Welcome to August: you may be surprised to learn that S&P 500 futures are once again levitating, higher by 0.3%, and tracking European and Asian markets. Asian equities traded higher across the board after China's Caixin Manufacturing PMI beat expectations and printed its highest since March, refuting the decline in the official PMI data reported a day earlier, while firmer commodity prices boost both sentiment and commodity stocks across Asia and Europe. Notably, with DJIA futures higher by over 100 points this morning, the Dow Jones is set to open above 22,000, a new all time high. World stocks are on their longest streak of monthly gains in more than a decade, with the MSCI All-Country index rising again on Tuesday, up 0.3%, amid further signs that the global economy remains solid, while the beaten-down dollar edged up slightly from 14-month lows. The dollar again failed to stage a rebound after Monday’s drop, as investors were transfixed by the chaotic developments in Washington, pushing the greenback lower overnight and sending it down for the fifth consecutive month...
"I think the short dollar trade is still the broad consensus trade in the financial markets,," said Esther Maria Reichelt, an FX analyst at Commerzbank in Frankfurt. "But we are approaching important levels against other currencies, such as 1.20 on the euro, which may prompt some concerns from other central banks."
Softening U.S. inflation and incessant political turmoil has hit prospects of another Federal Reserve rate hike in coming months and sent the dollar down 10 percent from its January peaks. The dollar's decline, low inflation and stable global growth has stoked appetite for stocks, with the MSCI extending its run after the index logged its longest streak of monthly gains since 2003-04 in July.
"Data and market behaviour are consistent with our global reflation theme," strategists at Morgan Stanley, led by Hans Redeker, said in a note, pointing to strong Chinese factory data, corporate earnings and surging South Korean exports. "The combination of USD weakness with decent, but not too strong, US economic growth works in favour of risk appetite, pushing financial conditions globally, and especially in the US, higher."
In Europe, the Stoxx Europe 600 gained 0.6%, hitting session’s high after data showing euro-area July manufacturing kept in line with the flash reading (PMI 56.6 vs flash reading 56.8). European manufacturing sentiment pointed to "broad-based economic growth" as national surveys signaled economic expansion across the region, with Austria, the Netherlands and Germany being the best performers. French manufacturing accelerated to one of the fastest rates in six years. The Stoxx Europe 600 Index was poised to end its losing streak, heading for the first gain in four days after companies including BP reported, beating estimates, and was the biggest contributor to the advance. Crude itself also rose, as traders awaited the latest government inventory data. Recent commodity strength continued to feed into Asian equities, which were also bolstered by earnings in Japan, South Korean export numbers and Chinese manufacturing data. The U.K.’s FTSE 100 Index advanced 0.8 percent, the largest gain in a week. Germany’s DAX Index advanced 0.4 percent, the biggest gain in a week.
In Asia, the MSCI Asia-Pacific Index rose to the highest since 2007 as equity indexes from Tokyo to Sydney advanced. Japan’s Topix index added 0.6 percent. Banks rallied after Sumitomo Mitsui Financial Group Inc. reported a 31 percent increase in net income for the June quarter. Australia’s S&P/ASX 200 Index closed 0.9 percent higher, while South Korea’s Kospi index ended up 0.8 percent. The Hang Seng Index in Hong Kong rose 0.8 percent, while the Shanghai Composite Index climbed 0.6 percent. As expected, the surge in the overnight Hong Kong dollar interbank proved fleeting, as the rate tumbled 43 bps to 0.28286% after climbing to a more than eight-year high of 0.71407% on Monday, according to Bloomberg citing the latest fixing published on the Treasury Markets Association website. The one-week HKD Hibor dropped 2 bps to 0.28836%, after rising to 0.30643% on Monday, highest since July.
For European equity markets, continued improvement in euro-area economy has fueled rally in euro and raised concerns over potential impact on corporate earnings, with the 1.20 area in the EURUSD often cited as a hard stop beyond which profitability will be materially impacted. European government bonds also edged higher as PMI data highlight ECB’s conundrum of robust growth without price pressure.
