S&P futures were fractionally in the red, pressured by a drop in European shares following what several desks called a "hawkish shock" speech by Draghi at the annual ECB forum in Portugal, even as oil rose for a fourth day, boosted by favoriable remarks from China's premier Li, while the Yuan surged 0.4% amid speculation of more PBOC interference in the yuan. The overnight session was divided in two parts: the early European focus on a spike higher in Chinese yuan, with some speculating on PBOC intervention, others cite tightening in yuan forward curve. Metals and crude both rallied broadly in response, USD pushed weaker against G-10. The initial PBOC-inspired euphoria was later doused by another central bank, this time the ECB, when a hawkish Draghi speech drove markets, sending the EUR/USD back to YTD highs, and leading to a sharp steepening in German 2s10s and Euribor curves...
With the help of the sliding dollar, the Euro is now on pace for its best quarter in six years...
European equity markets open lower led by sector-specific news. As noted earlier, the German auto sector was hit after supplier Schaeffler issued a surprisingly ugly profit warning, Deutsche Telekom weighed on Telecoms sector though basic resources shares were among those bucking the trend as commodities advanced. U.K. banks briefly sold off after BOE raises countercyclical capital buffer to 0.5% (and 1.0% as of November), while Google was down -2.6% in premarket trading after the EU competition commissioner announced a record €2.4BN fine for antitrust issues and skewing search results...
Gold rebounded after an apparently erroneous order triggered a plunge in the price on Monday. The Chinese yuan surged both onshore and overseas amid speculation of central bank intervention. Treasuries slipped before an appearance by Fed Chair Yellen.
With Draghi's hawkish outlook shocking markets, it is now up to Yellen. As Bloomberg notes, "traders will be looking to Yellen for clues on the outlook for interest rates and the American economy, especially after weakness in data yesterday added to concerns about the strength of growth. Some investors worry the Fed is taking too rosy a view as it sets the path for increasing borrowing costs. ECB President Draghi struck a cautiously optimistic tone for the euro area, noting a “strengthening and broadening recovery” but stressing the need for prudence in adjusting policy."
Elsewhere, as reported overnight, Brazilian President Michel Temer was charged with corruption in a highly anticipated development that may put the embattled leader of Latin America’s largest economy on trial. Temer, who has denied the charges, could lose his job if indicted and found guilty. India and Singapore reopened after holidays but many markets, including in Malaysia, Indonesia and most of the Middle East remain closed.
Futures on the S&P 500 Index fell 0.1 percent. The underlying gauge rose less than one point on Monday. The Nasdaq 100 fell 0.4 percent.
In currencies, the euro surged 0.6 percent to $1.1251. The Bloomberg Dollar Spot Index fell 0.3 percent after gaining 0.1 percent in the previous session. The British pound added 0.1 percent to $1.2737.
In commodities, WTI rose 0.8% to $43.73 a barrel, adding to a three-day rally following oil’s drop into a bear market. Gold increased 0.5 percent to $1,250.71 an ounce. The precious metal sank almost 1 percent on Monday.
In rates, the yield on 10-year Treasuries rose two basis points to 2.16%, after dropping less than one basis point on Monday. European government bonds dropped across the board, with the yield on benchmark French bonds climbing six basis points and that of Germany four basis points.
