woensdag 26 juli 2017

Global Stocks Jump, Futures Rise, Crude Booms As Yellen Looms

S&P futures were fractionally higher (+0.1% to 2,476) with all eyes on the Fed's rate decision as investors await another earnings deluge from companies including Facebook, Coca-Cola and Boeing. Asian and European shares were also higher, prompted by momentum from the latest US record high; the Dollar rebound continued while oil rose above $48 as copper hit a two year high. Risk appetite improved yesterday as oil prices kept climbing following Saudi Arabia’s commitment to export cuts. Safe-haven assets sold off, the VIX reached a new historic low, equities were up across the board, and the USD outperformed after a consumer confidence measure was higher than expected. Asian markets were mixed at midday local time. WTI advanced 0.8% to $48.26 a barrel, extending gains from the highest close in seven weeks. Crude inventories slumped by a whopping 10.2 million barrels last week according to the latest API data. Copper gained 0.6 percent in its fifth consecutive advance, hitting the highest in two years, lifting shares of producers including Glencore on expectations that demand in China will fuel a global shortage, with plans in the country to curb metal-rich waste imports reinforcing a bullish outlook.
In the overnight session, sovereign bonds opened lower in Asia following yesterday's sharp Treasuries sell off where several selling blocks slammed futures; the Australian 10-year yield rose as much as seven basis points before easing well off the highs on an unexpected miss in headline inflation (Q2 CPI 0.2%, Exp. 0.4%) followed by a dovish speech by the RBA's Lowe; Yield were softer at 2.32% after Senate healthcare debate gets off to a difficult start. Stocks gained in Sydney and Tokyo, fall in Shanghai and Seoul. Japan’s Topix index rose 0.2 percent and Australia’s S&P/ASX 200 Index added 0.9 percent. South Korea’s Kospi index fell 0.2 percent, while the Hang Seng Index in Hong Kong gained 0.3 percent. The Shanghai Composite Index added 0.1 percent. The Aussie fell 0.4 percent to 79.09 U.S. cents after as noted above Australia’s Q2 headline inflation rose less than expected. 10-year Australian government notes saw yields climb four basis points to 2.73 percent. WTI crude slips below $48.50 after surging the most since November on Tuesday; Dalian iron ore futures flat. A broad rally in commodities from oil to copper boosted European stock momentum with the Stoxx 600 index jumping 0.6%, its biggest gain in a week, as positive results from energy firms such as Subsea 7 and Tullow Oil continued to feed into markets. Energy stocks joined the broad-based global rally at this moment as oil rose above $48 a barrel for the first time since early June.
The U.K.’s FTSE 100 Index increased 0.6 percent. Germany’s DAX Index increased 0.5 percent, the biggest climb in two weeks. "The indications are more positive on the outlook for energy stocks. While there was a lot of kitchen sinking from firms in Q2 numbers, they have reset the expectations over the valuations now, they have cleaned up balance sheets," said Angelo Meda, head of equities at Banor SIM in Milan. "The outlook is not so bad. We are still missing one component which is the commentary from big oil firms Total, BP, Royal Dutch Shell." Copper reached a two-year high on expectations of increasing demand from China. Treasuries and European government bonds rose following Tuesday’s selloff, while boosting the dollar. While there are some nerves ahead of today's Fed statement, Yellen is not expected to "rock the boat" in what many anticipate will be a non-event announcement. Meanwhile, earnings continue to be a source of optimism, as more than 80% of reporting S&P 500 companies beaten earnings forecasts so far this reporting period, helping to support optimism in the global economy and pushing volatility to record lows.
As Bloomberg notes, "Investors are looking for guidance from the Fed on how it plans to unwind its bond portfolio, with policy makers seen keeping interest rates on hold as the U.S. central bank meeting concludes on Wednesday." “Top of our mind is whether there will be more clarity on efforts to unwind the US$4.5 trillion portfolio of Treasuries and mortgage-backed securities,” Isaah Mhlanga, an economist at Rand Merchant Bank in Johannesburg, said in a client note. “We think the bank will give more clarity on its intention to do so but without the specifics of timing. When the Fed eventually introduces Taper 2.0, that will be the return of volatility”...


In previewing today's FOMC announcement, DB's Jim Reid writes that given its late July and given the Fed will likely announce an end to balance sheet reinvestment in September (starting from October), this could be a relatively dull meeting. DB believes the Fed is unlikely to take any action in a policy firming direction at the meeting this week, partly because inflation has continued to surprise to the downside as of late. The bank expects the statement to focus on how the Fed will handle the dichotomy between a resumption of moderate growth and continuing improvement in the labour market on one hand and ongoing softness in inflation on the other. On the topic of the timing of the initial taper of balance sheet reinvestment DB writes that it will be a September announcement and October commencement remains most likely (in line with consensus), and the Committee can get by without giving any more specific guidance on timing even within this week’s statement given these relatively strongly held market expectations.
