donderdag 15 juni 2017

Global Stocks Slide On Trump Probe Report, Fed Indigestion

Is it going to be another May 17, when US stocks tumbled as concerns of a Trump impeachment over obstruction of justice and impeachment surged ahead of Comey's tetimony? Overnight, S&P500 futures accelerated their decline following yesterday's WaPo report that Special Counsel Mueller has launched a probe into potential obstruction of justice by Trump...


While European and Asian markets dropped dragged lower by commodities which reacted to the latest Fed rate hike, as copper dropped and oil fluctuated. The Bloomberg commodity index fell to the lowest in more than a year, pressuring miners and E&P companies which were among the big losers as the Stoxx Europe 600 Index retreated for a second day. The dollar advanced after the Fed raised interest rates for the second time in 2017 and Yellen suggested the strength of the U.S. labor market will ultimately prevail over recent weakness in inflation, which however the bond market strongly disagrees with, sending the curve the flattest its has been since October...


Traders were surprised as Yellen played down the recent drop in inflation and voiced confidence the central bank was on course to hit its 2% inflation goal, something it hasn't done in three years. As Bloomberg notes, the Fed’s actions and words struck a careful balance between showing resolve to continue tightening in response to falling unemployment while acknowledging the persistence of unexpectedly low inflation this year. Adding to the uncertainty, the WaPo reported that the special counsel investigating Russia’s interference in the 2016 election plans to interview two top U.S. intelligence officials about whether Trump sought to "pressure" them to back off a related probe of former National Security Adviser Michael Flynn. In China, overnight the PBOC injected net 90 billion yuan with reverse repos, strengthens CNY fixing to strongest since November, however unlike in March, this time the PBOC did not raise rates on its reverse repo operations, thereby not following the Fed by tightening further. Dalian iron ore slides two percent.
Australia’s S&P/ASX 200 Index slumped 1.2% , with energy and raw-material shares dropping more than 2% . The Hang Seng Index slid 1.2 percent as Hong Kong followed the Fed’s move, elevating the risk of a selloff in the world’s priciest housing market. European equities followed Asia’s lead, opening lower after the Fed raised rates for the second time this year. Subsequent dollar strength persisted while Treasuries were range-bound, having dropped after Yellen’s comments. French and Spanish bond sales pressured European fixed income; OATs extended losses, demand in 10Y Spain supply strong. WTI futures trade below $45, having dropped sharply on higher-than-expected U.S. inventories. Weaker-than-forecast U.K. retail sales helped push GBP lower, though largely driven by dollar gains, before the BOE decision at 12 p.m. in London. S&P 500 futures dropped 0.7 percent as of 6:45am EDT. The index dropped 0.1% on Wednesday, while the tech-heavy Nasdaq indexes retreated 0.4%. The Dow Jones Industrial Average edged higher to a fresh record. The Stoxx Europe 600 Index retreated 0.7 percent.
The Bloomberg Dollar Spot Index rose 0.2 percent following three days of losses. The yen was little changed at 109.57 per dollar after climbing 0.5 percent Wednesday. The British pound weakened 0.4 percent to $1.2703 and the euro retreated 0.3 percent to $1.1181. The Australian dollar strengthened 0.3 percent after employment surged in May. The New Zealand dollar fell 0.5 percent as data showed the economy grew less than expected in the first quarter. In rates, the 10-year Yield rose one basis point to 2.14% after dropping 8.5 bps Wednesday to 2.13 percent, the lowest level since November, a clear indicator that the bond market is convinced the Fed is making a mistake. The yield on benchmark U.K. bonds rose three basis points to 0.96% , while those of French and German peers also increased two basis points. WTI swyng around the flatline before falling 0.1 percent to $44.70 a barrell, extending a 3.7% drop in the previous session. U.S. gasoline supplies unexpectedly rose for a second week. Gold rose less than 0.1 percent to $1,261.42 an ounce after sliding 0.5 percent the previous day.
