S&P futures rose 0.3% in subdued trading with Dow Jones futs once again in record territory as European stocks jump 0.6% following Sunday's landslide victory for Macron's party in the French parliamentary elections and as Brexit negotiations are set to officially roll out on Monday. In the latest terrorist incident in London overnight, a man drove a van into pedestrians as people left their mosque following prayers, with UK PM May stating that UK police have confirmed the incident is being treated as a potential terrorist attack. Later updates stated that the one fatality could have been dead before being run-over while 2 others are considered to be seriously injured. Asian equities opened on the front foot led by a rebound in tech stocks while benchmark sovereign yields and FX remains little changed; kiwi outperforms following solid domestic data; yen slightly lower. Australian bonds modestly softer, T-note futures unchanged with the AUDUSD sliding, but then recouping all losses after Moody's cut the long-term ratings of Australia’s four major banks, ANZ, CBA, NAB and Westpac, to Aa3 from Aa2.
In China, the PBOC kept daily CNY fixing little changed and conducted net 110 billion yuan of open market operations, injecting liquidity for a fifth straight day and boosting cash injections in the past two days to the most since January. 7-day repo rate fell 23 basis points. Boosted by the sudden bout of PBOC liquidity generosity, Chinese 10-year sovereign bond yield declined 8 basis points, the most since Dec. 29, to 3.50%, sending the yield to the lowest since early May, however the 1-year yield dropped just 4 basis points to 3.58%, sending the Chinese 1s10s yield curve even more inverted...
Chinese and Hong Kong stocks jumped 0.7% and 1.2% ahead of a decision by index provider MSCI on Tuesday, expected to see it add mainland-listed Chinese stocks to its top share benchmarks for the first time. Chinese data had also helped, with Reuters noting that liquidity conditions appear to have eased and home prices up 10.4% in May from a year ago, although slowing from April's 10.7% gain.
"Generally, the environment still remains fairly positive for risk appetite," said Khoon Goh, head of Asia research at Australia and New Zealand Banking Group in Singapore.
In Europe, stocks headed for their biggest rise in seven weeks on Monday as investors snapped up slammed retail, tech and automaker stocks and France's shares and bonds cheered an absolute parliamentary majority for President Emmanuel Macron as the Stoxx Europe 600 gained for a second day. Europe's retailers also clawed back some ground having been clobbered along with U.S. peers like Wal-Mart and Target on Friday by Amazon's $13.7 billion deal to buy upscale grocer Whole Foods Market. The CAC 40 jumped after President Emmanuel Macron’s government claimed a historic majority in France’s legislature, although marred by a record low turnout, which perhaps is why the German-French spread moved just fractionally on monday...
"We expect the Macron reforms to transform France like the Thatcher reforms had cured the erstwhile sick man of Europe, the United Kingdom, some 35 years ago," said Berenberg European economist Holger Schmieding. "And like the 'Agenda 2010' reforms had turned Germany from one of the weakest into one of the strongest economies in Europe almost 15 years ago."
As Bloomberg notes, investors are once again in risk-on mode as the week begins, even as a cloud of uncertainty swirls around both U.K. leadership and the outlook for Brexit negotiations.
“Risk assets around the world are rallying again as the ‘carry party’ resumes,” Societe Generale wrote. Fed Chair Janet Yellen “did nothing to persuade the market” to take its hawkish outlook for the path of interest rates seriously, he said.
Sterling rose with cable just above $1.28 ahead of the formal start of negotiations on Britain's planned exit from the European Union, expected to generate plenty of headlines for the currency in the weeks ahead. Brexit Secretary David Davis starts negotiations in Brussels on Monday, which will be followed by a Brussels summit on Thursday and Friday where Prime Minister Theresa May will meet - but not negotiate with - fellow European Union leaders.
Davis's agreement to Monday's agenda led some EU officials to believe that May's government may at last be coming around to Brussels' view of how negotiations should be run. May's own political survival is in doubt after she lost her parliamentary majority in an election this month.
On the topic of Brexit negotiations, which officially kick off today, SocGen's Juckes said "we expect nothing because the UK position is as clear as mud' beyond growing signs that the UK wants free trade without being part of the customs union or conceding grounds on borer controls. Sterling's probably range-bound. Any rally triggered by ‘soft Brexit' hopes is probably temporary."
