S&P500 futures have started the second half solidly in the green, up 0.3% to 2,429, tracking European markets broadly in the green, while Asian stocks fell slightly and crude oil is little changed. With US markets set to close at 1pm today trading volumes in many markets remain light before Tuesday’s July 4th holiday and as investors await Friday’s report on the American jobs market. Traders will be looking at key upcoming economic data for validation of the hawkish shift from central banks that roiled markets last week. The Asian session opened with the Yen initially strengthens following Prime Minister Abe’s shocking election loss in the Tokyo Assembly elections, but later reversing gains to trade materially weaker at 112.95 last, on speculation Abe will be forced to inject more stimulus to salvage his standing amid a muted reaction to strongest Tankan survey since 2014. Australian 10-year yield rise four basis points; T-note yield two basis points firmer at 2.32%; shares in Tokyo and Sydney steady in narrow ranges. MSCI's broadest index of Asia-Pacific shares outside Japan held steady, staying within a stone's throw of a two-year peak hit last week. Japan's Nikkei ticked up 0.1 percent, helped by the solid Tankan report.
In China, the PBOC drained liquidity for ninth day, pulling a net 70 billion yuan; Hong Kong’s Hang Seng and the Shanghai Composite climbed 0.1 percent amid concerns the world's second-biggest economy could be slowing down. In Hong Kong financial shares benefited from the launch on Monday of the "Bond Connect" scheme linking China's $9 trillion bond market with overseas investors. Industrial metals rose across the board after the Chinese Caixin Mfg PMI rebounded back into expansion territory, rising to 50.4 in June from 49.6 in May, and beating estimates. Dalian iron ore 2.3% higher: the benchmark iron ore contract climbed on Friday for its best one-week gain since November and is up almost 22% from its $53.36 June 13 low, which by definition places it in a bull market. China’s bond connect program with Hong Kong will give offshore investors another way to access the mainland’s $10 trillion debt market.
European stocks started the new quarter with solid gains, rising for the first time in five days as oil and metal gains spurred energy companies and miners. Bank stocks rallied, supported by an FT report of a secret Brexit plan for financial services, sending the Stoxx Europe 600 Index solidly in the green, up 0.7% to 382.03, after suffering its biggest monthly loss in a year in June on worries over tightening monetary conditions. France's CAC 40 index rose 0.8 percent, Spain's IBEX 0.9 percent and Italy's FTSE MIB 1 percent. Britain's main FTSE 100 index added 0.3 percent...
European economic data showed a modest retreat with most final Eurozone PMIs backing off slightly from recent flash reading (except for Germany which printed at 59.6, above the 59.3 exp.). Final Eurozone Manufacturing PMI was at 57.4 in June (Flash: 57.3, May Final: 57.0), with a notable observation that Greece returned to expansion while job creation stayed close to May’s survey record...
While the final PMIs disappointed modestly from the preliminary prints, this is how Eurozone's various mfg sentiment surveys close the month of June:
*Austria, 60.7: 76-month high
*Germany, 59.6: 74-month high
*Netherlands, 58.6: 74-month high
*Ireland, 56.0: 23-month high
*Italy, 55.2: 2-month high
*France, 54.8: 2-month high
*Spain, 54.7: 2-month low
*Greece, 50.5: 37-month high
Meanwhile, unemployment in Italy rose to 11.3% in May, higher than the expectation of an unchanged 11.2% April print...
Crude was modestly in the green, climbing for an eighth day running, the longest winning streak this year extending gains after Baker Hughes data on Friday showed the number of active U.S. rigs falling for the first time in 24 weeks. WTI has climbed 8% in the past 8 days. Hedge fund wagers on lower prices in the week through June 27 increased at a slower pace than the two previous weeks, according to data from the Commodity Futures Trading Commission, suggesting the bearish sentiment may be about to turn. Prices surged last week while WTI and Brent still posted a monthly loss in June on concerns over rising global supply; Libyan production has climbed to more than 1m b/d for 1st time in 4 years.