Meanwhile, as reported earlier, the Reserve Bank of Australia held the benchmark at 1.5% while warning that a rising currency is expected to subdue inflation and weigh on the outlook for growth and employment. The Aussie fluctuated, but has since sunk to session lows, below 0.80...
In commodities, oil prices made further gains as falling U.S. inventories eased some concerns about oversupply. Futures on Brent crude LCOc1 and U.S. crude oil CLc1 rose 0.2 percent and held comfortably above $50 a barrel for the first time since May.
In rates, Britain’s 10-year yield declined one basis point to 1.223 percent. Germany’s 10-year yield fell two basis points to 0.52 percent, the lowest in more than a week.
ISM manufacturing and construction spending are among key data points later on Tuesday, while Apple, Pfizer, Emerson Electric are due to report earnings, together with a number of other companies. Crude oil trades above $50/bbl.
# Market Snapshot;
- S&P 500 futures up 0.3% to 2,474.75
- STOXX Europe 600 up 0.6% to 379.92
- Nikkei up 0.3% to 19,985.79
- Topix up 0.6% to 1,628.50
- Hang Seng Index up 0.8% to 27,540.23
- Shanghai Composite up 0.6% to 3,292.64
- Euro down 0.2% to 1.1818 per US$
- Brent Futures up 0.3% to $52.85/bbl
- Gold spot down 0.02% to $1,269.17
- U.S. Dollar Index up 0.05% to 92.91
# Top Overnight News;
- Venezuela’s most high-profile opposition figures were seized from their homes by security forces, according to people close to them, in what appeared to be a crackdown on officials challenging the government of President Nicolas Maduro
- The euro- area economy expanded apace in the second quarter, a sign the bloc’s upswing is becoming increasingly robust and self- sustaining. While a Purchasing Managers’ Index pointed to broad- based growth, price pressures showed further signs of easing in July
- U.K. manufacturing growth accelerated for the first time in three months in July, bolstered by the strongest jump in export orders in seven years
- Trump personally dictated son’s statement on Russia meeting: Wash. Post
- U.S. detected unusual levels of North Korean submarine activity: CNN
- Pence Says U.S. Backs Georgia in NATO Against Russian Objections
- No Bubble in Stocks But Look Out When Bonds Pop, Greenspan Says
- Banks May Be Hit With $50 Billion Capital Needs After Brexit
- Japan PM Abe to reshuffle cabinet on August 3: Suga
- China July Caixin manufacturing PMI 51.1 vs 50.4 estimate
- It’s time for China to increase yuan flexibility: Sec. Journal
- BP Says It’s Breaking Even After Debt Soared to a Record
- Ferrari Said to Plot ‘Utility Vehicle’ in Plan to Double Profit
- Tesla Batteries May Back Up Wind Farm Off Massachusetts Coast
- Scripps Affirmed by Moody’s on Acquisition by Discovery
- Lexicon to Opt-In for Co-Promotion of Sotagliflozin With Sanofi
- Brighthouse Financial to Replace AutoNation in S&P 500
- New Anthem Data Breach Affected More Than 18,000 Enrollees: CNBC
*) Asian equities traded higher across the board as Chinese data took focus once again after Caixin Manufacturing PMI beat expectations and printed its highest since March. ASX 200 (+0.9%) was led higher by commodity-related stocks after iron ore extended on yesterday's over 7% gains and WTI settled above USD 50/bbl for the first time since May. Nikkei 225 (+0.3%) was kept afloat after the prior session's JPY weakness, while Shanghai Comp (+0.6%) and Hang Seng (+0.8%) conformed to the positive tone after the aforementioned Chinese PMI data coupled with the PBoC's CNY 170b1n injection into the interbank market. Finally, lOy JGBs were flat with a lack of demand seen amid broad positive risk sentiment and following the uninspiring 10yr JGB auction in which the results were mixed and relatively similar to the prior month.
