After sliding to 3 month lows on "car cartel" concerns yesterday, European stocks have rebounded after three days of declines, while oil extended gains after Saudi export cuts, with Brent rising above $49 and WTI just shy of $47. Asian stocks fell while S&P futures rose 0.2% to 2,473, putting yesterday's GOOGL drop on plunging Costs-Per-Click in the rearview mirror...
Helping today's episode of global, pervasive complacency is the VIX which was hammered early by 3% in early Tuesday trading, down to 9.17. As previewed on Monday, the dollar rebounded after dropping to its lowest since August as investors await Wednesday’s U.S. interest rate decision; the greenback strength sent Gold lower for the first time in four days.
US TSYs sell-off in relatively heavy volume after a large futures block trade in London hours and Bunds decline as strong German IFO data weighs. The dollar rallied from overnight low against G-10 and UST move helps USD/JPY trade through yesterday’s high.
Most European industry sectors rose as the Stoxx Europe 600 Index rose 0.5%, with banks leading the way as German 2s10s curve steepens and ahead of bank earnings later this week, helping the DAX regain some of the recently lost ground, although as the chart below shows it has a way to go before catching up with the MSCI World Stocks index which remains just shy of all time highs...
Emerging-market equities fell after gaining in 10 of the past 11 days, on the back The greenback strengthened with the euro, which flirted once again with its highest level in two years after German business confidence data beat expectations. Saudi Arabia’s promise to further cut crude exports pushed Brent to under $1 of $50. Overnight, the Euro got a boost after ECB's Mersch stated monetary accommodation is still needed and ongoing expansion in the euro area offers confidence but stated that "risks to the euro area growth may be to the upside" and that headline inflation is dampened by weak energy prices, but added that underlying inflation is to rise gradually.
The Euro got a boost as German business morale hit new high, with firms "euphoric" according to the Munich based Ifo economic institute that compiles the data from 7,000 of them in Europe's largest economy. "Hardly anything seems to be able to hit the German economy," Ifo economist Klaus Wohlrabe added, saying German business was experienced in managing the impact of exchange rate moves following the euro's sharp rise.
The Australian dollar rose less than 0.1 percent after erasing an earlier decline. Attention turns to two key events on Wednesday: June quarterly inflation data and a speech on the labor market and monetary policy from Reserve Bank of Australia Governor Philip Lowe. Japan’s Topix index lost 0.3 percent. Australia’s S&P/ASX 200 Index added 0.7 percent. South Korea’s Kospi index retreated 0.5 percent. The Hang Seng Index was little changed while the Shanghai Composite Index slipped 0.2 percent. Strong rally in base metals, led by copper with most noting potential demand growth from China; U.K. mining stocks supported through the equity open.
The Fed starts a two-day meeting later in the day to discuss its monetary stance and the timing of its long-awaited balance sheet reduction, a plan most likely to be detailed in September. “Any major policy announcement is more likely when Chair Janet Yellen faces the press following the September meeting,” J&E Davy Holdings Ltd. analyst David McNamara wrote in a note. “For now the Fed remain on track for a couple more rate hikes at least this year, with most members believing the recent softness in inflation to be temporary.”
The political troubles of President Donald Trump’s White House continue to mount, with investigations into his pre-election links to Russia deepening. There is also growing anxiety about the United States hitting another debt ceiling in October with few moves to potentially offset that.
"We may seem some consolidation here from the dollar but fundamentally our bearish view on it remains," UniCredit Global Head of FX Strategy Vasileios Gkionakis told Reuters. "What the Fed says tomorrow is the million dollar question, but the risk is that they sound a bit more cautious after the fourth consecutive downside surprise in inflation."
Greek government borrowing costs meanwhile hovered near their lowest level since 2010, as the country sought to sell its first longer-dated bond in three years. Some five years since European Central Bank Mario Draghi pledged to do "whatever it takes" to preserve the euro, the debt sale by the euro zone's weakest economy is the clearest sign yet of the bloc's recovery from a crippling debt crisis.
