Algos Getting Concerned Low Volume Levitation May Not Work Today

It has been exactly six days in which algos, reversing the most recent drop in the S&P with buying sparked by a casual Nikkei leak that the BOJ may, wink wink, boost its QE (subsequently denied until such time as that rumor has to be used again), have pushed the market higher in the longest buying streak since September, ignoring virtually every adverse macroeconomic news, and certainly ignoring an earnings season that is set to be the worst since 2012. Today, the buying streak may finally end on rumors even the vacuum tubes are scratching their glassy heads if more buying on bad or no news makes any sense now that even the likes of David Einhorn is openly saying the second tech bubble has arrived.

Keep an eye on the USDJPY which has had seen some rather acute “trapdoor” action in early trading and is approaching 102 after breaching its 55-DMA technical support of 102.38. If the support is broken here we go again on the downside. Keep an eye on biotechs and GILD in particular – if the early strength reverts into more selling again (after the two best days for the biotech space in 30 months), the most recent euphoria phase is now over.

Looking ahead, today sees the release of US Manufacturing PMI and New Home Sales, with earnings also from Apple, P&G, QUALCOMM, Facebook and Boeing.

Market summary:

European shares fall, close to intraday lows, with the autos and tech sectors underperforming and health care, real estate outperforming. The Swedish and Italian markets are the worst-performing larger bourses, the Swiss the best. The euro is stronger against the dollar.

Japanese 10yr bond yields rise; Portuguese yields decline. Commodities drop, with soybeans, copper underperforming and nickel outperforming. Markit U.S. manufacturing PMI, mortgage applications, new home sales due later.

  •   S&P 500 futures down 0.1% to 1872.2
  •   Stoxx 600 down 0.3% to 336
  •   US 10Yr yield down 1bps to 2.7%
  •   German 10Yr yield down 0bps to 1.53%
  •   MSCI Asia Pacific up 0.3% to 139
  •   Gold spot up 0.1% to $1285.5/oz

 

Bulletin headline summary from Bloomberg and Ransquawk

  • Eurozone and German PMIs help to reverse EUR/USD losses seen after a disappointing French PMI release.
  • Chinese HSBC Manufacturing PMI came in alongside expectations at 48.3 (Prev. 48.0), but new export orders showed particular weakness as the index fell back below 50 to indicate contraction.
  • Looking ahead, today sees the release of US Manufacturing PMI and New Home Sales, with earnings also from Apple, P&G, QUALCOMM, Facebook and Boeing.

Asian Headlines

Chinese markets traded lower (Shanghai Composite -0.26% and Hang Seng -0.97%) after Chinese HSBC Manufacturing PMI was alongside expectations at 48.3 (Prev. 48.0), but new export orders showed particular weakness as the index fell back below 50 to indicate contraction. Furthermore, China Mobile (the largest global phone company by users) fell 2.4% after poor earnings to further weigh on Hong Kong stocks. Japan saw a quiet trading session, with the Nikkei 225 closing higher by 1.09% after the positive close on Wall Street with JGBs falling 1 tick to 144.95. (RANsquawk)

EU & UK Headlines

On the data front, focus has been on the release of Eurozone PMIs, with the German (Manufacturing 54.2 vs Exp. 53.8) and Eurozone (Composite 54.0 vs. Exp. 53.0) releases countering the earlier disappointing French release (Manf. 50.9 vs. Exp. 51.9) and thus leading EUR/USD higher and Bunds lower.

The BoE minutes release presented a slightly more dovish than expected tone than expected as focus was placed upon the downward risks of low inflation and as such placed downward pressure on GBP/USD.

Today saw Portugal make their return to the bond market after a 3 year absence with a well-received 10yr auction as, with 10yr yields trade at their lowest levels in 8 years.

Barclays preliminary Sterling month-end extensions: (+0.01y) (12m avg. +0.07y)

US Headlines

With a lack of newsflow from the US, attention now turns to the release of US Manufacturing PMI and New Home Sales and earnings from notably from Apple, P&G, QUALCOMM, Facebook and Boeing.

Barclays preliminary US Tsys month-end extensions:(+0.08y) (12m avg. +0.08y)

Equities

European equities have wilted this morning following (Eurostoxx -0.28%) on from yesterday’s sharp gains which stemmed from notable M&A news. The FTSE 100 is the outperfomer, albeit in the red, with Associated British Food the outperformer in Europe (+8.00%) after their earnings report. Whilst, the tech sector is the underperformer after Ericsson’s disappointing pre-market update which has seen their shares lower by around 4%.

