It was another painfully low-volume overnight session, which however did not prevent global stocks from hitting another record highs, capping their best week in over two months as the dollar stayed close to nine-month lows following Yellen's dovish retreat in which she noted caution on persistently low inflation (hence today's CPI print will be especially important) as odds of future rate hikes in 2017 and 2018 dropped...
"(The Fed comments) add to our conviction that no further Fed hike should be expected for the rest of the year, which should prove reassuring for markets concerned about excessive tightening risk globally," Mizuho's head of euro rates strategy Peter Chatwell said in London.
European equity markets trade broadly flat, FTSE 100 underperforms with healthcare sector lagging as uncertainty on AstraZeneca (-1.6%) CEO grows. The pan-European STOXX 600 index inched up 0.1%, adding to earlier gains on stock markets in Asia that took MSCI's world stock index to an all-time high. European shares were poised for their best week since late April as investors piled back into the Stoxx 600, though moves on indexes on Friday were largely muted for now...
Earlier, Japan's Nikkei added 0.2%, poised for a weekly rise of just over 1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.3 percent to its highest level in two years.
S&P 500 index futures were little changed after financial shares led gains yesterday with three large banks slated to deliver earnings Friday, although all eyes will be on today's CPI print for validation of Yellen's recent dovishness.
Leading into today’s US CPI print yesterday’s PPI report in the US was a bit of a mixed bag. Headline PPI rose +0.1% mom in June which was a tenth ahead of expectations however base effects have seen the annual rate slip to +2.0% yoy from +2.4%. The more significant core (ex food and energy) reading rose +0.1% mom which was a slight miss (+0.2% expected). That puts the annual rate now at +1.9% yoy and down from +2.1% in May (which was the highest since May 2014).
Of note in the report was healthcare costs which rose a fairly modest +0.1% mom. This should point to a similar rise in the component for the PCE deflator.
DB economists expect headline and core CPI to have risen +0.1% mom and +0.2% mom respectively which is also in line with the market consensus. Should their forecast be close to the mark then the year over year growth rate of core CPI would rise a tenth to +1.8% which would be mildly positive for dovish-leaning policymakers fretting about recent soft inflation. That would also be one-tenth ahead of the consensus. However it is worth noting that core CPI has missed expectations for the last three months and the 3m average surprise has dropped to the lowest (-0.17%) since June 2005 (when it was the same level). So it’ll be interesting to see if today bucks the trend.
Bonds posted a modest rebound while US stock futures were marginally in the red ahead of a US data deluge which includes the start of earnings season when JPM, Wells and PNC post Q2 results, coupled with data deluge from the US including inflation data, retail sales, industrial production and UMich consumer confidence.
Stocks weren't the only thing to benefit from Yellen's dovishness: treasuries headed for their first weekly gain in three while Bunds rose for the first day in four. Likewise in Europe, bonds rebounded after yields bounced in the past few weeks in the euro zone on rising expectations that the European Central Bank is set to wind down its asset purchase program. The German 10-year yield fell some 3 basis points when European trading started on Friday to 0.50%, moving away from an 18-month high hit earlier this week of 0.583 percent.
The Bloomberg Dollar Spot Index fell for the fifth day, its longest streak of losses in two months and set for another weekly decline, near the lowest level since September 2016. The dovish signals from the Fed also pressured the broader DXY index on Thursday and it stayed close to that trough, inching down 0.1 percent on the day.
The yen was on the back foot against high-yielding currencies such as the Australian dollar as the VIX index drifted lower and provided a boost to carry trades. There was some excitement in FX land where the AUD/USD pushed to a new YTD high with similar price action observed in EUR/CHF which also hits YTD high as CHF weakened across the board. The euro was up 0.1 percent at $1.1415 and was set to end the week flat.
"The latest comments from Yellen and others suggest that interest rates will rise very gently, and that is supportive for high-yielding currencies for now," said Viraj Patel, an FX strategist at ING Bank in London.