Elsewhere in rates, the yield on 10-year Treasuries increased two basis points to 2.27 percent, the highest in more than a week. Germany’s 10-year yield rose one basis point to 0.52 percent. Britain’s 10-year yield also added one basis point to 1.194 percent. France’s 10-year yield climbed one basis point to 0.763 percent, the first advance in more than a week. The gap between Italian and German 10-year bond yields narrowed to its smallest since December 2016 at 153 basis points.
Companies scheduled to report earnings include AT&T, Amgen and 3M. Economic data include conference board consumer confidence.
# Market Snapshot;
- S&P 500 futures up 0.1% to 2,470.50
- STOXX Europe 600 up 0.5% to 381.00
- Nikkei down 0.1% to 19,955.20
- Topix down 0.3% to 1,617.07
- Hang Seng Index up 0.02% to 26,852.05
- Shanghai Composite down 0.2% to 3,243.69
- Euro up 0.09% to 1.1653 per US$
- Brent futures up 1% to $49.06/bbl
- Gold spot down 0.2% to $1,252.28
- U.S. dollar Index unchanged at 93.98
# Top Overnight News;
- McCain Returns to D.C. for Health Fight; Alphabet Falls on Rising Traffic Costs; Copper Jumps, Leading Industrial Metals
- Senate Republican leaders and President Donald Trump appear determined to begin a floor debate Tuesday on repealing Obamacare in a highly unorthodox way, without lawmakers knowing what they’ll be voting on or where it might end up
- The U.S. House is poised to vote on a bill to strengthen sanctions against Russia and prevent President Donald Trump from unilaterally lifting penalties, after the measure was delayed by procedural concerns and objections from energy companies
- Michael Kors Holdings Ltd. agreed to buy Jimmy Choo Plc for about 896 million pounds ($1.2 billion), as the maker of handbags popular with the commuter set seeks to restore lost luster by adding “Sex and the City” stilettos
- Greece has fired the starting gun on its first issue of new bonds since 2014, testing whether investors will back its recovery from a debt crisis that forced it to seek multiple international bailouts
- Carlyle Group LP is seeking $15 billion for its next U.S. fund for what could be the largest pool ever focused on buyouts in the region
- Hedge funds are still holding large bearish bets against oil and OPEC, yet out in the real world traders and refiners buying and selling actual barrels say it’s starting to look somewhat more bullish
- German business climate improved for a sixth month, hitting a record high in July
- House Poised to Add Russia Sanctions With Curbs on Trump’s Power
- Alphabet Falls on Concern About Rising Google Traffic Costs
- Michael Kors to Buy Jimmy Choo for About $1.2 Billion
- German Business Climate Hits Record as Economy Proves Robust
- Saudi Alliance Says Qatar’s Action Not Enough to End Crisis
- Elon Musk Says Zuckerberg’s Understanding of AI Is ‘Limited’
- EU Asks Google, Facebook, Twitter to Make More Changes to Terms
- Copper Heads for Highest Close Since ‘15 as Rally Picks Up Steam
- Nasdaq Agrees to Acquire Sybentix to Beef Up Trade Surveillance
- Wal-Mart and JD Deepen Chinese Logistics, Customer Integration
- Beximco Pharma Gets FDA Approval for Methocarbamol
- Quants Unlock Iron Ore’s Secrets as BNP Says Yuan Is the Key
- Government Shutdown Odds Grow With GOP Border Wall Funding Bill
*) Asian markets maintained the mixed tone seen on Wall Street where earnings remained in focus and tech outperformed, which pushed the Nasdaq to fresh record highs before a continued drop in Alphabet's cost-per¬clicks resulted to an after-market pullback in futures. ASX 200 (+0.9%) outperformed as broad-based gains buoyed the index, while Nikkei 225 (-0.1%) traded indecisive and at the mercy of JPY price action. Shanghai Comp. (-0.1%) and Hang Seng (Unch.) were choppy as concerns of tighter regulatory scrutiny persisted, and although the PBoC reduced its liquidity operation by more than half, this was still a respectable CNY 140bln injection. 10yr JGBs were flat amid an inconclusive risk tone in the region, while today's 40yr auction also failed to spur demand despite the b/c at its highest since February 2015, as this was also accompanied by a decline in lowest accepted prices. BoJ meeting minutes for June 15th - 16th meeting state that members agreed policy needs to be keep easy as price target is still distant. Highlights:
- Financial conditions were highly accommodative
- Inflation expectations remain in a weakening phase
- Overseas economies continue to grow at a moderate pace overall
- Japan's economy has been turning towards a moderate expansion
- One member said BoJ should set asset purchases as target
ECB's Mersch stated monetary accommodation is still needed and ongoing expansion in the euro area offers confidence.
