vrijdag 26 mei 2017

Global Rally Fizzles After "OPEC Shock" In "Slow Risk-Off Session"

S&P futures were fractionally lower from yesterday's record high as European stocks declined and Asian stocks were mixed, pressured by yesterday's 5% plunge in crude after OPEC unexpectedly "failed to surprise" markets, and announced the bare minimum supply cut extension that was expected by oil traders, who in turn puked long positions. It wasn't just oil: it has been a slow risk-off session as Bloomberg phrased it, ahead of the long weekend for U.S. and U.K. markets, with the key carry pair, USD/JPY breaking below 111.00 as the USD continues to weakens, while the GBP tumbled 0.5%, after the latest poll shows Tory lead narrowing. As futures declined, fixed income markets ground higher as the 2s10s hits flattest level YTD. European equity markets open lower led by oil related stocks after yesterday’s heavy sell-off in oil. Automakers also weaker after possible Trump comments on German car exports. Gold well supported amid general risk-off. Most of the early attention, however, was on the market's reaction to yesterday's oil selloff. “To say that yesterday’s performance was disappointing for bulls is an understatement,” Tamas Varga, analyst at PVM Oil Associates wrote in an emailed report quoted by Bloomberg. “It is, however, not a foregone conclusion that the trend is definitely turning. The question now is whether yesterday’s sharp drop in oil prices was a panic long-liquidation or the technical picture is now firmly turning bearish”...


Stocks from Tokyo to Europe were dragged down by oil producers as oil headed for a weekly loss after falling the most in three weeks on Thursday as OPEC’s move to prolong supply cuts for nine months disappointed investors hoping for more...


“Markets ultimately found the renewed deal among OPEC and friends underwhelming,” Cole Akeson, a strategist at Sberbank CIB in Moscow, wrote in a note. “Essentially, the market consensus seems to have come around to a view that regardless of what effect on global inventories the deal may have for now, OPEC and its partners have little insight as to what to do later on.” Before this week’s deal, oil had climbed back above $51 a barrel after Saudi Arabia and non-OPEC member Russia rallied support from the Organization of Petroleum Exporting Countries and other nations to extend the supply pact into 2018. However, as the chart below shows, that proved to be too optimstic for a market which no longer will buy simple on OPEC jawboning, but demands results...


With oil in the spotlight, Japan’s Topix index slipped 0.6%, trimming its weekly advance to 0.6%. Australia’s S&P/ASX 200 Index fell 0.7 percent, with BHP Billiton Ltd. dropping 2 percent. South Korea’s Kospi rose 0.5 percent to another record. The index is up 2.9 percent for the week, the biggest gain in two months. Hong Kong’s Hang Seng Index was flat, keeping its weekly gain at 1.8 percent, while the Shanghai Composite increased 0.1 percent. The Stoxx Europe 600 Index dropped 0.4% with oil and gas producers falling 1.2%. S&P 500 futures were little changed, after rising 0.4% on Thursday to new all time highs driven by a narrow basket of tech stocks. Elsewhere, as discussed last night, the British pound tumbled over 0.5% to $1.2861 and looked set for its biggest one-day slide in over three weeks and steepest one-week decline since early April, after a poll showed the Conservative party lead narrowed after the Manchester attack, and as investors in Asia sold the currency after U.K.’s first-quarter economic growth missed estimates. The poll results come less than two weeks before the June 8 general election...