With no macro data on today's calendar, the market will await comments by New York Fed President William Dudley when he speaks at a business roundtable in New York state.
"In the wake of Friday's weak U.S. data, Dudley could provide insight into whether the Fed is still poised to continue normalizing monetary policy," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.
The euro was steady as talks begin on the U.K.’s split from the European Union, while the British pound strengthened after dropping early in the session.
In commodities, oil futures lingered near six-week lows over concerns about a supply glut amid faltering demand. WTI slipped 0.35% to $44.58 a barrel, while Brent dropped 0.3% to $47.21. Iron ore rallied 2.8% after snapping a three-week losing streak. Gold touched a 3-1/2-week low earlier in the session and was trading down slightly at $1,250 an ounce.
In rates, two-year gilts underperform the rest of the curve after the Sunday Times reported the BOE is considering ending its term funding scheme; euro-area periphery bonds outperform core peers. The yield on 10-year Treasuries was little changed at 2.15 percent.
*) Bulletin headline Summary from RanSquawk;
- European equities enter the North American open in positive territory, continuing from Asia, buoyed by Macron's convincing parliamentary election victory.
- A quiet morning in FX land, with all focus on GBP, GBP/USD has pivoted around the 1.28 handle, as participants await the Brexit negotiations.
- Looking ahead, the highlight will be the fallout of day one of Brexit Negotiations, with Barnier and Davis set to brief the press at 17:00BST
*) Global Market Snapshot;
- S&P 500 futures up 0.3% to 2,437.75
- STOXX Europe 600 up 0.7% to 391.35
- Nikkei up 0.6% to 20,067.75
- Topix up 0.6% to 1,606.07
- Hang Seng Index up 1.2% to 25,924.55
- Shanghai Composite up 0.7% to 3,144.37
- German 10Y yield rose 0.2 bps to 0.278%
- Euro down 0.04% to 1.1193 per US$
- Italian 10Y yield rose 1.9 bps to 1.695%
- Spanish 10Y yield fell 2.5 bps to 1.431%
- Brent Futures down 0.4% to $47.17/bbl
- Gold spot down 0.2% to $1,250.84
- U.S. Dollar Index up 0.01% to 97.18
*) Key Overnight Headlines;
- London police say one dead, eight injured after van hits pedestrians
- BOE said to consider ending the Term Funding Scheme at a meeting this week
- Macron’s party secures French parliamentary majority, turnout plummets
- Trump isn’t under investigation for obstruction of justice, his lawyer says
- RBA’s Lowe repeats growth likely a bit stronger over next couple of years
- Japan May trade balance -203.4 billion yen vs +43.3 billion estimate
- Oil Declines as U.S. Adds Yet More Rigs in Oversupplied Market
- Amazon Said to Plan Cuts to Shed Whole Foods’ Pricey Image
- Basic Energy Said to Be in Talks to Merge With Rival Key Energy
- Boeing Takes Aim at Airbus Single-Aisle Edge With Stretched 737
- GE Won’t Participate on New Boeing If Three Engine Providers
- JD Takes $17.6b of Orders During ‘618’ Online Shopping Gala
- Ocado Jumps as Amazon Deal Seen Positive by Credit Suisse
- Clovis to Seek Broader Label as Ovarian Cancer Study Meets Goals
- Myriad Genetics, Foundation Medicine May Fall on Clovis Plans
- Pentagon Sees Saving $2b From 445-Jet Contract for F-35 Fighter
*) In Asia, equity markets began the week on the front-foot with all major indices in the green, as participants eyed the political landscape in Europe including the start of Brexit negotiations today and after French President Macron's party and its allies won a clear majority in the 2nd round parliamentary elections. Nikkei 225 (+0.62%) gained as JPY softened across the board, while ASX 200 (+0.54%) was led higher by outperformance in utilities and financials. Elsewhere, Shanghai Comp. (+0.7%) and Hang Seng (+1.1%) are also upbeat following a firm liquidity operation by the PBoC, while the region also awaits MSCI's verdict tomorrow on whether to add China A-shares to its Emerging Markets Index in the nation's 4th attempt for inclusion. Finally, 10yr JGBs were subdued alongside gains in riskier assets and after the BoJ's Rinban announcement, in which it refrained from JGB purchases and instead concentrated on treasury bills.