“Given the recent upward momentum, it wouldn’t be surprising to see oil fairly close to some sort of downward correction,” says Ric Spooner, a market analyst at CMC Markets in Sydney. “Libya is probably close to its peak production. Nevertheless, the fact its output reached these levels faster than some had anticipated is a negative for the overall supply situation.”
Elsewhere, wheat jumped to a two-year high on the Chicago Board of Trade as agriculture markets soared on an expanding drought in the U.S. and disappointing data on sowed acreage. Gold slipped 0.5 percent to $1,235.89 an ounce.
The yen fell 0.4 percent to 112.87 per dollar, after erasing an earlier advance of as much as 0.4 percent. The Bloomberg Dollar Spot Index rose 0.3 percent after dropping 1 percent last week and touching the lowest level since October. The euro, which hit 14-month highs against the dollar last week after European Central Bank President Mario Draghi hinted at tweaks to the bank's bond-buying stimulus program, fell 0.3 percent to $1.1394.
The pound finally fell 0.4% to $1.2973 after an eight-day rally...
Following weaker than expected June PMI data (54.3, vs Exp. 56.3, Last 56.3)...
The yield on 10-year Treasuries rose one basis point to 2.31 percent, adding to a 16-basis point surge last week, the steepest since March. U.K. 10-year yields added two basis points to 1.27 percent. While French and German 10-year yields fell one basis point, the hawkish sentiment hardly looks exhausted, with 0.50% on the 10Y Bund looking increasingly likely...
Later today, investors can look forward to ISM data and Wards vehicle sales data later on Monday.
*) Market Snapshot;
- S&P 500 futures up 0.3% to 2,429.00
- STOXX Europe 600 up 0.7% to 382.14
- Nikkei up 0.1% to 20,055.80
- Topix up 0.2% to 1,614.41
- Hang Seng Index up 0.08% to 25,784.17
- Shanghai Composite up 0.1% to 3,195.91
- German 10Y yield fell 0.4 bps to 0.462%
- Euro down 0.3% to 1.1387 per US$
- Italian 10Y yield rose 0.6 bps to 1.865%
- Spanish 10Y yield fell 4.6 bps to 1.493%
- Brent Futures up 0.3% to $48.91/bbl
- Gold spot down 0.5% to $1,236.08
- U.S. Dollar Index up 0.3% to 95.95
# Top Overnight News;
- ECB’s Mersch says patience needed as upturn in inflation not yet self-sustained, don’t need 2% inflation to adjust policy; Weidmann says council agrees expansive policy needed, will normalize once inflation justifies it
- European June Manufacturing PMIs: Spain 54.7 vs 55.6 est; Italy 55.2 vs 55.3 est; France 54.8 vs 55.0 est; Germany 59.6 vs 59.3 est; U.K. 54.3 vs 56.3 est.
- FT: a City of London delegation will negotiate a secret plan for a free-trade deal on financial services based on the concept of "mutual access" according to people familiar
- U.S. Navy sends a guided- missile destroyer near disputed Triton Island
- China June Caixin manufacturing PMI 50.4 vs 49.6 previously
- Japan PM Abe’s LDP suffers a surprise defeat in Tokyo assembly election
- Abe adviser Nakahara says BOJ needs fresh face as Kuroda out of ideas
- Goldman Said to Review Commodities After Worst Start in a Decade
- Trump’s Rural Broadband Goal Won’t Be Easy. It Will Be Costly
- Qatar to Respond to Saudi-Led Bloc Demands as Trump Works Phones
- Kindred Sells Nursing Unit to BlueMountain-Led JV for $700m
- Autoliv Enters LiDAR Commercialization Deal with Velodyne
- Rakuten, Lifull Team Up With Homeaway on Home Sharing in Japan
- CN Resumes Service Near Chicago After Derailment, Crude Leak
- Delek Drilling Says Tamar Reserve 13% Bigger Than Pvs Estimate
- EU’s Vestager Says Received No U.S. Reaction to Google Fine
- HuntsmanClariant May Sell Units for M&A Cash, FuW Cites Next CEO
- VTG Aktiengesellschaft to Buy CIT’s Nacco Unit for About EUR780m
- Jakks Pacific Files Up to 5.24m- Share Offer for Holder Meisheng
