FOMC Minutes Day Market Summary

Some better than expected economic news out of Europe, Greek 10 Year yields dropping to 7.65% or the lowest since May 2010, and futures are… red? Alas, such is life in a world in which the S&P500, aka the E-mini, is simply a derivative of the Yen funding currency pairs, where the USDJPY touched on 105 after a straight line diagonal move only to sell off in recent trading.

Heading into the North American open, stocks in Europe are seen mixed, with peripheral stock indices outperforming, buoyed by the prospect of Portugal echoing yesterday’s Irish NTMA return to capital markets with its 10y bond syndication. As such, despite the cautious sentiment, financials led the move higher, with Italian banks gaining for 4th session as IT/GE 10y spread narrowed to its tightest level since early July 2011. Of note, FTSE-100 index underperformed its peers since the get-go, with retailers and tobacco names under pressure. In spite of opening higher by over 3%, Sainsbury’s shares have since reversed and are seen lower by almost 2% after co. CFO said that he expects FY LFL sales to be just below 1% and expects Q4 to be similar to Q3. Elsewhere, tobacco names came under selling pressure following reports that China is planning a ban on smoking in public by year’s end.

Today’s FOMC minutes will give us more insight into the FOMC’s thoughts on the path of tapering and the tone of FOMC participants’ discussions around this. It’s likely that we will get some more colour on how motivated the Fed is in sticking to its $10bn per FOMC timeframe.

Overall, the price action was driven by touted profit taking and also market participants positioning for a slew of major macroeconomic risk events due this week, with FOMC minutes out later today. Looking elsewhere, favourable interest rate differential flows, firmer USD and positive close by the Nikkei 225 index ensured that USD/JPY edged higher overnight, moving above the 10DMA line in the process.

US event calendar

  • POMO:
    $1.00 – $1.50 billion in 02/15/2036 – 11/15/2043 sector
  • MBA mortgage applications, cons n/a (7:00)
  • ADP employment change, cons 200k (8:15)
  • Fed FOMC minutes of Dec meeting (14:00)
  • Treasury sells $21bln 10y notes, reopening (13:00)

Overnight news bulletin from Bloomberg and RanSquawk

  • European stocks are largely mixed with Italian banks gaining for 4th session as IT/GE 10y spread narrowed to its tightest level since early July 2011.
  • The FTSE 100 index is the laggard in European trade following reports that China are planning a ban on smoking in public by year’s end, which has consequently weighed on UK tobacco names.
  • Going forward, apart from digesting FOMC minutes release, market participants will also await the release of the latest ADP Employment Change and also the weekly DOE data.
  • Treasuries ease, 5Y-10Y yields rise by 1bp-2bps as week’s auctions continue with $21b 10Ys. Notes yield 2.965% in WI trading, stopout at that level would be highest since mid-2011.
  • 3Y notes sold yesterday drew 0.799%, tailing 1pm WI level by about 0.2bp, with lowest bid-to-cover since Oct. and indirects lowest since April
  • U.S. economy added 200k jobs last month, data from ADP is expected to show; market focus shifting to Friday’s payrolls report (est. +195k, unemployment rate holding at 7%) and implications for pace of Fed tapering
  • Congressional negotiators are working to settle final sticking points over military and health-care spending in a plan to finance the U.S. government and avoid a second shutdown in four months
  • German factory orders rose 2.1% in Nov. vs. decline of 2.1% the previous month, +1.5% median expectation in Bloomberg survey
  • Turkey’s ruling party will continue to purge police and judiciary members pursuing corruption charges against government officials and will then seek to prosecute them for  attempting a coup, a top party official said
  • China’s new credit probably fell by a record in the second half amid a crackdown on speculative lending, limiting prospects for economic expansion this year as policy makers focus on controlling financial risks
  • Thailand’s army chief urged the public not to believe rumors of a possible coup, saying the movement of military hardware into Bangkok was for an annual parade and not to oust Prime Minister Yingluck Shinawatra
  • Sovereign yields mostly lower; EU peripheral spreads tighten. Nikkei gains 1.94%, leading most Asian stock markets higher; Shanghai Composite little changed. European stocks decline, U.S. equity-index futures decline.  WTI crude and copper little changed; gold falls

Asian Headlines

Goldman Sachs sees Q4 Chinese GDP at 7.7% and sees a decrease in credit supply due to tightening money market.

Japan’s ruling LDP scraps no-war pledge in 2014 draft.

Chinese equities have been cut to underweight at HSBC.

