maandag 9 juli 2018

Global Stocks Jump As Trade Fears Set Aside; China Soars, Dollar Slides

Global markets are a sea of green this morning, with US index futures sharply higher to start the new week which sees the official start of Q2 earnings season on Friday the 13th, following solid gains in Europe and Asia in the aftermath of Friday's "goldilocks" jobs report whose strong payroll gains but weaker than expected wage growth further pressured the dollar and boosting Emerging Markets, while analysts said that traders took comfort in the lack of escalation in the trade war (although considering it only started on Friday, it is difficult to see just how it could escalate in following 48 hours)...


As has often been the case in the past month, the market tone was set by China, whose Shanghai Composite index posted solid gains, led by insurers and banks, after Caixin reported that regulators may implement tighter regulations on wealth management products later than the market expected due to recent volatility. China's regulator had imposed stricter rules on asset management industry in April, and new regulations on wealth management products - including on investment targets, leverage - were expected to follow. "The delay of new bank wealth management rule can be slightly positive for sentiment amid market panic, as economic growth becomes the top priority for regulators,” Huatai Securities analyst Shujin Chen writes in note. As a result of the delay, and following a note from local investment bank CICC which said that "A-share valuations and sentiment have hit the bottom after the market’s recent rout, offering medium- to long-term opportunity", the Shanghai Composite surged by 2.5%, its biggest one day jump since February 22...


Doubling down on the all-clear signal, the Shanghai Stock Exchange issued a strange statement which said that Shanghai-listed companies’ valuation is "at relatively low level, compared to that of stock markets in other major economies" and that valuation is becoming attractive after the latest round of sell- off. It added that the Shanghai exchange will continue to support qualified listed companies to buy back shares, as that can help boost investor confidence and stabilize market expectation. In short, the jawboning brigade was unleashed and the result may have helped Chinese stocks set a bottom for now, which was hit on July 6 when the SHCOMP dipped briefly below 2,700. In addition to verbal intervention, the lack of new trade war actions by either the US and China was seen by some as a reprieve to the recent tit-for-tat escalation, also helping boost sentiment. The solid Chinese performance lifted the MSCI Asia Pacific Index which was up 1.2%, and on course for the biggest jump in a month.
Positive sentiment from Asia flowed through into the European session, if amid reduced liquidity and market activity, with the Euronext suffering a trading pause for some stocks after two market orders got stuck in the order book. The Stoxx Europe 600 index was up 0.6%, headed for a fifth consecutive advance - the longest winning streak since March, led by miners and energy companies, as investors set aside concern about escalating trade tensions to focus instead on the upcoming earnings season. Citi strategists said European bank stocks offer a good buying opportunity as the sector is set to benefit from macro data stabilizing in 2H, political risk remaining at current levels and interest-rate expectations holding...


Commenting on Monday's equity bounce the head of Asia research at ANZ Banking Group, Khoon Goh, said that "despite tariffs on China imports into the U.S. now being officially implemented, markets have started the week on a better footing thanks to the absence of further escalation for the time being," and added that "the U.S. payrolls report on Friday, while strong, did not see any significant rise in wage growth, which was a relief to a market that was worried about the potential for a more aggressive Fed hiking path." In the US, futures on the S&P 500, Dow and Nasdaq all pointed higher and commodities and emerging-market equities found support from the weakening dollar, which dropped for the fifth day, the longest losing streak in nearly five months, following key technical breaks versus major peers...


Adding to the positive sentiment, the Chinese yuan which had been battered in recent days, jumped after the PBOC reported that China’s foreign currency reserves rose $1.51 billion to $3.112 trillion in June, rising by more than the highest Wall Street estimate, and easing fears that China has been selling reserves to stem the recent slide in the Yuan, and that there has been less intervention than expected as the yuan slid last month...


"So for now, no new U.S.-Sino trade news is good news for EM in general," said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney, however adding that "our base case remains for trade tensions to get worse before they get better." Elsewhere, after diving in early trading following news of the dramatic resignation of Brexit minister David Davis, the British pound climbed as on optimism Theresa May can contain the latest government crisis over Brexit. "David Davis resigned as Brexit secretary and the pound is holding up relatively well on the back of it,” CMC market analyst David Madden wrote in note. “This will put severe pressure on Prime Minister May, and there are questions being asked about how long she will last in the top job." The the euro climbed to its strongest level since June 14 after German industrial production beat all estimates for May while the ECB’s Coeure said existing trade risks don’t have the potential to derail euro-zone recovery. Further helping sentiment, the start of earnings season this week may prove a helpful distraction and divert attention from the trade war that’s kept global stocks under pressure. US Treasuries slipped in the absence of a fresh escalation of the U.S.-China trade conflict, with the 10Y yield rising 3bps to 2.85%; Germany’s 10Y bunds also climbed 2 bps to 0.32%, the highest in more than a week on the biggest surge in four weeks, while 10-year gilts rose 4 bps points to 1.267%, the largest climb in more than two weeks.
In Brexit news, following David Davis' resignation,Brexiteer MP Jacob Rees-Mogg was said to vote against UK PM May's Brexit plan, while there were also reports that Brexiteer MPs threaten to topple PM May and replace her with Jacob Rees-Mogg in anger at the PM’s Chequers deal. Furthermore, Jacob Rees-Mogg more recently commented that UK PM May's Brexit plan must be bad if Davis cannot support it and that a serious mistake by PM May led to Davis quitting.
Oil traded mixed and WTI/Brent spreads widening, with Brent +0.75% and WTI -0.25%. WTI has broken through the USD 74/BBL & 200 DMA levels to the downside, with investors eyeing the 50 and 100DMA levels as key supports at USD 73.52/BBL and USD 73.49 respectively in the wake of increased supply form the US, as Baker Hughes noted an increased rig count for the first time in several weeks. Gold prices are up and being lifted to two week highs at USD 1,260/Oz by a softer dollar and short covering. London copper has rebounded from a close to 1 year low in the previous session, and is up 1.8% on the day as a weaker dollar has also forced short covering for the construction material.,,,