Michael Hewson, chief market analyst at CMC Markets. "The reflation trade is likely to face a new test this week when President Trump entertains the Chinese leader Xi-Jinping at his Mar-a-Lago golf course in Florida, which in the words of President Trump himself could be a little 'difficult'."
A failure to push through healthcare reforms last month has added to concerns that Trump may struggle to pass highly-anticipated tax cuts and infrastructure spending bills. Trump held out the possibility on Sunday of using trade as a lever to secure Chinese cooperation against North Korea and suggested Washington might deal with Pyongyang's nuclear and missile programs on its own if need be.
On Friday, the U.S. president sought to push his crusade for fair trade and more manufacturing jobs back to the top of his agenda by ordering a study into the causes of U.S. trade deficits and a clamp down on import duty evasion.
Friday's payroll report and meeting between U.S. President Trump and Chinese leader Xi this week will be watched for further direction for dollar. Trump said U.S. can “totally” address North Korea’s nuclear threat unilaterally if China doesn’t cooperate to put pressure on that nation, according to Financial Times. He has blamed China for U.S. trade deficits and job losses, saying discussion with Xi this week “will be a very difficult one.”
“From a data perspective, we think this week should be dollar supportive, but the big uncertainty is the Xi-Trump meeting,” says Rodrigo Catril, a currency strategist at National Australia Bank in Sydney. “My guess is that we will get a positive outcome, good for dollar and sentiment, but you never know.”
"The challenge for markets in an event-filled week will be to contend with the conflicting signals stemming from the Trump administration’s fiscal and trade policy agendas," ING Groep NV strategists, led by Chris Turner, wrote in a note. "In particular, investors will be asking whether the White House clampdown on trade will be aggressive enough to directly thwart any U.S. reflation sentiment founded on renewed tax reform hopes."
In curencies, the dollar index was up 0.15 percent at 100.49 - holding above four-month lows hit last week. After a modest reboumd, the euro was back to session lows at $1.065, despite today's solid PMIs after data showed inflation in the currency bloc had slowed by more than expected in March.
Government bond yields in the euro zone's lower-rated countries meanwhile rose on Monday, underperforming their peers as a reduction in the European Central Bank's bond purchase program took effect. As of the start of April, the ECB's monthly asset purchases fell to 60 billion euros from 80 billion euros.
Governments and other economic actors need to get ready for higher borrowing costs after years of record lows, ECB Executive Board member Benoit Coeure said on Monday.
In commodities, Brent crude futures were flat at $53.50 per barrel, while U.S. West Texas Intermediate crude futures were little changed at $50.58 a barrel.
*) Overnight Bulletin Summary;
- The first trading session of the quarter has seen a tentative start for European equities with newsflow relatively light
- GBP has seen some selling pressure amid the latest UK manufacturing PMI data which fell short of expectations with GBP/USD back below 1.2500
- Looking ahead, highlights include US Mfg. PMI data, US Construction Spending, ECB's Coeure, Fed's Dudley, Lacker and Harker
*) Market Snapshot;
- S&P 500 futures +0.1% at 2,360.5
- STOXX Europe 600 up 0.1% to 381.56
- Nikkei up 0.4% to 18,983.23
- Hang Seng Index up 0.6% to 24,261.48
- Shanghai Composite up 0.4% to 3,222.51
- Australia S&P/ASX 200 up 0.1% to 5,872.68
- Brent Futures down 0.1% to $53.47/bbl
- German 10Y yield fell 1.9 bps to 0.309%
- Euro up 0.2% to 1.0669 per US$
- Italian 10Y yield fell 12.6 bps to 2.022%
- Spanish 10Y yield fell 0.9 bps to 1.658%
- Gold spot down 0.3% to $1,245.89
- U.S. Dollar Index up 0.1% to 100.48
*) Top Overnight News;
- President Trump said the U.S. can “totally” address North Korea’s nuclear threat unilaterally if China doesn’t cooperate to put pressure on, according to the FT
- The Senate is hurtling toward a confrontation over President Trump’s first Supreme Court nominee in a week that could change how Washington works
- Reckitt Benckiser is considering a sale of its food business, which makes French’s mustard and ketchup, to help pay for the $16.6 billion acquisition of infant-formula maker Mead Johnson Nutrition Co.
- U.K. manufacturing unexpectedly cooled for a third month in March and may weaken further, according to IHS Markit
- Crude stockpiles are starting to decline in a sign that the production cuts implemented this year are bringing the market to balance, according to OPEC’s Secretary-General Mohammad Barkindo
- South African parliamentary Speaker Baleka Mbete said she’s considering a request to recall lawmakers to debate an opposition-sponsored motion of no confidence in President Jacob Zuma
- Tesla Beats Estimate With 25,000 Deliveries as Model 3 Nears
- Euro-Area Unemployment Falls to Record Low as Recovery Broadens
- Imagination Tech Shares Plunge 69% After Apple Ends Chip Deal
- Credit Suisse Said to Hire Deutsche Bank Equities Executives
- Google Changes Ad Policies Again to Try to End YouTube Crisis
*) Asia equity markets start the quarter on a mostly positive note, although gains were relatively reserved as the region digested a slew of mixed data releases. Nikkei 225 (+0.4%) gained following the BoJ's Tankan survey which despite missing expectations for Large Manufacturers Index and Outlook, still showed an improvement from prior while Large All-Industry Capex unexpectedly expanded and the Small Manufacturing Index rose to its highest in nearly a decade. ASX 200 (-0.2%) traded subdued as commodity related sectors underperformed with an unexpected contraction in Retail Sales also dampening sentiment, while Hang Seng (+0.5%) also edged gains despite Chinese Caixin Manufacturing PMI falling short of estimates, as the data still showed the 9th consecutive monthly expansion and is solely focused on the mainland which was closed for Tomb Sweeping Day. 10yr JGBs traded lower amid gains seen in Japanese stocks and after today's BoJ Rinban announcement was for a relatively paltry JPY 370b1n. Furthermore, the curve flattened amid underperformance in the short-end.