# Bulletin Headline Summary from RanSquawk:
- European equity markets trade lower amid hawkish comments from ECB's Draghi
- Bank of England Financial Stability Report; Countercyclical buffer for UK banks raised from 0.00% to 0.50%
- Highlights include Fed's Yellen, Harker and Kashkari
*) Market Snapshot;
- S&P 500 futures down 0.1% to 2,432.80
- Nikkei up 0.4% to 20,225.09
- Topix up 0.4% to 1,619.02
- Hang Seng Index down 0.1% to 25,839.99
- Shanghai Composite up 0.2% to 3,191.20
- Brent futures up 0.8% to $46.19/bbl
- Gold spot up 0.6% to $1,252.19
- U.S. Dollar Index down 0.4% to 97.01
- STOXX Europe 600 down 0.9% to 385.62
- German 10Y yield rose 3.4 bps to 0.279%
- Euro up 0.6% to 1.1243 per US$
- Italian 10Y yield fell 1.8 bps to 1.609%
- Spanish 10Y yield rose 0.5 bp to 1.382%
*) Top Overnight News;
- ECB’s Draghi: factors dampening inflation are on the whole temporary; the central bank can accompany the recovery by adjusting the parameters of its policy instruments, not in order to tighten the policy stance, but to keep it broadly unchanged
- U.S. GSEs: senators Corker and Warner working on a plan to break up Fannie and Freddie
- BOE: raises countercyclical capital buffer to 0.5% from 0.0%, plans further raise to 1.0% in November
- Canada: U.S. to impose additional tariffs on Canadian lumber imports
- China Premier Li: economy keeps steady growth with improvement in 2Q; continues stable positive trend in 2017
- Brazil: President Temer charged with corruption by top prosecutor
- Hong Kong small-cap stock plunge wipes out $6.1 billion in value
- Dimon Says JPMorgan Headcount to Keep Rising Despite Automation
- Sprint Jumps on Report Deutsche Telekom Favors T-Mobile Merger; Sprint Said in Talks With Charter, Comcast on Wireless Deal
- Stada Plunges as $5.9 Billion Bid Fails to Lure Investors
- Li Says China to Meet Growth Goals, Vows Free Trade Support
- Draghi Defends ECB Stimulus Saying Jobs Matter Most for Equality
- Deutsche Telekom Won’t Sell BT Group Stake, CEO Hoettges Says
- Deutsche Bank Wasn’t Only ‘Mirror’ Trader: Russian Central Bank
- Germany Asks Opel to Update Zafira 1.6l Diesel Engine Software
- Volkswagen, Nvidia to Cooperate on Mobility Services
- Volvo Cars, Autoliv Add Nvidia as Partner on Self- Driving Autos
- Spanish Lender Bankia Agrees to Buy BMN in All- Stock Deal
- Chemicals M&A Still Hot Topic in Europe, U.S., Citi Says
- Hollywood Said to Be Auditing China’s Box-Office for First Time
- Jorge Mas Plans to Bid $1b-$1.1b for Miami Marlins: Fox Business
- Morgan Stanley Raises Alcoa Price Target, Cuts Cliffs
- Apple Acquires Eye-Tracking Company SensoMotoric For AR Tech
*) Asia equities traded mostly in the green following a similar close on wall St., where financials outperformed as Fed comments backed the FOMC to continue hiking rates gradually, while the tech sector lagged after the US Supreme Court reinstated much of Trump's travel ban. ASX 200 (-0.2%) saw broad-based weakness with gold miners also suffering from yesterday's selling in the precious metal, while Nikkei 225 (+0.3%) was buoyed by a weaker JPY. Shanghai Comp. (+0.2%) and Hang Seng (-0.1%) were indecisive with stronger Industrial Profit growth counterbalanced by the PBoC refraining from liquidity injections for a 3rd consecutive day. 10yr JGBs were relatively flat with some mild upside seen despite the positive risk tone in Japan. Furthermore, the curve steepened with outperformance in the short-end following a 2yr bond auction which saw increased demand from prior as the b/c surged to 6.79 vs. Prey. 5.06. Chinese Premier Li stated that China is able to meet major economic targets this year and that China will ease market entry restrictions, as well as deepen reforms. Furthermore, Premier Li also stated that will maintain stable macro-policies and will not resort to massive stimulus. (Newswires)
# Top Asian News;
- Hong Kong Small Cap Stock Plunge Wipes Out $6.1 Billion in Value
- Cotton Crop in Top Grower Seen at 3-Year High on Local Price
- China Stocks Reverse Drop in Afternoon as Consumer Shares Gain
- Russia Has Plan for North Korea to Give Up Nuclear Program: RIA
- China Said to Discuss VAT Exemption for Asset Management Firms
- Noble Group Slides as Fitch Sees Real Possibility of Default
- Exporters Lead Advance in Japanese Stocks as Yen Maintained Loss
*) EU bourses saw some bearish pressure on the back of Draghi's comments, as all European majors trade in the red. Telecoms lag amid morning reports stating that Sprint said to be in exclusive talks with Charter, subsequently putting talks with T-Mobile US (TMUS) on hold (DTE GY holds a stake in TMUS). Fixed Income markets saw a subdued morning; however, a somewhat hawkish Draghi has weighed on European paper. The 10y Bund has been the main driver in the move, trading at session lows, down now over 20 ticks on the session. Bond trading is likely to focus on central bank speech today, with Yellen set to speak later in the session.