Mersch also stated that risks to the euro area growth may be to the upside and that headline inflation is dampened by weak energy prices, but added that underlying inflation is to rise gradually.
# Top Asia News;
- Ishiba Overtakes Abe as Top Choice for Japan Premier in Poll
- Indonesia Flags Risk of Forest Fires That Triggered 2015 Haze
- SoftBank Is Said to Mull Buying Stake in Bharti Airtel: CNBC
- HNA Is Said to Have Parked Shareholdings With Mystery Investor
*) European bourses trade green across the board, financials out-perform, likely a carry on to a strong Q2 earnings start for the banking stocks. German Ifo was the key piece of data for the morning, where beats were seen across the report. Despite earnings, stock specific news has largely been dictated by takeover talk, with Jimmy Choo confirming an offer from Michael Kors, being followed by reports that Shell and Softbank are among potential suitors considering bidding for renewable energy firm Equis for potentially USD 5bn. Fixed income markets were led by German paper in early trade, as a large sell order was followed by the aforementioned strong German Ifo data. BTP's have outperformed, after hitting a new high at 137.17, with the Italian yields still managing to hold above 2.00%.
# Top European News;
- Ifo July German Business Confidence Index at 116.0, Est. 114.9
- UPM Falls, Pulling Down Stora Enso; DNB Sees Softness in Paper
- Kumba Resumes Dividend as Earnings Jump After Iron Ore Recovery
- Intertrust Shares Slump as Company Cuts Full-Year Margin Target
# In currencies, EUR/USD saw a slight bid following the Ifo beat, marginally so, continuing to trade in the day's range, with similar price action seen in EUR/GBP, with the pair quickly retracing the move. The Kiwi saw some brief, rare selling pressure, amid news that New Zealand Officials stated that a contagious disease has been found in 14 cattle. With New Zealand being one of the top five largest exporters of beef, this weighed on the Kiwi dollar. The volatility in NZD led into early European trade, and despite NZD/USD bouncing ahead of 0.74, a Kiwi recovery was not seen in AUD/NZD, trading though overnight highs in the European session. A 1.07 test in AUD/NZD is possible, as the week's high is set to act as intra-day resistance. The Japanese risk event overnight was the BoJ meeting minutes for June 15th-16th meeting; the highlight stating that members agreed policy needs to be keep easy as price target is still distant. Despite a modest uptick following the release, and some buying following, the 11.30/50 area continues to act as intraday resistance, and following the rejection of this level once again, the market has been pushed to look to test 110.60 lows.
# In commodities, energy traders will await the API report following the wall street closing bell this evening, with Oil markets trading subdued following the OPEC led volatility yesterday. The precious metals trade marginally lower, as mild money flow into equities has been clear, further weighed upon by strong numbers out of Germany. Gold does trade at the top of a July uptrend however, slowing down around the 1257.50 area (23 June High).
# Taking a look now at the day ahead, we will see house price data for May in the form of the FHFA House Price Index (+0.5% mom expected) and the S&P House Price indices. We will also get the July readings for the conference board consumer confidence indicator (116.5 expected; 118.9 previous) and the Richmond Fed Manufacturing Index (7 expected; 7 previous. Away from the data, the US secretary of Commerce will address the economic club of Washington and BOE Haldane speaks. Notable US companies reporting include: AMD, McDonalds, 3M, Texas instruments, Caterpillar, AT&T and GM....