# Key Asian Economic Data;
- Chinese Caixin Manufacturing PMI (Mar) M/M 51.2 vs. Exp. 51.6 (Prey. 51.7).
- Japanese Tankan Large Manufacturers Index (Q1) Q/Q 12 vs. Exp. 14 (Prey. 10).
- Tankan Large Manufacturing Outlook (Q1) Q/Q 11 vs. Exp. 13 (Prey. 8)
- Tankan Large All Industry CAPEX (Q1) Q/Q 0.60% vs. Exp. -0.30% (Prey. 5.50%)
- Tankan Small Manufacturers Index (Q1) Q/Q 5 vs. Exp. 3 (Prey. 1); Highest since June 2007
# Top Asian News;
- China Just Had Its Worst Ever Start to a Year for Bond Defaults
- New Tepco Chairman Says Japan Nuclear Restart ‘Will Take Time’
- Vietnam Will Ask Google and Amazon to Pay Tax: Tien Phong
- Buying Spree in These Tokyo Stocks Unearned to Own Officials
- Unwinding Property Curbs Gives Singapore Developers Headache
- Central Banks Boost Yen Assets by Most Since at Least 1999
Asian Stocks Continue Quarterly Rally as Japanese Shares Gain
*) In Europe, the new quarter has kicked off in a tentative fashion, with major indices relatively unmoved so far this morning. In terms of a sector breakdown, financials are the laggards this session as energy names outperform, with little of note on a stock specific basis to report. With newsflow light elsewhere, Linde are among the best performers in Frankfurt this morning, trading higher by (+1.4%) after the Co.'s Chairman and CEO reiterated their confidence that the Praxair deal will be completed in the near future. Elsewhere, fixed income markets have seen upside in Bunds so far this morning, with the curve slightly steeper and all major counterparts wider against the German 10Y. The auction calendar is relatively bare today as the week kicks off, however is set to pick up later in the week as supply is scheduled from the likes of UK, Germany, France and Spain.
# Top European News;
- Euro-Area Factory Recovery Broadens as Italy, France Improve
- Spain Tells U.K. to Keep Its Cool After Falklands Comparison
- Deutsche Asset, Infravia to Buy Control of Venice Airport’s Save
- Sartorius Raises Forecast, Completes Essen BioScience Takeover
- Euronext, Intercontinental Sign Derivatives Clearing Pact; Euronext Says Remains Willing Buyer of LCH.Clearnet SA
- Reckitt Benckiser Reviews Food Business After Mead Johnson Deal
- U.K. Manufacturing Slows as Inflationary Pressures Continue
- Euribors Tick Higher After Praet; BTPs Lag, Schatz Outperforms
- Nordic Capital’s Bambora Sets Sights on U.S. and Canadian Market
- Putin’s Ally in Serbia Wins Presidential Vote by a Landslide
# In currencies, Britain’s pound fell as much as 0.5 percent to $1.2492 after the worse-than-expected manufacturing data. South Africa’s rand tumbled 1.2 percent against the dollar, the most among major global currencies. The euro was little changed at $1.0655 and the Bloomberg Dollar index climbed 0.2 percent. FX markets have traded in a fairly tight range so far this session, with the only notable news coming in the form of the latest manufacturing PMIs, national readings from across the Eurozone printed a relatively mixed picture, with the Eurozone figure itself coming in line with expected, to see EUR/USD unchanged on the day. Elsewhere, the UK saw manufacturing PMI print a 4 month low and GBP/USD move below 1.2500 as a consequence. The latest PMI readings from the UK will do little to support the latest 'trade of the week's from the likes of Morgan Stanley and Barclays, who both recommend selling EUR/GBP.
# In commodities, WTI crude was little-changed at $50.62 a barrel, after the biggest weekly gain of the year. Crude stockpiles are starting to decline in a sign that the production cuts implemented this year are bringing the market to balance, according to OPEC’s Secretary-General Mohammad Barkindo. Gold fell 0.3 percent to $1,245.70 per ounce. The metal has alternated between gains and losses for the past six days. Trade has been choppy so far, with WTI May'17 futures trading near USD 50.50/bbl as focus falls on OPEC and whether or not further agreements will be reached for H2'17. In terms of energy specific newsflow, sources suggested Libya's crude oil output is to rise to approximately 660k bpd. Trade in metals have tracked the other asset classes in their relatively muted trade, as gold trades lower by around US 3/oz as USD holds steady.....