# Top European News;
- Bankia, Banco Mare Nostrum Boards Sign Merger Agreement
- Nomura to Set Up German Unit in Preparation for Brexit
- Euro Jumps; Draghi Sees Temporary Factors Weighing on Inflation
- U.K. Grocers Back in Growth as Brits Pay More for Their Shopping
- Italian Business Confidence Unexpectedly Rises On Better Outlook
- European Miners Advance as Iron Ore Jumps Most in Four Months
- North Korea Sanctions Violations Trigger Fines at Latvian Banks
- Petrofac Not Getting Paid for Oil Sales From Greater Stella Area
# In currencies, it has been a lively morning for the EUR as the speech from president Draghi at the ECB forum on central banking was met positively. Traders took their cue from the comments highlighting the strengthening and broadening Euro area recovery and that deflationary forces have been replaced by reflationary ones. He also stated, again, that monetary accommodation is still required and that adjustment to policy will need to be gradual. Nevertheless, the market is still positioning for an eventual reining in of stimulus, and will continue to buy dips in EUR/USD and EUR/GBP, with EUR/JPY back at the session highs after a brief dip this morning. EUR/USD still faces as wall of selling interest into 1.1300, but for EUR/GBP, uncertain future in the UK makes for a comfortable buy in the near term, with the market having bid this cross rate well off the pre 0.8700 support highlighted in the past week or so. Still no major direction to discern in Cable, and we remain right in the middle of the broader 1.2400-1.3000 limits we see playing out until we get some fresh colour/news on Brexit. The rate policy ahead is being discounted to a larger degree despite the anticipated shift on the vote split. Pre 1.2800 still very well offered, but demand ahead of 1.2700 to note also.
# In commodities, gold has recovered some of the heavy drop suffered in early Monday trade, in what is believed to have been a stop chase or errant volumes entered. We are back above USD1250.00 this morning, but we see the USD based weakness tempered by the steady risk tone. Silver is also steady in the upper USD16's for now. Base metals show modest gains on the day, having seen decent gains over the last few days, and with reports of steel mill closures in China, iron ore has recovered a little more today. Copper is still holding circa USD2.64-5 this morning, so net little changed over the last 24 hours, with Zinc and Lead outperforming on the morning so far. Oil prices have also stabilised in the near term, but with little change to the overall backdrop of rising US production, traders will be wary of riding this latest move higher. WTI has held off USD44 so far.
# Looking at the day ahead, we will receive the June consumer confidence reading (expected to edge down to 116.0 from 117.9) along with the Richmond Fed’s manufacturing index print for June and S&P/Case-Shiller house price index reading for April. Also of note today will be comments from Fed Chair Yellen at 6pm BST when she is due to speak in London on “Global Economic Issues”. Q&A is also expected to follow. The Fed’s Harker is also due to speak in London at 4pm while Williams speaks this morning at 9am BST and Kashkari also speaks at 10.30pm BST....