S&P futures rebounded shortly after the stronger than expected European CPI print, rising 0.3% to 2,426, as markets try to forget all about yesterday's brief 50% VIX surge and tech rout, which trimmed the seventh consecutive quarterly gain for the S&P 500 Index to 2.4%. Europe shares rose 0.4%, led by tech stocks, after a drop in Asian markets, as oil and the dollar gained. The action this week however, yesterday's equity fireworks notwithstanding, has been in dollar and bonds, where as Bloomberg says this morning, the "carnage has paused for a breather" with Treasuries steady after yields across the globe rose this week as central bankers shifted toward a more hawkish tone while the dollar gained against most G10 peers, paring its worst weekly loss in six. Putting the dollar's quarterly performance in context, it is down -4.8% in Q2, its worst quarterly performance since 2010. Market skepticism remains over the Fed's dots and tightening intentions, the recent 22 bps of curve flattening, and what the ECB may do next. "Obviously there's a shift afoot. It really seems that there's some coordinated effort going on out here among the G10 central banks," said Stephen Innes, head of trading in Asia-Pacific for OANDA in Singapore, referring to the series of hawkish-sounding comments on monetary policy.
The euro came off yearly highs on Friday but was still set for its strongest quarter in six years as investors pile into the currency on a brightening euro zone economy and its implications for monetary policy in the bloc. The single currency dropped 0.2% to trade at $1.1403, but in the April-June quarter the euro has climbed over 7%, putting it on track for its biggest quarterly gain since January-March 2011. The euro shot to one-year highs after Tuesday's speech by European Central Bank President Mario Draghi bolstered expectations that a reduction in stimulus measures would be signaled as soon as September. Though policymakers looked to play this down in the days that followed, investors appear convinced that economic strength will push them to end stimulus sooner rather than later.
"This is partly a response to Draghi's comments and also on the back of a euro zone economy that is firing on all cylinders and outperforming the rest of the developed economies," said Investec economist Victoria Clarke. "It's at a different stage in the cycle as the U.S. so I do expect some of that to cool in the second half of the year, but the growth momentum doesn't seem to be going anywhere," said Clarke.
Volatility, absent for much of the year, made a brief, violent return as the debate on normalizing central bank policy intensified after nine years of unprecedented stimulus. That suggests some investors are growing concerned about the economy’s ability to withstand a tightening cycle. Technology stocks have been under pressure this week, while banks have been supported on the prospect for higher rates...
Overnight, the MSCI All-Country World Index slipped 0.1 percent. The gauge is up 10 percent for the six months, the best start to a year since 1998. The MSCI Asia Pacific Index has gained 15 percent for the past two quarters. The MSCI Asia-Pacific shares ex-Japan fell 0.7%, after hitting a two-year high on Thursday. It is up 5.3% for the quarter and has risen 18.3% this year.
In Europe, the Stoxx 600 stocks index rebounded, parding its fourth straight weekly loss, and on track to end the quarter little changed as gains in technology and consumer shares offset losses in chemical makers. Bayer AG fell 4.3% as it expects an earnings hit from its Brazilian crop science business.
In Asia, stocks retreated amid Wall Street tech weakness: Nikkei closed 0.9% % lower, and Japan’s Topix dropped 0.8%, bringing its quarterly gain to 6.6 percent. The ASX 200 dropped 1.7%.
Meanwhile, the Yuan rose to strongest against dollar since November, although it gave up all gains and traded unchanged by the close of trade. The PBOC skipped liquidity operations for a 6th day, draining net 160 billion yuan, its 8th consecutive liquidity drain, and despite the stronger than expected Chinese PMI prints, analysts are starting to wonder if the PBOC isn't overdoing its latest tightening move. In Asia, Australian sovereign bonds sharply lower; 10-year yield jumps as much as nine basis points to 2.59% before finding resistance; Aussie breaks above 77 cents following strong Chinese PMI.
Futures on the S&P 500 Index rose 0.3% as US traders walked in, having spoent most of the overnight session unchanged. The cash index fell 0.9% on Thursday, the most since May 17 as the VIX briefly surged more than 50% as a result of what some suggested was a risk parity fund unwind. the S&P remains 2.4% higher this quarter.
