It took stocks only a few minute to "price in" the latest political shock out of Washington, and as of this morning Emini futures no longer care that Mueller has a grand jury, trading 0.08% in the green with European stocks and Asian shares all little changed as investors await the looming July jobs report, which is expected to show a slowdown in hiring from 222K to 180K but will have little impact on either the Fed's thinking or the market. Stocks, gold and most metals headed for a fourth week of gains on Friday, as fresh political woes for U.S. President Donald Trump and the prospect of a trade war with China kept the dollar depressed ahead of payrolls. The Bloomberg Dollar spot index inched lower for a third day, hovering near the weakest in 15 months, while cable rose to $1.3154, the euro hit a fresh two-and-a-half year high against the dollar and oil retreated. Global stocks were just barely in the green this morning with the MSCI All-Country World Index rising less than 0.05%. In key overnight macro moves, the Aussie dollar gained against the greenback despite RBA warnings about currency’s strength, while the USD/JPY fell as much as 0.2% to 109.85, the weakest since June 15, before paring decline to 110.03.
In Asia, Japan’s Topix index slid 0.2% and Australia’s S&P/ASX 200 Index lost 0.3%. South Korea’s Kospi was up 0.5 percent after sliding 1.7 percent on Thursday. Japan's Nikkei ended the week little changed, dropping 0.4 percent on Friday as a stronger yen weighed. Wall Street was expected to start marginally higher, having seen the Dow index break through 22,000 points this week. Hong Kong’s Hang Seng Index was little changed, while the Shanghai Composite Index swung between gains and losses.
European markets got off to an underwhelming start, with Britain's FTSE 100, Germany's DAX and France's CAC 40 all lower. The FTSE was on course for its best week in two months, boosted by the latest tumble in the pound. The Stoxx 600 traded sideways as Swiss Re AG’s profit drop weighed on insurers. The rising Euro, which ING now expects to rise as high as 1.20 in the next 4 weeks, has capped Stoxx gains in recent months, on concerns it will pressure exporter earnings. The U.K.’s FTSE 100 Index gained less than 0.05 percent to the highest in more than a week. Germany’s DAX Index jumped 0.1 percent...
The dollar index, which has just recorded its worst run of monthly losses since early 2011, was 0.1 percent lower at 92.766 on the day and about 0.6 percent during a week in which it fell to a 15-month low of 92.548. "We think things are overdone in terms of negative sentiment around the dollar," said PineBridge Investments fund manager Hani Redha, quoted by Reuters. "Overall we think global growth is going to be quite solid but we think the leadership is going to change back towards the U.S.," he added, saying Trump was also likely to get at least some fiscal stimulus measures through in the coming months.
As SocGen's Kit Juckes writes this morning, the US Treasury market is heading towards today's non-farm payroll data with 10s at 2.23%, in the bottom half of their 2.12-2.42 range. The RBA sees lower inflation thanks to the AUD's rise to date and a threat to growth from further appreciation, Japanese wages fell and even smoothed show the same lack of wage growth as we see everywhere, despite a tightening labour market.
Just taking those three bits of information I get a now-familiar snapshot of the world. Anchored US rates and yields will make sure that capital goes on flowing out of dollars and into anything that's perceived as more interesting. Other central banks will grumble (at the very least) about the weaker dollar trend and in Japan, the need to reboot inflation expectations remains as clear as ever, the difficulty of doing so likewise, and the danger that anchored US yields drag USD/JPY down and is pretty clear too.
Previewing today's payrolls report, the SocGen strategist writes that with consensus forecasts of +180k in NFP an 2.4% in average hourly earnings, "the BOJ, RBA and the ECB for that matter, will be hoping for an upside surprise. An NFP surprise would provide some relief, a huge upside surprise in wage growth would really help them a lot. That doesn't make it likely, sadly."