*) Overnight Media Digest
- European bourses trade lower amid the negative lead from Asia post-FOMC
- EUR/USD has been on the back foot this morning and has now slipped back under 1.1200, but as we noted yesterday, strong demand anticipated in the 1.1150-60 area
- Looking ahead, highlights include US CPI, Retail Sales, DoEs and the FOMC rate decision
*) Market Snapshot;
- S&P 500 futures down 0.7% to 2,420 
- STOXX Europe 600 down 0.7% to 385.37
- Brent Futures up 0.3% to $47.13/bbl
- Gold spot up 0.1% to $1,261.89
- U.S. Dollar Index up 0.2% to 97.14
- German 10Y yield rose 1.7 bps to 0.243%
- Euro down 0.3% to 1.1184 per US$
- Italian 10Y yield fell 4.1 bps to 1.649%
- Spanish 10Y yield rose 4.8 bps to 1.43%
- Nikkei down 0.3% to 19,831.82
- Topix down 0.2% to 1,588.09
- Hang Seng Index down 1.2% to 25,565.34
- Shanghai Composite up 0.06% to 3,132.49
*) Top Overnight News from Bloomberg;
- Mueller Said to Examine Whether Trump Sought to Slow Flynn Probe
- Messaging Startup Slack Said to Draw Interest From Amazon.com
- Rand Weakens as South Africa Says Mines Must Be 30% Black- Owned
- U.K. Retail Sales Fall More Than Forecast as Squeeze Hits
- Hammond to Make Public Case for Brexit That Protects Economy
- SNB Keeps Key Rate on Hold as Inflation Forecasts Trimmed
- Supply Weighs on EGBs; Block Trades in Bunds, Downside in Schatz
- New U.S. Carrier Hobbled by Flaws in Launching, Landing Planes
- Western Digital Seeks Injunction to Block Toshiba Chip Sale
- Hammond to Make Public Case for Brexit That Protects Economy
- Netlist Sues SK Hynix for Patent Infringement in California
- Columbia Sportswear Names Jim Swanson CFO
- Cummins Plans Electric Powertrain for Commercial Vehicles by ’19
- CALC to Buy 50 Boeing 737MAX Aircraft for List Price of $5.8b
- Yahoo Reports Alibaba VWAP, Prices for Shares in Tender Offer
- Hilton Grand Vacations Holder Blackstone Offering 9.65m Shares
- Flex Gains After Jabil 3Q Rev. Beats; Benchmark, Plexus May Move
- AveXis Reports Alignment With FDA on Manufacturing; Shares Rise
- Carney’s Quiet Period Ends With U.K. Demanding Attention
- MUFG Said to Consider Shrinking Headcount by 10,000 Over Decade
- Deutsche Bank Said to Create New Global Capital Markets Unit
*) A cautious tone gripped Asia with most major bourses negative following a similar showing in US, after the Fed hiked rates as expected but caught markets off guard with details on how it expects to begin its balance sheet normalization. This dampened ASX 200 (-1.2%) and Nikkei 225 (-0.3%) from the open, with underperformance in the former due to a commodity rout in which WTI crude futures fell over 3% on a narrower than expected draw in headline DoE stockpiles. Hang Seng (-1.1%) was also among the laggards after the HKMA raised base rates in response to the Fed hike and warned of property sector risks, while the Shanghai Comp. (+0.1%) traded choppy with downside stemmed by a firm liquidity effort by the PBoC and as participants digested the latest mixed loans and financing data. 10yr JGBs were higher amid a cautious risk tone in the region and the BoJ's presence in the market for nearly JPY 700bIn of JGBs, while the curve flattened as the super-long end outperformed. PBoC injected CNY 50bIn in 7-day reverse repos, CNY 40bIn in 14-day reverse repos and CNY 60bIn in 28-day reverse repos. PBoC set CNY mid-point at 6.7852 (Prey. 6.7939). Australian Employment Change (May) M/M 42.0K vs. Exp. 10.0K (Prey. 37.4K.) Australian Unemployment Rate (May) M/M 5.5% vs. Exp. 5.7% (Prey. 5.7%)
# Top Asian News;
- Anbang’s Woes Deepen as Banks Said Told to Halt Dealings
- BOJ Slowing Bond Buys Put Meeting Under Taper Talk Scrutiny
- MUFG Said to Weigh Shrinking Headcount by 10,000 Over 10 Years
- Philippine Overseas Workers Remittances Fall Most in 17 Months
- Graticule Hedge Fund Said to Part Ways With at Least 5 Staff