The euro fell 0.3 percent to $1.1407, after increasing 0.6 percent on Thursday to the highest levels since last year’s Brexit vote. It’s gained 7.1 percent this quarter. The pound dropped 0.2 percent to $1.2985, snapping seven days of gains. The currency is up 2.5 percent this quarter. The yen fell 0.2 percent to 112 per dollar. The Bloomberg Dollar Spot Index rose 0.1 percent, heading for a monthly loss of 1.3 percent. It’s poised for a fourth month of losses.
Crude futures rose for a seventh day, up 0.9% to $45.34, and on course for the longest run of gains this year, as signs of slipping U.S. supply eased pressure on OPEC-led curbs. Gold fell 0.1 percent to $1,244.09 an ounce. The precious metal is heading toward its first monthly decline this year. Dalian iron ore slips 1.7% despite stronger than expected Chinese PMI data.
The yield on 10-year Treasuries added one basis points to 2.28 percent. The rate has climbed 14 basis points this week. Benchmark yields in the U.K. were little changed at 1.24 percent, as were French yields at 0.8 percent. Yields in Germany fell one basis point.
There will be a flurry of data later today including Michigan sentiment, but no major earnings are expected
*) Bulletin headline Summary from RanSquawk;
- USD weakness modestly tamed with GBP and EUR pulling back from its recent highs
- Bayer weighs on the Dax despite stella German Retail Sales
- Looking ahead, highlights include US PCE and Baker Hughes rig count.
*) Top Overnight Headlines;
- BOE’s Haldane repeats any policy tightening to be limited, gradual: BBC
- U.K. June GfK consumer confidence -10 vs -7 estimate; Lloyd’s business barometer 30 vs 27 previous
- China manufacturing PMI 51.7 vs 51.0 est; non-mfg 54.9 vs 54.5 prev
- Aso doesn’t see any changes to monetary or fiscal policy
- Japan May core CPI 0.4% vs 0.4% est; jobless rate 3.1% vs 2.8% est
- Japan May industrial output -3.3% vs -3.0% est; y/y 6.8% vs 6.9% est
- Obamacare Repeal Risks Worsening America’s Opioid Crisis
- Harvard Links Billionaire Samwers, Ex-Eton Manager in New Fund
- Trump’s Taste for Confronting Putin to Be Tested Face-to-Face
- Deutsche Bank Declines to Provide Dems With Trump, Russia Info
- Adelson-Backed Lobbying Against Web Gaming Makes Sessions Fold
- Nord Pool to Expand Trading Into 7 New EU-Countries Next Year
- Ecopetrol to Prepay $1.93b Syndicated Loan Due 2020 on June 30
- IFresh Says Two Legal Disputes May Have Material Adverse Impact
- Moody’s: North America Coal Sector Outlook Remains Stable
*) Market Snapshot;
- S&P 500 futures up 0.3% to 2,426
- STOXX Europe 600 up 0.4% to 382.01
- Nikkei down 0.9% to 20,033.43
- Topix down 0.8% to 1,611.90
- Hang Seng Index down 0.8% to 25,764.58
- Shanghai Composite up 0.1% to 3,192.43
- German 10Y yield fell 1.5 bps to 0.437%
- Euro down 0.4% to 1.1397 per US$
- Italian 10Y yield rose 11.9 bps to 1.859%
- Spanish 10Y yield fell 1.2 bps to 1.521%
- Brent Futures up 0.7% to $47.74/bbl
- Gold spot down 0.2% to $1,243.59
- U.S. Dollar Index up 0.2% to 95.79
*) In Asia, stocks traded in a sea of red amid month-, quarter- and half-year end flows, as well as a negative lead from US where tech underperformed. ASX 200 (-1.4%) and Nikkei 225 (-1.2%) were broadly pressured from the open with the latter suffering from a firmer JPY, while Japanese CPI and Unemployment data also left much to be desired. Elsewhere, Shanghai Comp. (+0.07%) and Hang Seng (-0.7%) brushed aside the better than expected Chinese Official Manufacturing PMI and adhered to the downbeat tone after the PBoC continued to refrain from liquidity operations. Finally, 10yr JGBs traded lower despite the risk averse tone, as Japanese yields tracked their global counterparts higher in the wake of the recent hawkish tone from European central bankers. Furthermore, the BoJ were also in the market today, although its Rinban announcement was for a relatively reserved JPY 475b1n of JGBs.