FX

AUD/USD has been the notable underpeformer throughout the session and is currently trading in close proximity to monthly lows after the lower than expected CPI release overnight (Y/Y 2.9% vs. Exp. 3.2%). GBP/USD has seen some weakness following the more dovish than expected BoE minutes release. Whilst EUR/USD has been provided some reprieve by the aforementioned better than expected German and Eurozone PMIs. USD/JPY has recently printed fresh session lows with the move being attributed to fast money selling.

Commodities

Barclays sees low Chinese demand for oil in Q2 from refinery maintenance, adding that March consumption of transportation fuels and some metals points to a Chinese recovery. (BBG)

The EU has said fifteen Russian and Crimean officials face additional sanctions if the Geneva deal fails and that they will review the sanctions status soon. (RTRS)

* * *

Jim Reid concludes the overnight recap

Yesterday proved to be another risk positive day for markets as the S&P 500 (+0.41%) posted its longest winning streak since September with its 6th
consecutive up day. The health care sector (+1.04%) enjoyed the best of the day’s gains boosted by M&A headlines in the Pharma space. Corporate earnings and macro data were also supportive. Of the 29 US firms that reported yesterday 24 beat EPS consensus although the trend of mediocre sales revenue beats remains intact with only 15 of those beating forecasts. On the data front, March existing home sales were broadly stable and nearly unchanged (at 4.59 million vs. 4.60 million previously) whilst a higher-than-expected Richmond Fed (7 v 2) followed on from the stronger Philly Fed survey last week. Whatever your longer-term view on the strength of the US recovery, Q2 should be decent given the likely weather bounce back. This is the main reason we’re staying overweight in credit for now even though we have some concerns about markets towards the end of the year. Given the recent string of positive US data surprises, today’s Markit US flash manufacturing PMI for April may shed further light ahead of the official ISM manufacturing reading next Thursday. As for today’s number, following a dip in March (to 55.5), the market is looking for a modest improvement in April (to 56.0).

With the next FOMC D-Day fast approaching (two-day meeting concluding on Wednesday 2pm local time) we have a few key releases lined up in the coming days to keep Fed watchers reasonably busy. Durable goods orders (tomorrow), pending home sales (next Monday), April’s ADP employment report, the Chicago PMI, and the first reading of the Q1 GDP (all out on next Wed morning ahead of the FOMC decision) are perhaps the notable ones to watch.

Staying on the data theme, we have just seen China’s HSBC flash manufacturing PMI for April print in line with market consensus at 48.3. This marks the series’ fourth consecutive sub-50 print although it is a modest improvement from the lows of 48.0 in March. The Shanghai Composite (-0.45%) is at the day’s lows.  The Chinese currency continues to weaken and is currently at its lowest since December 2012 (at 6.2438 against the Dollar). Away from China it has been a mixed overnight session for Asia. Bourses in Japan and Australia are enjoying a better day than markets in Korea and Hong Kong. In credit markets, Asian sovereign CDSspreads are little changed post the PMI release although the main focus has been the flurry of new issues in the IG space.

Turning to DM credit the asset class remains in good technical and fundamental shape. The chase for yield remains the mantra for now, particularly in Europe,  and rising expectations of ECB QE is perhaps adding support to this view. Indeed we’ve witnessed a fairly significant compression in peripherals since the start of the year with Spanish government 5yr yields now trading 5bps inside 5yr US Treasuries. 5- year Spanish yields are also just around 108bps over Bunds which is remarkable given the spread was as wide as around 730bp in July 2012. Maybe we are going back to old fashion markets where the country with the lowest  growth/inflation combination sees the lowest yields rather than it being a credit story. We have included a chart in the today’s PDF to help visualise these moves. To help illustrate the appetite for European credit, Numericable (a Ba3/B+ rated telecoms and cable operator in France) is today set to issue a record €8.5bn HY bond deal to fund a recent acquisition. According to the FT, the demand for the deal was said to be strong enough to increase the size of the offering by €2.5bn.

Moving on to the latest developments in Ukraine, in a visit to Kiev US Vice President Biden warned Russia to pull back its troops and abide by the Geneva accord reached last week or face new sanctions. The Pentagon yesterday said that US troops will be deployed to Eastern Europe for training aiming to reassure allies in the region amid the crisis. The US troops are expected to maintain a presence for at least the remainder of the year. Russia has made no comment on this but  has suggested that such a move only serves to raise tension in the region. Ukraine’s acting president has called for the resumption of military operations against pro-Russian separatists in the East following incidents of fresh violence which involved a pro-Kiev politician.

Looking ahead to today, the Eurozone flash manufacturing and services PMI reading for April will be the main European highlight. We will also get the country readings for Germany and France. Across the Atlantic, new home sales data for March is also due today but the focus will likely be on the Markit manufacturing PMI.




via Zero Hedge http://ift.tt/1mDbKFX Tyler Durden

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