# Top Asian News;
- Hong Kong Wants to Win the Next Alibaba With Exchange Revamp
- China’s Home Prices Increase in Fewer Cities as Curbs Bite
- Japan’s Recovery Creates Room for Bolder Reforms, IMF Says
- Aussie Extends Drop After Moody’s Cuts Ratings on Nation’s Banks
- CRCC May Eye Up to $2b From Shanghai, Hong Kong Share Sales: IFR
- Why the Qatar Crisis Defies Rapid Resolution: QuickTake Q&A
- Taiwan Watchdog Fines SinoPac, Ousts Chairman for Lax Oversight
- In Prohibition Pakistan, Brewery Plans Soft Drink Switch
- Abe’s Popularity Slides as Mounting Japan Scandals Take Toll
- Toshiba Finalizing Chip Sale to Group With Bain: Nikkan Kogyo
*) In Europe, equities likewise have kicked-off the week on the front foot, with all major European bourses firmly in the green (Eurostoxx 600 +0.6%) in a continuation of the positive sentiment seen during Asia-Pac trade. The CAC 40 (+1 %) is trading broadly in-line with the market as Macron's victory in the French parliamentary elections was largely priced in given the results seen in the first round. In terms of sector performance, gains have been relatively broad-based with modest underperformance for RWE following a broker downgrade while Ocado (+6.5%) trade higher in the wake of Amazon's purchase of Whole Foods. In fixed income markets, prices have largely been swayed by the upside in equities as paper trades lower this morning (albeit modestly so) in what will be a quieter week with regards to sovereign supply (Belgium comes to market today with 3 OLO offerings). Peripheral yields are marginally lower this morning with Greek paper also taking a bit of a breather after the nation managed to strike a deal with creditors last week.
# Top European News;
- Macron Under Pressure to Deliver as Turnout Plummets in France
- Brexit Talks Begin With May Under Pressure to Get Soft Split
- London Home Sellers Cut Price for Second Time in Three Months
- ECB’s Smets Says Start of Brexit Negotiations a ‘Sad Day’
- ECB’s Smets Says Inflation Expectations Must Be Solidly Anchored
- Buyers Line Up as Europe’s Biggest Debt Collector Divests Units
- Kazakhstan Says Eni-Shell Venture Offers Settlement to End Spat
- Astra, Tesaro May Move on Clovis Oncology’s Ovarian Cancer Data
- U.K.’s Johnson: ‘Realistic Prospect’ of Brexit Deal With EU
- SNCF Mandates Lazard to Sell Ermewa, Les Echos Says
# In currencies, GBP will be a focus throughout the session as today sees the beginning of negotiations between EU's Barnier and Brexit Secretary Davis. That said, GBP remains firmer against the greenback and back above 1.2800 even despite weekend reports of a potential attack on May's leadership which could further add to the political uncertainty gripping the nation. Elsewhere, the broader risk sentiment has supported the USD with USD/JPY gaining traction in early trade. However, some remain cynical about how much room there is to the upside with hearty offers at 111.50. Finally, AUD saw some selling pressure this morning amid news that Moody's has downgraded the nation's big four banks.
# In commodities, this morning has been a quieter one for the commodity complex with energy prices stuck in a tight range amid light newsflow, other than reports that oil output has been increasing at Libya's Sharara oil-field. In metals, copper eked mild gains overnight amid the positive risk sentiment in Asia, although upside was limited alongside subdued trade across the complex, while the risk sentiment has acted as a downward force for gold prices. There were new details released by Jodi about Saudi Arabian oil data as follows:
- Crude exports fell by 0.226min BPD M/M to 7.006min BPD in April
- Crude Stocks fell 3.927min BBLS TO 263.927min BBLS in April
- Domestic refinery crude throughput rose 0.390min BPD to 2.651 min BPD in April
- Crude output rose by 0.046min BPD M/M to 9.946min BPD in April
# Looking at the day ahead, there are no data releases scheduled in the US, although we have two Fed speakers: at 8am, Fed’s Dudley holds a business rountable in Plattsburgh, NY; while later at 7pm Fed’s Evans speaks in New York....