# Top Asian News;
- China Factory Momentum Gains in June on Back of Trade Rebound
- BOJ Plans to Keep Current Pace of Bond Buying in July
- Hedge Fund Renaissance Picks Winner as Japan Stock Surges 1,813%
- Global Demand Eases China Deleveraging Pain With Factory Support
- China Says Trump’s Taiwan Arms Sale Undercuts Early Goodwill
- Asahi Sells Chinese Beverage Stake For $625 Million, Nikkei Says
- Limits of Japan’s Export-Led Recovery Show Through in Poor Data
*) In Europe, the historic, frantic trade on the last day of the month, quarter and half, has been far from visible today, with local bourses trading subdued. Much of the volatility was seen through the US and Asian sessions, however, a dip was seen in the open; with bank buying not enough to offset falls for commodity and health care related sectors. The healthcare sector has been weighed upon by Bayer having fallen 5%, after reporting that they see a negative earnings impact from its Brazilian crop science business, seeing its FY17 one time effect of EUR 300, 400mln. Gilts have been the noticeable paper to watch this morning, down to a new low around 125.15, looking towards March's 124.42 low, a key yield is approaching in the cash, with 1.30% the next to lookout for. Bunds also have edged lower, breaking below 162, however, with no real conviction. Psychological cash yield levels seem to be the theme, with 0.50% approaching in the cash.
# Top European news;
- Euro-Area Inflation Slows as Draghi Urges Prudence in QE Exit
- German Labor Market Takes Breather as Unemployment Inches Higher
- Nestle’s New CEO to Show Off M&A Acumen as Activists Circle
- Goldman Said to Bid for $1.3 Billion of UniCredit U.K. Mortgages
- Delivery Hero Gains on First Day of Trading as Tech IPO Succeeds
- German Parliament Backs Fines for Social Media for Hate Speech
- Bayer to Cut 2017 Forecasts as Crop Unit Struggles in Brazil
- U.K. Saving Ratio Falls to Record Low as Squeeze Takes Toll
- U.K. Confidence Lowest Since Just After Brexit Vote
# In currencies, a cautious start to the last day of trading for June, and H1, but extreme USD weakness has been modestly tamed, with EUR/USD backing off the mid 1.1400's, while Cable is back under 1.3000. Both key pairs, which have rallied on hawkish twists to the respective central bank outlooks, and as such, remain well placed to retest the highs later on today if the US data comes out weak again. EUR/GBP usually sees some month end pressure to the upside, but there has been little evidence of this in the last few days, remaining on the heavy side and below the 0.8800 mark also. It could be a busy one for the CAD also, as the April GDP numbers could put some fresh light on the optimism going through at the present time. Against this is the level of appreciation seen in the time frame achieved, and to this end, we continue to eye support levels ahead of 1.2900 as sub 1.3000 levels suggest the market is still ready to probe lower.
# In commodities, heading into month end, it could be a busy day for the USD as the day wears on, but a number of factors seen impacting on the leading assets this morning. For metals, the better than expected China PMIs will add to the support which has seen Copper testing USD2.70, but through this level, prices are certainly looking heavy. Iron ore is the lead based on the China story, and as long as this holds up, better levels will be maintained. WTI continues to probe levels through USD45.0, but tech based resistance continues to contain trade, with sellers still looking for better levels to fade strength based on US production levels. Output has decreased according to the report this week from the DoE, so the bid tone looks comfortable for now. Gold and Silver are trading extremely tight ranges, but we see the yellow metal looking vulnerable at present, and if the USD manages to recover a little more ground into the weekend, then we could be set for a retest of the early Monday lows seen in brief, but sharp hit in thin volumes. We hit lows just under USD1237.00 at the time.
# Looking at the day ahead, we are due to get the May personal spending and income reports, along with the PCE core and deflator readings. The Chicago PMI for June will also be released before we end the day with the final revision to the University of Michigan consumer sentiment reading. Away from the data, given all the focus this week it’s probably worth keeping an eye on scheduled comments due from the ECB’s Lautenschlaeger (at 11.30am BST) and Coeure (at 1.00pm BST)....