With the US out on holiday for the 4th of July, overnight trading volumes have been muted, as Europe started off in the red but has since trimmed most losses (Stoxx 600 -0.1%) while S&P500 futures rose shaprly from session lows spurred by the European open ignoring the risk-off sentiment from North Korea's latest missile launch, trading 0.2% higher, or up 4 points to 2,429 and closing the gap to Monday's last minute tech-driven market selloff. For those pressed for time, today's 60-second market wrap comes from Citi;
# Those celebrating Independence Day today will no doubt have hoped that it wouldn’t have resembled the eponymous movie quite so vividly, Fireworks are to be expected on July 4; Intercontinental Ballistic Missiles are undoubtedly overkill. As London walked in, North Korea was releasing a statement to crow over its most successful missile launch to-date: An ICBM was fired which flew for a record time/altitude for the rogue state. The move is highly provocative and it is difficult to imagine that the date chosen was in any way coincidental (NK did the same in 2006 and 2009). The inevitable risk-off reaction in markets in Asian hours was prompt but limited, the enormity of this latest crisis is, as yet, difficult to gauge.
Along with some small follow-through from the initial risk-off move, today has been dominated by G10 central bank events. Both the RBA and the Riksbank neglected to join the ever-growing ranks of hawkish central banks, hope now rests with the BoC next week (July 12) after an encouragingly hawkish interview with Governor Poloz was published this morning. The BoE’s MPC is quite clearly of two minds at the moment: Vlieghe unsurprisingly reiterated his dovish stance in a UK newspaper, and placed his own emphasis on consumption data (in contrast to Haldane last week, who pointed towards wages), while McCafferty explained, in a separate interview, why he voted for a hike in June.
*) Back to the action, USD/JPY has retraced the early selloff as central bank trading teams walked to their desks. Bund futures open higher, following USTs before settling in a tight range as curves steepen marginally. European equity markets trim opening losses, led by insurers and banks. Thin trading likely into European afternoon as U.S. cash Treasury and equity markets shut for holiday
Speaking of tech, the Nasdaq "glitch" that froze the prices of an unknown number of companies at 123.47 continues, appears to have been partially resolved...
Overnight, there were two central bank announcements, with both Autralia's RBA and the Swedish Riksbank keeping rates on hold as expected, at 1.5% and -0.5%, respectively, also investors were disappointed as Australia’s central bank failed to join global counterparts in talking up policy tightening after warning that a "rising AUD complicated the economic adjustment." EUR/SEK traded sharply higher despite the Riksbank removing its easing bias as policy makers leave rest of the repo rate path unchanged.
Markets initially reflected a risk-off reaction to the North Korean ICBM announcement, with UST futures and JPY rallying before gradually reversing through European morning. Asian shares turned lower on Tuesday as earlier gains were quashed by tensions on the Korean peninsula after the latest North Korean launch which landed in Japanese waters, deepening concerns over the isolated nation's nuclear capabilities. North Korea claimed the missile was its first ICBM ever tested, and as a result Australian sovereign bonds caught a bid while the Korean won dropped to the lowest in almost four months.
The Bloomberg Dollar Spot Index rose modestly by 0.1% , after jumping 0.5% in the previous session. The dollar strengthened the most in two weeks after a short covering squeeze on Monday, prompted by a paradoxical surge in the manufacturing ISM even as the Manufacturing PMI tumbled to the lowest level since last summer.
Early market optimism sparked by bullish U.S. economic data faded and the yen strengthened as gold was headed for its first gain in four days. European stocks slipped led by telecom and technology shares, while oil also stalled after OPEC production increased. The Australian dollar slumped as the nation’s central bank left rates unchanged.
In Asia, the yen rose as much as 0.5 percent after North Korea’s missile test, rebounding after tumbling 0.9% on Monday. The Aussie dollar dropped 0.9% , erasing an earlier gain. Hong Kong’s Hang Seng fell 1.5%, with Galaxy Entertainment Group Ltd. and Tencent Holdings Ltd. among the biggest losers on concerns about Macau cash access after the latest crackdown on ATMs as well as China's rising regulations on online games.