WTI fell below $49, extending its weekly loss with the Baker Hughes rig count due later. "It was very natural on the technical side that we should see consolidation around the 200 day moving average," Torbjorn Kjus, chief oil economist at DNB Bank, told Bloomberg. Brent is trading below 200-day MA Friday after moving above that level last week and settling above the marker for past 2 sessions; WTI also below Friday
In rates, Europe's 10-year benchmark government bond yield and U.S. equivalents were pinned near one-month lows of 0.45 and 2.23% respectively amid the U.S. political uncertainty. U.S. yields have been falling for most of 2017 as the President's travails have cooled expectations for growth and inflation. 10-year gilt yield +1bps to 1.16% after Bank of England kept rates on hold Thursday. In commodities, West Texas Intermediate crude dipped 0.8 percent to $48.66 a barrel, the lowest in a week. Gold was steady at $1,269 an ounce and set to score and modestly weekly rise, which will be its fourth in a row. Copper advanced 0.2 percent to $2.88 a pound.
# Market Snapshot;
- S&P 500 futures up 0.05% to 2,473
- STOXX Europe 600 down 0.05% to 378.75
- Nikkei down 0.4% to 19,952.33
- Topix down 0.2% to 1,631.45
- Hang Seng Index up 0.1% to 27,562.68
- Shanghai Composite down 0.3% to 3,262.08
- EUR/USD: +0.1% to 1.1880 - USD/JPY: steady at 110.09
- Brent Futures down 0.8% to $51.62/bbl
- Gold spot up 0.06% to $1,269.40
- U.S. Dollar Index down 0.1% to 92.75
# Top Overnight News;
- Payrolls May Show Stable Economy; Grand Jury Issues Russia Subpoenas; HNA Says It’s Not Raising Funds in N.Y.
- Toyota and Mazda to sell stakes to each other, worth about 50b yen each
- Special counsel Robert Mueller is using a federal grand jury in Washington to help collect information as he probes Russia’s meddling in the 2016 election and possible collusion by Trump campaign associates
- Pearson Plc made good on a pledge to cut costs, slashing 3,000 jobs and cutting its interim dividend to preserve cash as it works on a turnaround of its struggling education business
- Allianz SE and Canada Pension Plan Investment Board have agreed to buy a 20 percent stake in Spain’s Gas Natural SDG SA’s gas distribution business for 1.5 billion euros ($1.8 billion)
- The world’s biggest pension fund posted its fourth-straight quarterly gain, as global stocks rose and a decline in the yen against both the dollar and the euro helped boost the value of its overseas investments
- Teva Pharmaceutical Industries Ltd.’s warning to investors that it may breach debt covenants if cash flow weakens triggered its biggest bond selloff on record
- “Passive investing is in danger of devouring capitalism,” billionaire Paul Singer wrote in his firm’s second-quarter letter dated July 27
- BOE Is Said to Find Error Behind Spike in U.K. Mortgage Arrears
- Rosneft Aids Venezuela’s State Oil Producer With Prepayment
- Icahn-Backed Change in Biofuel Rule Is Said to Near EPA Rebuff
- McDonald’s Japan July Sales Helped by Desserts, Hawaiian Burgers
- Teva Debt Sells Off After Warning May Breach Covenants
*) Asian equity markets traded mixed, with the region indecisive ahead of key risk NFP data and after a lacklustre close in US where energy underperformed and the Russian probe seemed to have stepped up a notch. This saw early losses in ASX 200 (-0.2%) and Nikkei 225 (-0.3%), with financials the underperformer in Australia after big 4 bank CBA was accused of breaches to anti-money laundering and counter¬terrorism regulations. Shanghai Comp (+0.2%) and Hang Seng (+0.1%) were slightly positive after the PBoC upped its daily liquidity operations, although upside was capped as this still amounted to a net weekly liquidity drain. RBA Statement on Monetary Policy states recent AUD rise had modest effect on GDP and inflation forecast. Says:
Holding policy steady consistent with growth and inflation target.
Recent increase in AUD has modest dampening effect on economy.
Further strength in AUD would reduce economic growth and inflation.
RBA maintains inflation forecast for 2017 and 2018 at between 1.5%-2.5% for both, 2019 forecast kept at 2.0%-3.0%.
Lowers GDP forecast for 2017 to 2.0%-3.0% from 2.5%-3.5%, 2018 forecast maintained at 2.75%-3.75%, while 2019 forecast was increased to 3.0%-4.0%.