EU & UK Headlines

Eurozone Retail Sales (Nov) M/M 1.4% vs Exp. 0.1% (Prev. -0.2%, Rev. -0.4%)
Eurozone Retail Sales (Nov) Y/Y 1.6% vs Exp. 0.3% (Prev. -0.1%, Rev. -0.3%)

Eurozone Unemployment Rate (Nov) M/M 12.1% vs Exp. 12.1% (Prev. 12.1%)

German Current Account Balance (Nov) M/M 21.6bln vs Exp. 19.3bln (Prev. 19.1bln, Rev. 18.8bln)
German Trade Balance (Nov) M/M 18.1bln vs Exp. 18.9bln (Prev. 17.9bln)

Italian Unemployment Rate (Nov P) 12.7% vs. Exp. 12.6% (Prev. 12.5%) – new record high.

UK Halifax House Prices (Dec) M/M -0.6% vs Exp. 0.9% (Prev. 1.1%, Rev. 0.9%) – First monthly fall since January last year.
UK Halifax House Price (Dec) 3M/Y 7.5% vs Exp. 8.2% (Prev. 7.7%)

UK BRC Shop Price Index (Dec) Y/Y -0.8% (Prev. -0.3%) – 8th straight month of declines and the biggest fall in any month since the series began in 2006.

The Spanish funding programme showed a net 2014 issuance at EUR 65bln, gross issuance for 2014 seen at EUR 242.4bln and plans syndications for new 10, 15 and 30-year bonds.

BoE says mortgage availability increased in Q4, mortgage demand rose to its highest since 2007 in Q4.

Greece are in conflict with the Troika over whether to tap bank rescue funds in order to plug their financing gap for the 2014-15 period.

US Headlines

US equities have been cut to underweight at HSBC.

There has been little in the way of US newsflow throughout the European session, with market participants looking ahead to today’s ADP Employment Change and FOMC minutes release.


In what has been a mixed morning of trade for European equities, the FTSE 100 is the laggard following reports that China are planning a ban on smoking in public by year’s end, which has consequently weighed on UK
tobacco names. Also from the UK, this morning saw Sainsbury’s report with a series of positive figures, however, despite
opening 3% higher, Co. shares trade lower by 2% following comments from the Co.’s CFO saying that he expects FY LFL
sales to be just below 1% and expects Q4 to be similar to Q3. Elsewhere in Europe, Financials are leading the way with
peripheral banks gaining as credit spreads continue to tighten, with the IT/GE 10y spread narrowed to its tightest level
since early July 2011.


Firmer USD, favourable interest rate differential flows, together with a positive close by the Nikkei 225 index saw USD/JPY edge higher overnight and move back above the 10DMA line. However touted EUR/JPY selling by Swiss names meant that heading into the North American cross over, the pair has given back almost half of those gains, but remains in positive territory.

According to the Swedish Central Bank minutes, inflation pressures are seen much lower vs. October forecast, with the most likely scenario is rates staying unchanged.

Morgan Stanley said USD/CAD may rise to 1.12 and sees rising chance of Bank of Canada rate cut.


The co-leader of East Libyan pre-autonomy group said its oil firm lifts force majeure at Es-Sider and other seized ports, adding that it will sell oil on its own and will ensure safety of foreign tankers lifting oil at its ports.

First crude oil export from Libyan port of Zawiya expected around Jan 10-12 following oilfield restart according to traders. China 2013 oil output rose 1.8% Y/Y to 210mln tons while its 2013 natural gas output increased 9.8% Y/Y to 117.7bcm.

The pace of US oil production growth will begin to slow in 2015, even as global demand continues to rise, allowing OPEC to pump more crude for the first time in three years, the US government said according to a report.

India should retain curbs on gold imports at least until March to stabilize the current account deficit that weakened the rupee to a record low last year, according to economic affairs secretary Arvind Mayaram.

* * *

In conclusion, as customary, is the overnight review from DB’s Jim Reid

It seems like the worst of the recent weather extremes have finally peaked – although this doesn’t constitute an official DB weather forecast! This week has seen many parts of the east side of North America colder than the South Pole at temperatures I can’t even begin to imagine. Meanwhile in the very wet and windy south east of England it was mild enough yesterday for me to walk out to lunch without a jacket and with shirt sleeves rolled up. Although that was as much due to not being able to find any of my cuff links after 2 weeks away – especially with builders moving everything about at home. In the UK the Met Office has many times over the last 3 weeks urged people not to make any unnecessary journeys due to high winds and flooding. So with the weather slowly improving hopefully we can now make those completely pointless trips we’ve all been storing up.