- Facebook Wins Dismissal of Privacy Suit Over Internet Tracking
- Facebook’s Small Print Might Be Antitrust’s Next Big Target
- Tesla CEO Says Model 3 Passes All Regulatory Requirements
*) Asian markets traded mixed following an indecisive close last Friday on Wall St. where US indices finished their best H1 performance since 2013 in a choppy manner, as energy posted a 7th consecutive gain and tech underperformed. ASX 200 (-0.6%) slipped below 5,700 with utilities and healthcare weighing on the index, while Nikkei 225 (+0.2%) was kept afloat following the mostly better than expected Japanese Tankan data. Shanghai Comp. (Unch.) and Hang Seng (Unch.) failed to benefit from better than expected Caixin Manufacturing PMI data (50.4 vs. Exp. 49.8) and the launch of the bond connect, with participants despondent after the PBoC refrained from liquidity injections for the 7th consecutive session. However, Chinese markets then recovered gradually throughout the session to return flat. Finally, 10yr JGBs were flat alongside an inconclusive risk tone, although mild support was seen after the BoJ's JPY 880b1n Rinban operation.
- Chinese Caixin Manufacturing PMI moved back into expansion overnight, rising to 50.4 for June, vs. Exp. 49.8 (Prey. 49.6).
- Japanese Tankan Large Manufacturers Index also beat expectations for Q2 rising to 17 vs. Exp. 15 (Prey. 12).
- Tankan Large Manufacturing Outlook (Q2) Q/Q 15 vs. Exp. 14 (Prey. 11)
- Tankan All Large CAPEX (Q2) Q/Q 8.00% vs. Exp. 7.40% (Prey. 0.60%)
# Top Asian News;
- Tarnished Abe Plunged Into Crisis After Tokyo Election Loss
- Xi, Abe Get Phone Calls From Trump as Asian Tensions Rise
- Idemitsu to Sell Shares, Diluting Founding Family’s Stake
- Tata Steel 1Q Sales Volume Jumps 28% to 2.75m Tons
- Toshiba Mulls a Swiss IPO for Landis+Gyr by September
*) European stocks traded in the green in subdued fashion amid cautious trade as we open the second half of the year. Markets have opened in the green; with global equities trading near record highs on bets of improving growth. All ten sectors trade in the green, as Energy is one of the noticeable out performers as a result of oil continuing to extend on gains, now in the green for the eighth consecutive day, longest winning streak of the year.
The uncertainty out of Japan, following a crushing defeat of Japanese Prime Minister's Shinzo Abe's party in the Tokyo elections did not weigh on stock markets, however the flight to safety was clear, as initial buying was seen in safe haven assets. The Asian buying was short lived, as last week's hawkish tone continued to weigh on treasuries through the afternoon of Asian trade. lOy paper is struggling, despite some reprieve seen in Bunds and Gilts, the selling pressure is evident with Gilts trading near session lows around 124.96.
# Top European News;
- BOE Staff Vote in Favor of Strike Action Over Pay, Unite Says
- U.K. Manufacturing Slowdown Raises Doubts About Economic Outlook
- Euro-Area Manufacturing Accelerates as Orders Fuel Optimism
- Nets Rises on Deal Report; Wirecard Leads Payments Peers Higher
- Poland’s Kaczynski Invokes Nazis as EU Refugee Clash Deepens
- EU Presidency Clouded by Feud Threatening Host’s Government
- Thyssenkrupp Rises on HB News; Bankhaus Lampe Expects Tata Deal
# Looking at Monday's economic data, we’re kicking off in Europe with the final revisions to the June manufacturing PMIs along with a first look at the data for the UK and periphery. Also due out this morning is the Euro area unemployment rate for May. Over in the US we’ll also receive the final manufacturing PMI revision along with the manufacturing ISM for June and May construction spending. Later in the day we’ll also get June vehicle sales data....