"With this kind of momentum and almost two weeks to go until the vote, not only is this not going to be the breeze that May anticipated when she called the snap election last month, it could yet turn into a humiliating defeat for the Conservative leader and her party," said Craig Erlam, senior market analyst at OANDA. "Coming on the back of losses yesterday, it's turning into a rotten end to the week for the pound." Elsewhere, confirming that the reason for the sharp spike in the Yuan over the past two days, the biggest move since January, was direct government intervention, overnight Bloomberg reported that China is considering changes to the way it calculates the yuan’s daily reference rate against the dollar "to reduce exchange-rate volatility while undermining efforts to increase the role of market forces" in Asia’s largest economy. Policy makers may add a “counter-cyclical factor” to the yuan’s daily fixing, according to a government statement on Friday. Analysts said the change would give authorities more control over the fixing and restrain the influence of market pricing.
Overnight, both the onshore and offshore yuan rose to three-month highs on continued speculation the Chinese government will continue to support the currency and stock markets. The currency advanced for a second day on talk state-backed funds were propping up Chinese assets Thursday following Moody’s downgrade of China’s credit rating. In currencies, the Bloomberg Dollar Spot Index fell 0.1 percent, poised for a second week of declines. The pound slid 0.5 percent to $1.2875 (see above). The yen rose 0.7 percent to 111.11 per dollar, after dropping 0.3 percent on Thursday. The euro strengthened 0.2 percent to $1.1227 After its sharp drop on Thursday, oil edged higher in early trading but remained on the back foot after tumbling 5% in the previous session. On Thursday in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers agreed to extend a pledge to cut around 1.8 million barrels per day (bpd) until the end of the first quarter of 2018 - disappointing investors betting on longer or larger curbs. Friday economic data include annualized GDP, durable goods orders and University of Michigan indexes.
*) Bulletin Headline Summary from RanSquawk;
- European equities enter the North American crossover lower as energy names underperform following yesterday's OPEC announcement
- GBP has been placed under pressure after the latest polling data shows the race for Downing Street getting closer
- Looking ahead, highlights include US GDP, Durables and Uni. Of Michigan
*) Market Snapshot;
- S&P 500 futures down 0.1% to 2,411.55 
- STOXX Europe 600 down 0.4% to 390.42
- Nikkei down 0.6% to 19,686.84
- Topix down 0.6% to 1,569.42
- Hang Seng Index up 0.03% to 25,639.27
- Shanghai Composite up 0.07% to 3,110.06
- German 10Y yield fell 1.4 bps to 0.348%
- Euro up 0.1% to 1.1225 per US$
- Italian 10Y yield fell 1.9 bps to 1.826%
- Spanish 10Y yield fell 2.2 bps to 1.562%
- Brent futures up 0.8% to $51.84/bbl
- Gold spot up 0.8% to $1,265.34
- U.S. Dollar Index down 0.1% to 97.11
*) Top overnight news;
- Political uncertainty in the U.K. rose after the race between the ruling Conservative party and opposing Labour party narrowed, raising prospects that the Tory majority will be smaller than expected and this could have implications on the Brexit process.
- The Federal Reserve is ‘very close’ to where it needs to be on policy and shouldn’t be thinking in terms of major increases in the policy rate, St. Louis Fed President James Bullard tells reporters in Tokyo
- Focus on U.S. President Donald Trump’s G-7 summit visit which will involve debates on climate change, free trade, terrorism and security
- China is considering changes to the way it calculates the yuan’s daily reference rate against the dollar, a move that’s likely to reduce exchange-rate volatility while undermining efforts to increase the role of market forces in Asia’s largest economy
- The OPEC’s historic pact to extend oil supply cuts has left markets guessing on the group’s long term plans and its exit strategy
*) Asia equity markets traded mixed as the region failed to take the baton from another record setting day on Wall St, with oil names dampened following the weakness across the energy complex. This saw commodity-related sectors in ASX 200 (-0.7%) underperform as they felt the brunt of the 5% declines in crude prices due to disappointment from the OPEC output extension deal. A firmer JPY kept the Nikkei 225 (-0.3%) subdued, while Hang Seng (Unch.) and Shanghai Comp. (+0.2%) traded choppy amid a reserved liquidity operation by the PBoC and continued pessimistic comments from Moody's following the recent sovereign rating downgrade. 10yr JGBs traded higher amid a downbeat risk tone, while the BoJ were also present in the market under its bond buying operation for JPY 750b1n of JGBs in the belly to super-long end. Moody's stated that China growth will slow, while it added that China may lose Al rating if there are signs debt keeps increasing and debt surpasses expectations.
# Top Asian News;
- Taiwan’s Economy Grew 2.6% Y/y in 1Q; Survey Est. +2.6%
- China Confirms It’s Considering Changing Yuan Fixing Formula
- Vanguard to Triple Shanghai Staff by Year-End as China Opens
- SBI Said to Pick BofA, Deutsche Bank for $2 Billion Offering
- Incoming Philippine BSP Governor Discusses His Plans: Q&A
- China Money Funneled to Far-Flung Homes Flags Bubble Trouble
- Hong Kong Dollar Heads for Biggest Weekly Drop Since Early 2016
*) European equities trade with modest losses, largely stemming from the disappointed/scepticism amongst investors over OPEC's decision to only extend the current output cut by 9-months. Following this announcement crude prices slipped, WTI hitting a low of USD 48.21, subsequently large energy names felt the brunt of this. Although, crude prices have seen a modest reprieve this morning with WTI consolidating above USD 49. Across credit markets, EGB's have been kept afloat with support from FTQ flow, upside in bunds has met resistance at the 161.55 area, a breach may see a move to the 18th May highs situated at 162.02. As we approach month-end, Citi expect healthy extensions for European and UK bonds, with OATs set to benefit the most.
# Top European News;
- Retirement Savings Gap Is Seen Climbing to $400 Trillion by 2050
- EU to Demand Full ECJ Jurisdiction on Rights Post-Brexit: Doc.
- Italian Manufacturing Morale Falls Amid Concerns Over Recovery
- Portugal Asks to Make EU9.7b Early Repayment to IMF: IGCP
- Barclays Bid to Cut Africa Stake Still With S. Africa Regulator
- Restaurant Group Surges Most in 9 Months on ‘Reassuring’ Update
# In currencies, GBP has been pressured with market attention being placed on the most recent polls which have shown a narrowing lead for PM May and her Conservative party over the Labour party. As such, GBP has tripped below 1.2900 to eye up support layered in around 1.2850-1.2844, a break through this could see a test to the May 4th low at 1.2831. USD-index continued to ease as one of the more dovish FOMC speakers, Bullard sounded the alarm over the path of inflation, most of this seen against the JPY, which has run through support at 111.50. Elsewhere, the slip in commodities pressures AUD yet again, this continues to drive AUD/NZD lower which is now hovering around 3-month lows, given that NZD has remained firm in the wake of New Zealand's strong budget position.
# In commodities, WTI and Brent crude futures have staged a modest recovery from yesterday's lows to enter the North American crossover modestly higher with the usual value-buyers entering the market amid no new developments on the fundamental side since yesterday's OPEC-inspired sell-off. In terms of newsflow for the complex, things have remained relatively light as markets take a breather from yesterday. In metals markets, Gold has seen mild support with the safe-haven asset underpinned amid a cautious risk tone, which also kept copper subdued.
# Looking at the day ahead now, the focus will be on the US this afternoon where there are a number of important releases due. First up is the second estimate of Q1 GDP where the consensus is for an upward revision in growth to +0.9% qoq from +0.7%. Our US colleagues expect a small upward revision to +0.8% qoq. Importantly for growth in the current quarter we’ll also receive the April durable and capital goods orders report where the consensus is for a weak headline durable goods orders print to be offset by a healthy gain in both ex-transportation orders (+0.4% mom expected) and core capex orders (+0.5% mom expected). Also due out this afternoon is the final May University of Michigan consumer sentiment print where it’s worth keeping an eye on the various inflation expectations indicators too....