# Bulletin Headline Summary from RanSquawk;
- Asian equities traded with little in the way of firm direction as markets await a slew of tier 1 US data releases later in the session
- FX markets also traded in a tentative manner with outflows from safe-haven JPY & CHF, as AUD/USD breaks 2017 highs
- Looking ahead, highlights include US CPI, retail sales, industrial output, Uni. Of Michigan and Fed's Kaplan
# Market Snapshot;
- S&P 500 futures down 0.1% to 2,443.00
- STOXX Europe 600 up 0.09% to 386.47
- Nikkei up 0.09% to 20,118.86
- Topix up 0.4% to 1,625.48
- Hang Seng Index up 0.2% to 26,389.23
- Shanghai Composite up 0.1% to 3,222.42
- German 10Y yield fell 2.4 bps to 0.579%
- Euro up 0.1% to 1.1411 per US$
- Brent Futures down 0.1% to $48.35/bbl
- Italian 10Y yield rose 7.1 bps to 2.035%
- Spanish 10Y yield fell 5.0 bps to 1.655%
- Brent Futures down 0.1% to $48.35/bbl
- Gold spot up 0.05% to $1,218.21
- U.S. Dollar Index unchanged at 95.72
# Top Overnight News;
- ECB is wary of putting an end date on its QE program; any changes remain data dependent with a special focus on wages according to people familiar: Reuters
- Trump vows to curb steel dumping; considers import tariffs and quotas
- U.K. accepts for first time the necessity of a financial settlement for leaving the EU
- Telegraph: conservative MPs are in talks with Labour about signing-up the U.K. to free movement of people after Brexit
- Republican Health Bill Draft May Be Destined for Another Rewrite
- Asia’s Biggest Buyout Sees GIC-Backed Firm Get $11.6 Billion
- Macron Woos Trump With Parisian Splendor in European Lesson
- Trump May Have to Use Obama’s Secret Debt Plan, Worrying Markets
- Europe Car-Sales Growth Slows on Brexit Effect Amid Market Peak
- PPG Sticks With European Brand Overhaul After Dulux Dog Bolts
- As ‘Game of Thrones’ Comes Roaring Back, HBO Retrenches Online
- BP Spill-Loss Investors Can Seek Damages on Shares Not Sold
- Big Oil Just Woke Up to the Threat of Rising Electric Car Demand
- China Small Caps Tumble in Worst Week in a Year on Earnings Woes
- EdgePoint Undecided on How to Vote on Huntsman-Clariant Deal
- Cogeco Communications Third Quarter EPS Beats Highest Estimate
- Blavatnik’s Netflix of Sports Is Said to Target Canada Expansion
- Biocon Says FDA Oncologic DAC Favors Nod for Proposed Biosimilar
- Richemont Head of Watchmaking Leaves Four Months Into Job
- Senate Bill Would Expand Program to Cover Self- Driving Cars
*) Asia equity markets traded mixed amid a lack of drivers and relatively quiet news flow, although the region's major bourses mostly kept afloat and adhered to the momentum from US where financials outperformed ahead of earnings releases from major banks. ASX 200 (+0.49%) and Nikkei 225 (+0.09%) were both in the green as gains in energy led the advances in Australia, while upside in Nikkei 225 was capped by weakness in index heavyweight Fast Retailing after the Co. missed on Q3 results. Hang Seng (+0.16%) and Shanghai Comp. (+0.13%) were mixed despite the PBoC conducting open market operations via a CNY 100bIn injection, as this still amounted to a weekly net drain. Japanese yields were higher across the curve following a similar unwinding of the dovish rally in USTs, while a somewhat positive risk tone in Japan also contributed to the lack of demand for JGBs. Fitch affirmed China sovereign rating at A+; outlook stable. PBoC injected CNY 100bIn through 7-day reverse repos, for a net weekly drain of CNY 70bIn vs. CNY 250b1n drain last week. PBoC set the CNY midpoint at 6.7774 vs. Prey. 6.7802.