As the weather settles, markets should spring into life over the rest of the week  with the ADP and FOMC minutes today, the ECB tomorrow and payrolls on Friday. Not to mention Alcoa kicking off Q4 US earnings tomorrow after the US closing bell. Ahead of this many markets saw their first positive day of 2014 yesterday as decent data on both sides of the Atlantic seemed to help risk. One market that has been more consistently firm in 2014 has been peripheral bonds. After a brief profittaking pause on Monday, they continued their recent outperformance with Italian, Spanish and Portuguese bond yields tightening by 7bp, 10bp and 16bp respectively. This brings the respectively 3 month change in yield to -47bp, -49bp and -90bp, which stands in stark contrast to the performance of core European and US bonds. The other spot of good news in the periphery was in Ireland where the country completed its debut EU/IMF programme bond issue, raising EUR3.75bn of 10 year funds at a yield of just over 3.5%.

The strong lead-in from Wall Street, where the S&P 500 (+0.61%) closed near the highs, has provided a boost to overnight markets. The Nikkei (+1.5%) and HSCEI (+0.9%) are poised to have their first green days for the year and even some of the recent laggards including Thailand (+0.2%) are enjoying gains despite continuing reports of a potential military coup (Bloomberg). The coup reports have been denied by Thailand’s army chief. The reports have spooked some investors though with Thai external bonds marked about 3-5bp wider this morning. Elsewhere in Asian EM, the focus remains on the new issue pipeline with recent sovereign and quasi-sovereign USD issuance from Sri Lanka, Korea and Indonesia being absorbed well by the market and trading up in the secondary. High beta sovereign CDS such as Indonesia is trading firmer today (-17bp). Back in Asian equities, mining stocks are lagging amid concerns over a Chinese slowdown and following a one-percent fall in the spot gold price during US/Asian trading.

Returning to yesterday, it was a day where US equities played catch-up to credit after a raft of new corporate bond issuances weighed on the CDX IG (64bp, +1bp) and iBoxx $ corporate indices (135bp, +1bp). The US trade report for November managed to beat consensus (deficit of $34bn versus $40bn estimated), providing some relief after a recent a run of disappointing New Years’ data including a weaker-than-anticipated Chicago PMI and ISM non-manufacturing. The shrinking in the November trade balance to the narrowest since Q3 2009 was largely driven by exports (+5.2% YoY) which reached a new record high driven by a sharp improvement in the petroleum trade balance – giving rise to calls for a relaxation of decades-old restrictions on the export of crude oil. The trade report prompted a number of upward revisions to growth forecasts across the street, including at DB where our US economist Joe Lavorgna revised his Q4 forecast up to 4.0% from 3.0% previously. Indeed Joe was also left questioning whether his 2014 GDP growth forecast, which is estimated at +3.4%, is too low.

The Boston Fed’s Rosengren had some interesting comments to make about US growth, arguing that his recent dissent at the FOMC was based on his view that the economy was far from where it needed it to be. Rosengren said his expectation was for 3% GDP growth in 2014 and that inflation persisting below 2% can be a “real concern”. Interestingly, despite this view, Rosengren said he was comfortable with the current tapering approach indicated by the Fed which is to reduce asset purchases at a rate of $10bn per FOMC. So over the last few weeks, we’ve heard from Bernanke and now Rosengren (the lone dissenter in December’s FOMC), on what they think is the likely path of tapering. Both think that the Fed will likely be tapering over the course of 2014 at a pace of around $10bn per FOMC, with the aim of finishing up QE altogether in 2014. Bernanke and Rosengren’s caveat was that they could pause tapering if momentum in unemployment or economic indicators slowed.

On that note, today’s FOMC minutes will give us more insight into the FOMC’s thoughts on the path of tapering and the tone of FOMC participants’ discussions around this. It’s likely that we will get some more colour on how motivated the Fed is in sticking to its $10bn per FOMC timeframe. Joe also points out that the “Summary of Economic Projections” section (a corollary to the actual minutes), will also make for interesting reading and can contain insight not explicitly captured in the minutes.

The FOMC minutes will be taking up much of the limelight today but we should highlight a number of other important data releases including the latest Euroarea unemployment report, Euroarea retail sales, German factory orders and German trade. Across the pond, the ADP employment report comes into focus as the usual precursor to the end of week payrolls. Bloomberg consensus is for today’s ADP to show a +200k gain for December following last month’s +215k result. The Fed’s  consumer credit report will also be released today.


via Zero Hedge Tyler Durden

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