In FX, the dollar rose against most major peers ahead of the Federal Reserve’s policy decision, though options show traders are betting the euro will see more upside. The euro dropped as much as 0.3 percent to $1.1613, the lowest in nearly a week before rebounding back to 1.65 as the Bloomberg Dollar Spot Index rose for a third day. And yet, as discussed on Monday, three-month 25-delta risk-reversal for Euro options - insurance against a sharp drop in the USD, was at the highest since 2009 “There is a bit of temptation to get caught up in the current wave of euro optimism by revising our baseline forecasts higher,” ING's Viraj Patel wrote. The strategists prefer to view the $1.16-$1.17 range as “a near-term overshoot.” On the political front, on Tuesday the US Senate received sufficient votes to proceed on GOP healthcare legislation motion debate, although the plan to repeal and replace Obamacare later failed to get enough votes for approval (43-57). More votes are expected. Elsewhere, the euro declined 0.2 percent to $1.1626. The British pound decreased 0.1 percent to $1.3018 after data showed the U.K. economy expanded 0.3 percent in the second quarter, matching estimates. The yen was little changed at 111.84 per dollar after declining 0.7 percent on Tuesday.
In commodities, as noted above West Texas Intermediate crude advanced 0.8% to $48.26 a barrel, the highest in seven weeks. Crude inventories declined by 10.2 million barrels last week according to the latest weekly API data. Copper gained 0.6 percent in its fifth consecutive advance. The Bloomberg Commodity Index climbed 0.1 percent while gold dipped 0.3 percent to $1,246.32 an ounce. In rates, 10Y TSY yields dipped two basis points to 2.31 percent, after surging eight basis points in the previous session. Germany’s 10-year yield decreased one basis point to 0.56 percent. Britain’s 10-year yield declined three basis points to 1.231 percent.
*) Market Snpashot;
- S&P 500 futures up 0.1% to 2,476.25
- STOXX Europe 600 up 0.6% to 382.95
- Nikkei up 0.5% to 20,050.16
- Topix up 0.2% to 1,620.88
- Hang Seng Index up 0.3% to 26,941.02
- Shanghai Composite up 0.1% to 3,247.68
- German 10Y yield fell 1.7 bps to 0.549%
- Euro down 0.3% to 1.1617 per US$
- Brent Futures up 0.7% to $50.56/bbl
- Gold spot down 0.4% to $1,245.36
- U.S. Dollar Index up 0.2% to 94.27
*) Top Overnight News from BBG;
- Senate Republicans have embarked on an unpredictable and potentially chaotic floor debate aimed at repealing Obamacare amid significant doubts that they can muster 50 votes to pass any kind of health bill
- Oil extended gains from the highest close in seven weeks as industry data showed U.S. crude stockpiles plunged, easing a glut
- Copper surged to the highest level in more than two years, lifting shares of producers including Glencore Plc, on expectations that demand in China will fuel a global shortage, with plans in the country to curb metal-rich waste imports reinforcing a bullish outlook.
- Viacom has informed Scripps Networks Interactive that it is willing to pay all cash to buy the network operator, Reuters reports
- HNA Group Co.’s proposed $416 million investment in an in-flight entertainment and Internet-services provider collapsed after the two companies failed to get regulatory approval from the U.S. T- he U.K. economy’s lackluster performance extended into the second quarter, with growth only modestly picking up in the period
- The U.K. became the latest European country to mark the end of the line for diesel and gasoline fueled cars as automakers such as Volvo race to build electric vehicles or face the consequences of getting left behind
- ECB’s Nowotny sees no need to set timetable to end bond buying; BOJ’s Nakaso pledges to ’persistently continue’ powerful easing
- RBA’s Lowe says some coverage of neutral rate misinterpreted intention; doesn’t need to move in lockstep with other central banks; global tightening has no automatic implications for RBA
- Australia 2Q CPI 0.2% vs 0.4% est; trimmed mean 0.5% vs 0.5% est
- RBNZ’s McDermott says inflation pressures ’relatively moderate’; neutral interest rate estimated to be 3.5%
- API inventories according to people familiar w/data: Crude -10.2m; Cushing -2.6m; Gasoline +1.9m; Distillates -0.1m
- Russia Says New U.S. Sanctions Killing Chances for Improved Ties
- Russian Senator Suggests ‘Sanitary Sanctions’ Against McDonald’s
- SoftBank Is Said to Take Stake in Roomba Maker in Tech Buildout
- Luxury Brands Can Block Online Retailers: EU Court Aide
- Lawmakers Negotiating Self-Driving Car Bills Ahead of Markup
- Apple Judgment Increased to $506 Mln in Wisconsin Patent Case