*) European equity markets opened lower, as an aftermath of the Fed was clear. The FOMC voted to increase interest rates by 25bps, to 1.00% - 1.25% as expected, however, what was less so expected was the optimism toward the US economy from Fed Chair Yellen. As such, 9/10 of the Stoxx 600 sectors trade in the red. Fixed income markets find themselves in subdued trade, as the futures dictated the majority of the move in US hours, following from the aforementioned Fed move. 10y Gilt futures followed GBP in taking no real attention to the UK retail sales, seeing misses across the board, however, upward revisions did soften the blow. Elsewhere, supply today from Europe has come from Spain and France with both auctions relatively well digested by the market.
# Top European News;
- U.K. Retail Sales Fall More Than Forecast as Squeeze Hits Home
- SNB Keeps Key Rate on Hold as Inflation Forecasts Trimmed
- DFS Plunges After Profit Warning, Leads U.K. Retailers Lower
- U.K. Sofas Join Tories in Election Slump as DFS Orders Plunge
# In currencies, it was a quiet start to London trade in the aftermath of the FOMC announcements last night, where the 25bp hike was followed up with details on balance sheet reduction as well as a generally upbeat tone on growth, inflation and the labour markets. The overall impact was to redress some of the overly bearish USD sentiment, which has been justified on valuation levels against some of its major counterparts, but perhaps a little too zealously in the time frame(s) achieved. EUR/USD has been on the back foot this morning and has now slipped back under 1.1200, but as we noted yesterday, strong demand anticipated in the 1.1150-60 area, and if not then from 1.1120 again lower down. We have also seen USD/JPY gravitating somewhat nervously back towards 110.00 again, and we can only put this down to the lofty levels on Wall Street, which will have been perturbed by a Fed intent on maintaining the normalisation path. For GBP, it has not been a good week based on politics alone, but on the data front it is not much better, as the slightly higher than expected inflation read on Tuesday was followed up by a drop off in wage growth yesterday while retail sales fell more than expected in this morning's release. This was marginally offset by prior revisions, but coming up is the BoE announcement, and it is hard to see past a cautious MPC have little alternative but to account for the fresh uncertainty propagated by Theresa May's snap election and the unnerving end result.
# In commodities, given the focus on political and central bank risks of late, the commodities markets have taken a backseat to a larger degree, but standout losses in Oil prices have been prominent, with the WTI taking out USD45.00 on the downside and showing no signs of giving up on even lower levels. On the week, the API build in Crude stocks was the first surprise, added to by the DoE draw which was smaller than expected. Amid the backdrop of growing US shale production, the prospect of a test towards USD40.00 looks ever likely, but there is a strong level of support to contend with down here. Still no change in the Brent premium, which has remained uniform inside USD2.00-2.50. Copper prices have slipped again noticably, making the breach of USD2.60 an all to brief affair, but elsewhere, we see Zinc and Lead showing 1.0% gains on the day, while Nickel is now flat. Gold was choppy over the FOMC last night, having raced up to USD1280 on the post data (inflation/retail sales) USD hit, but is now hovering in the low USD1260's with Silver still camped below USD17.00.
# Looking at the day ahead, we’ll kick off with the import price index reading for May, followed then by the latest weekly initial jobless claims print and Philly Fed manufacturing index for June. Following that we then get industrial and manufacturing production for May before finishing with the NAHB housing market index reading for June....