# Top Asia News;
- Anbang’s Fall Ends Wild Chapter in China Insurance Industry
- Singapore’s Economy Rebounds in Second Quarter to Expand 0.4%
- India Wholesale Prices Rise 0.9% in June; Est. 1.39%
- Hangzhou Hikvision Cut by UBS as Positive News Seen Priced In
- Vanke May Become Major Shareholder of GLP, Co. Says
- Hong Kong Court Ousts Four Lawmakers, in Victory for China
- Global Logistic Properties Soars After Chinese Consortium Deal
- Carmakers, Banks, Machinery Exporters Lift Topix as Yen Retreats
- The Hottest Commodity in China May Start to Cool Before Long
*) European bourses trade mixed, as position taking has slowed following the risk appetite seen through yesterday's trade. Sectors trade mixed, with no real out or under performance. The healthcare sector did open on the back foot with pre-market reports stating that AstraZeneca may be close to issuing a profit warning, however, recovery was seen in the sector, as buying was seen in Shire, now up 1.40%. Yields rose throughout yesterday's US session amid the risk tone, filtering into European futures as the lOy bund trades once again firmly above the 0.50bps level. European paper did see a bid into the open, as Gilts gapped up. Bunds also extended on the opening bid, with OATs continuing to out-perform in the week.
# Top European News;
- A $95 Billion Danish Fund Bets Robots Can Defy Market Correction
- Shell Is Said to Put 17% Stake in Comgas Up for Sale: Estado
- SEB Beats Estimates as Commission and Lending Income Pick Up
- Santander Offers Loyalty Bond Plan to Banco Popular Clients
- Skanska Says Project Writedowns in U.S., U.K. to Weigh on Profit
# In currencies, dollar traders awaited the slew of US tier 1 data expected at 8:30 ET, with risk could very much be to the USD upside, as the greenback has been hit following a slightly unexpected pessimistic tone toward the US economy from Chair Yellen. AUD/USD did see some bullish pressure as Europeans got to their desks, we reside around the top of 2016/2017 highs, with a break through 0.7835 could indicate a firm change in long-term AUD/USD direction. The franc has also struggled amid the move from risk assets, losing ground against EUR and USD this EU morning, with a USD/CHF reversal possible, as markets attempt to break the week highs around 0.9700. EUR/CHF has been a big talking point of late, with the EUR strength clear in the pair, the pair did break through 1.10 this week, with next key resistance at 1.12 (Post floor highs).
# In commodities, commodity markets have been subdued throughout Asian and European trade with oil holding onto the gains seen yesterday amid nothing fundamental, with USD 45.00/bbl; a clear support level in WTI. The precious metals sector did give back some of its week gains throughout Asian trade, yet Gold did see a bounce with bids clear as we approached USD 1215.00. The yellow gold remains up around 0.40% for the week, gaining on Fed Chair Yellen's less than hawkish testimony tone, as silver underperforms.
# Looking at the day ahead, all eyes turn to the bumper session scheduled for the US. The June CPI report will likely be front and centre, while at the same time we’ll also receive the important June retail sales report where the consensus is for a small +0.1% mom rise in headline sales but +0.4% mom rise in the core ex auto and gas print. Following that we’ll get the June industrial (+0.3% mom expected) and manufacturing (+0.2% mom expected) production prints before we end the day with the preliminary July University of Michigan consumer sentiment print (expected to hold steady) and May business inventories. Away from the data we are due to hear from the Fed’s Kaplan again (8.30am ET) while the Chicago Fed’s Evans’ speech, which was due to be held yesterday but got cancelled, will be posted later today. As noted earlier also, keep an eye on earnings from JP Morgan, Wells Fargo and Citi, as well as any headlines which may emerge from Trump’s meeting with Macron....