Chinese Caixin Manufacturing PMI (Jul) 51.1 vs. Exp. 50.4 (Prey. 50.4).
# Top Asian News;
- India Manufacturing PMI Hits 8-Year Low on Sales Tax Disruption
- Caixin China July Manufacturing PMI 51.1; Est. 50.4
- Iron Ore Investors Zero In on 2018 as China Futures Roll Over
- Singapore’s Chevron House Owner Seeks More Than S$700M in Sale
- MUFG Profit Jumps 53% on Trading Income, Gains From Share Sales
- Macau Casinos’ July Gains Cap Year of Recovery as VIPs Flock
- Honda Sees New Accord, Weaker Yen Easing U.S. Pressure
*) European bourses are firmer this morning led by the energy sector. BP shares higher by over 2% after reporting earnings were ahead of analyst estimates. Crude prices higher with WTI crude futures making a firm break above USD 50.00/bbl. German curve was initially bull flattening this morning, providing modest concession for the Schatz ahead of today's EUR 4bln Jun'19 tap with little reaction seen in German paper after a relatively well-digested Schatz auction. Gilts ebbed lower slightly following better than expected UK Mfg. PMI data with paper also unreactive to this morning's Gilt auction which saw a healthy uptake by the market.
# Top European News;
- German Labor Market Strengthens as Robust Economy Fuels Hiring
- Female CEOs Hold Key to Returns for $42 Billion Stock Manager
- France July Manufacturing PMI 54.9 vs Flash Reading 55.4
- BOE Rate Excitement Fizzles as Increase Appears Further Away
- U.K. Manufacturing Grows as Export Orders Climb to Near Record
- Euro-Area Economy Steams Ahead as ECB Awaits Inflation to Follow
# In currencies, the Greenback continued to suffer yesterday amid the political uncertainty in the USA. President Trump removed Scaramucci from his White House Communications Director post just ten days after the appointment. This news was followed by reports stating that US Senate Finance Committee Chairman Hatch said that senators are too divided to keep working on healthcare overhaul legislation now. The difficulties in the States have led to all its major currencies pairs gaining against the US dollar, as the DXY now trades through 93.00, looking close and close toward the 92.00 support level. USD/JPY saw a bounce on the physiological 110.00 level, however remains to look bearish, with a test of June's low at 108.80 possible. GBP: Brexit fears have once again resurfaced; with UK Chancellor Hammond yesterday stating future
relationship with European Union remains under discussion, Brexit will not be postponed or delayed. GBP/USD has gained however, amid the aforementioned falling dollar, continuing to print 2017 highs, now through 1.32. With a weakening greenback, GBP/USD bulls could see this opportunity to attack 1.35. AUD: The highlight of the Asian session was the RBA interest rate decision, where as expected, the RBA kept their cash rate on hold at 1.50%. Despite a spike lower on the decision, we did see a bounce in AUD/N ZD,largely likely to the minimal concern of the higher AUD. The statement stated that a higher AUD is weighing on price pressures and would slow economy. However, the tone of the RBA was slightly more optimistic than many anticipated, stating that growth is expected to pick up, alongside the previously mentioned lack of fears toward the AUD.
# In commodities, WTI crude futures breached the psychological USD 50/bbl level. Europe's largest refinery (Pernis) reported further issues with a leak during maintenance work yesterday. Potential supply disruptions in Nigeria, as Niger Delta leaders threaten to dump peace talks. Gold fell 0.1 percent to $1,267.59 an ounce, the largest fall in a week. Iron ore advanced 3.4 percent to 574 yuan per metric ton, the highest in more than four months.
# Looking at the day ahead, we will see the June personal income (+0.4% mom expected) and spending data (+0.1% mom expected), followed by the ISM manufacturing PMI for July (56.5 expected; 57.8 previous). Onto other events, the trade ministers from the BRICS countries will meet in Shanghai. Notable US companies reporting include: Apple, Pfizer, CME, Assurant and Illumina....