- Ford Says to Challenge ACCC Allegation on Transmissions Issue
- Transwestern Has Force Majeure in N.M. After Mechanical Failure
- KKR’s Rockecharlie Sees Energy Asset-Sales Mkt Reaching $90B
- UniCredit Says 400,000 Clients Affected by Security Breach
*) Asia equity markets were mostly higher following a record setting day on Wall St. where the S&P 500 and NASDAQ posted fresh all-time highs as earnings buoyed sentiment, with gains led by strength in financials and energy sectors. ASX 200 (+0.6%) outperformed in Asia as the commodity sector shined with copper at 26-month highs and after oil gained over 2% amid a larger than expected drawdown in API crude inventories. Nikkei 225 (+0.5%) was bolstered by a softer JPY, while Shanghai Comp. (-0.1%) and Hang Seng (+0.35%) both initially conformed to the advances after the IMF's recent upgrade on China growth forecasts and alongside the PBoC's continued liquidity efforts with a CNY 130b1n injection today. However, mainland stocks then pulled back on regulatory concerns. Finally, 10yr JGBs tracked the softness in T-notes with demand also dampened as participants shifted positions into riskier Japanese assets, while today's Rinban announcement was for a relatively modest JPY 400bn. PBoC injected CNY 80bln in 7-day reverse repos and CNY 50bln in 28-day reverse repos.
*Australian CPI (Q2) Q/Q 0.2% vs. Exp. 0.4% (Prey. 0.5%). (Newswires)
*Australian CPI (Q2) Y/Y 1.9% vs. Exp. 2.2% (Prey. 2.1%)
# Top Asian News;
- Bankers Ditch Fat Salaries to Chase Digital Currency Riches
- Vietnam 7-Month Disbursed FDI Seen at $9.05B, up 5.8% Y/Y
- China Plans to Begin Trial of Spot Power Trading, Daily Says
- Investors ’Cautiously Opportunistic’ on Asia Hedge Funds: DB
*) European bourses have followed their US counterparts (Eurostoxx 50 +0.3%) and have begun their Q2 earnings season on the front foot. EU major equity markets all trade in the green; with sector support coming from Energy, as the oil heavyweights have seen a bid following the unexpected 10m1n draw in last night's API report. European auto names have seen mixed performance with Peugeot (+5.3%) and Daimler (-0.2%); post-earnings. European fixed income future markets followed the risk tone overnight and ground lower throughout trade. However, a marginal bid has been seen through the European morning, following the slight gap up seen in German and UK paper. In the periphery, Spanish front-end bonds have seen modest selling pressure with some attributing this to speculation over selling this week from international real money accounts, according to IFR.
# Top European News;
- EU to Update Poland Sanctions Stance After Court-Revamp Veto
- Italy Confidence Gauges Rise, While Jobless Worries Keep Growing
- U.K. FCA Extends Senior Managers Regime to All Financial Firms
- ITV Gains as Stable Outlook Soothes Brexit Advertising Concerns
- Swedish Government Faces No Confidence Votes After IT Scandal
- ASMI Slides on ASM Pacific Unit 3Q Bookings Outlook
# In currencies, all eyes for GBP were placed on domestic UK GDP figures ahead of next week's 'Super Thursday' at the BoE. However, markets were left relatively unfazed after in-line readings for both the Y/Y and Q/Q. In terms of components of the release, construction and manufacturing were the largest downward pulls on quarterly GDP growth, following 2 consecutive quarters of growth. CAD buying looks to have petered out given the relatively unfazed reaction to the huge 10mln drawdown in US crude oil inventories, as shown by last night's API's. 1.25 support in USD/CAD remaining firm with 1.2461 (2016 low) another level to the downside offering near term support. USD-index a touch higher heading into FOMC meeting having consolidated above 94.00.
# In commodities, crude oil was the noticeable mover following the US closing bell yesterday in the wake of the 10.2mln bpd draw seen during last night's API release which saw WTI futures break through USD 48.00/bbl. The long-term 2017 range continues, as the 42.00/bbl level acted as support, if a firm break through the 49 handle can be seen, markets could eye a test of 52/bbl. Gold and other precious metals have seen marginal selling pressure over the week, as gold failed to test 1260/oz. The risk on sentiment has also weighed on the market, largely trading in tandem with treasury markets, as many await tonight's FOMC. The API Crude Oil Inventory Report saw a huge drawdown of -10,200K (Prey. 1628K). Will it be confirmed by today's DOE report?
# Turning to today’s data releases, the focus will turn to the US with the July FOMC rate decision due....