Sydney shares were boosted by solid retail sales data although the Aussie fell after RBA left policy on hold. The dovish shift however helped local stocks and Australia’s S&P/ASX 200 Index jumped 1.8%, the most since Nov. 10, with stocks bouncing back after a two-day slump totaling 2.3% as banks surged 2.2%. Over in China, the PBOC skipped open market operations for an 8th consecutive session, and with the recent stronger than expected PMI data, has Chinese government bonds lower for a fifth day on concerns Beijing may once again be tightening too aggressively. The Shanghai Composite closed 0.4% lower while iron ore slid 2.9% on China-related concerns and profit taking after recently entering a bull market.
In commodities, WTI crude slipped 0.3% to $46.93 a barrel, after rising 2.2% on Monday for the eighth day in a row as oil had a V-shape rebound (as Citi predicted 2 weeks ago) after falling into a bear market. According to a Bloomberg survey, OPEC production in June climbed 260k b/d to 32.55m b/d, its highest level of the year as Libya and Nigeria pumped more. Half of increase came from the 2 nations, which are not required to reduce output under OPEC-led deal. U.S. crude inventories probably dropped by 2.5m bbl last week, Bloomberg survey shows before the DOE report Thursday.
“Supply is well and truly adequate,” says David Lennox, a resource analyst at Fat Prophets in Sydney “Oil could quite easily revisit its lows again if we don’t see stronger seasonal demand from the U.S. and OPEC members increase output further.” For now, however, it is higher...
Gold rose 0.3% to $1,224.15 an ounce, its firstr gain in 4 days, after dropping 1.7% on Monday for its biggest loss of the year amid the dollar’s advance.
In currencies, the yen rose 0.1% to 113.17 per dollar in early trading after the currency tumbled 0.9 percent on Monday. The Bloomberg Dollar Spot Index gained 0.1%, continuing the stronger trend observed on Monday. The pound fell 0.2 percent to $1.2917 after halting an eight-day rally on Monday. The euro was also 0.2 percent lower at $1.1351.
In rates, the yield on 10-year Treasuries rose five basis points to 2.35 percent on Monday, after surging 16 basis points last week. The US bonds market is closed Tuesday. U.K. 10-year yields dropped one basis point to 1.24 percent.
# Key overnight headlines:
-North Korea claims latest missile fired was an ICBM capable of hitting anywhere in the world; China foreign ministry says it opposes missile launch activities that go against UN resolutions, urges restraint
- Abe says N Korean threat escalating; Japan-U.S.-S.Korea to work together
- RBA: keeps rates unchanged; says inflation and the economy to strengthen
gradually; appreciating AUD would complicated the economic adjustment
- Riksbank keeps rates unchanged at -0.50% as expected, also removes easing bias from rate path as expected; warns SEK must not appreciate too rapidly
- BOE’s McCafferty: would be prudent to hike rates now given the balance of monetary policy
- BOE: warns banks and finance firms to monitor risks in relation to high consumer credit levels
- BOC’s Poloz sees inflation well into uptrend in 1H 2018: HB
- BOJ ’regime change’ would bolster public confidence, Abe adviser Honda says
- China’s 2017 economic growth may be higher than 2016: Securities News
# Market Snapshot;
- S&P 500 futures up 0.2% to 2,429.01
- Crude oil down 0.4% to $46.89/bbl
- Natgas up 0.4% to $2.96/Mmbtu
- Gold up 0.4% to $1,223.70/oz
- Silver down 0.07% to $16.03/oz
# Looking at the day ahead, with it being Independence Day in the US and with markets across the pond subsequently closed, it will be a quiet day ahead. Data-wise the only release due is the PPI for the Euro area this morning, which added more headaches to the ECB after printing -0.4% M/M, missing expectations of a -0.2% drop. It’s worth noting some of the ECB speak however with both Praet (1.30pm BST) and Nowotny (5.30pm BST) scheduled to speak. We’ll also get the latest ECB CSPP monthly data while the BoE will publish the record of the FPC meeting held last week. China President Xi Jingping is also due to visit Russia President Putin today in Moscow, ahead of Friday's G-20 meeting....