# Top Asian News;
- China Hedge Fund Says Most ‘Violent’ Deleveraging Phase Over
- China Millionaires in Jeans Spur Wealth Manager Push Abroad
- Abe’s New Cabinet Shows Continuity in Japanese Economic Policy
- Summit Announces $1 Billion LNG-to-Power Project in Bangladesh
- Indonesia Sees Room to Ease If Inflation, Forex Rate Manageable
- JT to Buy Karyadibya Mahardhika for $1b Enterprise Value
- China Bulls’ Resolve Tested as Stocks Struggle to Pass Key Level
- Indonesia Says Google Agrees to Monitor Negative YouTube Content
- Hong Kong Stock Rally Buoyed by Bullish Profit Projections
*) The majority of EU bourses have come off worst levels, and now trade in marginal green territory. The biggest movers throughout the European morning have been UK Home Building names, with an overnight article from "PropertyWeek" circulating, which states that the Government is reviewing its 'Help to Buy' Scheme. Taylor Wimpey (TW LN) and Perisimmon (PSN LN) shares were both down over 5% for the session, as the former generated 45% of its sales from the Scheme. Later reports from a UK government spokesperson stated that it is incorrect to infer that the government are set to cancel the help to buy scheme, did see many of the loses retraced. NFP Friday trade has been evident in fixed income. markets today, with the 1 Oy bund holding its slim range. Underperformance has been seen in peripherals, with delays relaying slight profit taking in BTPs and Bonos. Corporate issuance once again came into fruition today, with Verizon printing AUD 2.2bn "kangaroo" bond, with BAT mandating banks for a multi-currency and multi-tranch bond deal.
# Top European News;
- BOE Says Companies Need Clarity as Brexit Crimps Investment
- German Factory Orders Jump in Sign of Robust Economic Growth
- Allianz Buys LV= Unit in Deal Valued at as Much as $1.3 Billion
- RBS’s Investment Bank Drives Second-Quarter Profit Beat
- Constellium Is Said to Weigh Options After Takeover Interest
- Swiss Re Drops as Earnings Succumb to Market-Pricing Pressure
- U.K. Housebuilders Fall After Reports of ’Help to Buy’ Review
- BOE Is Said to Find Error Behind Spike in U.K. Mortgage Arrears
- Rosneft Aids Venezuela’s State Oil Producer With Prepayment
# In currencies, GBP has seen the majority of volatility this morning as EUR/GBP and GBP/USD both briefly broke out of the post EU trading range. Elsewhere, overnight volatility was seen in AUD, following the release of the RBA's statement of Monetary Policy, with no fears of an overvalued currency, AUD/USD begun to gain some bullish pressure, we have continued to see buying following the bounce of August's low, with bulls now looking to retest 0.80. USD & CAD will both await their jobs reports due at 13.30BST. However, it is worth noting the greenback did once again see concerning news as political tensions continue with US Special Counsel Mueller empanelling a Washington Grand Jury in Russia probe.
# In commodities, Asian oil demand has been seen to shift back to the Middle East and Russia in Q4 following the recent rise in Brent. Elsewhere, OPEC has delivered a record high adherence to its oil cut in 2017, struggles do remain with Iraq and the UAE yet to show how they can meet their targets. Trade yesterday saw the USD 50.00/bbl level hold once again and the rejection has leaked into trade today, with WTI now trading around USD 48.80. Precious metals all trade in marginal positive territory, likely abiding to the risk tone following the recent acceleration in the US Russian probe.
# Looking at the day ahead, Friday is relatively quiet day for data in both Asia and Europe with only German factory orders data for June due and Italy’s retail sales for June. The US will be in greater focus as the July nonfarm payrolls number is due (180k expected) along with other labor market data. Alongside that, we will also get the trade balance reading for June. Onto other events, the Baker Hughes US rig count will also be out. Notable US companies reporting include: Cigna, Berkshire Hathaway and CBOE. Notable European companies reporting include: Allianz, Swiss Re and Erste Group....