Month: June 2016

For those who are confused by the ongoing chaos in UK politics, the following primer should help explain everything.

h/t @edwardlucas

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The trend of jobless claims continues lower (despite a modest 10k rise this week to 268k from a revised lower 258k last week). The problem is… as we have shown numerous times, this ‘measure’ of the labor market appears to have seasinally adjusted itself into being totally-useless as an indicator of anything factual. With Consumer Confidence for over-55s at its lowest in 2 years, it seems the job exuberance is just not rubbing off…

Consumer Confidence (red) has tumbled to two year lows (inverted) as jobless claims trend careens back near 42 year lows…

 

Nothing else matters but keeping the jobs recovery narrative alive.

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Despite all the exuberance over the Brexit bounce in US (and UK) equities, never minds bonds, FX, and credit being far less enthusiastic, Deutsche Bank is plunging once again this morning. Having failed The Fed’s stress test for the second year running and been diagnosed by The IMF as the world’s most systemically dangerous financial entity, the giant Germanbank is getting slammed down almost 4% today, back near record lows as its ‘Lehman-esque’ path to devastation continues.

This is far from over!!

And if DB goes…

 

Then who’s next?

 

As we previously conclude, considering two of the three most “globally systemically important”,
i.e., riskiest, banks just saw their stock price scrape all time lows
earlier this week, we wonder just how nervous behind their calm facades
are the executives at the ECB, the IMF, and the rest of the handful of
people who realize just close to the edge of collapse this world’s most
riskiest bank (whose market cap is less than the valuation of AirBnB) finds itself right now.

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Prior to the Brexit vote, George Soros was one of the notable names who came out to implore the voters to decide to remain in the EU. At that time, Soros took scaremongering to a new level by writing an op-ed titled “The Brexit crash will make all of you poorer – be warned.” Following the referendum, Soros came back to write “the catastrophic scenario that many feared has materialized, making the disintegration of the EU practically irreversible.”

In remarks made to the European Parliament in Brussels on Thursday, Soros made yet another round of dramatic statements. Expanding on comments made over the weekend about the “inevitable disintegration” of the EU, Soros said Britain’s decision to leave the European Union has “unleashed” a crisis in financial markets similar to the global financial crisis of 2007 and 2008.

“This has been unfolding in slow motion, but Brexit will accelerate it. It is likely to reinforce the deflationary trends that were already prevalent,” the billionaire investor said on Thursday.

The 85 year old billionaire told the European Parliament that it is the height of their responsibility to not allow a disintegration to happen without utilizing all of its resources. Soros, saying that the EU is in “mortal danger”, proposed that the ESM be moved under the total control of the European Parliament (not allowing members to have a say) to allow an extension of its uses for things such as a European unemployment scheme.

Furthermore, Soros called upon the EU to issue bonds in order to create funds that would allow it to “respond to national emergencies.” National emergencies namely being that Europe’s banking system will now be “severely tested” Soros went on to say.

“It’s the height of your responsibility to not allow the EU to disintegrate without utilizing all its resources. Throughout history governments have issued bonds in response to national emergencies, When should the AAA credit of the EU be put to use if not at the moment when the European Union is in mortal danger“

As Bloomberg notes, Soros also told Parliament that Britain’s decision to leave the EU has “unleashed” a crisis in financial markets similar to the global financial crisis of 2007 and 2008. “This has been unfolding in slow motion, but Brexit will accelerate it. It is likely to reinforce the deflationary trends that were already prevalent” Soros said.

Soros went on to say that “the hypothetical became very real. Sterling plunged, Scotland threatened to break away, and some of the working people who supported the ‘Leave’ campaign have started to realize the bleak future that both the country and they personally face. Even the champions of Leave are retracting their dishonest pre-referendum claims about Brexit”

Soros finished by taking a quick jab at Germany, saying “Because of restrictive fiscal policies; now it has to contend with an impending slowdown. The orthodoxy of Germany policy makers stands in the way of the only effective response: having a euro-zone budget that could adopt counter-cyclical policies.”

As a reminder, as we noted after the last time Soros came out with scary remarks, Soros was among the world’s 400 richest people to lose $127 billion in the aftermath of the Brexit result, losses which have now been largely pared back as a result of more central bank intervention, which as BofA noted have “ironically” only increased inequality and populism and assured even more Brexit-like events.

Rest assured that anything that is being proposed is going to help Soros build back even more of the wealth that was lost, and ultimately get him back on top. The rush to consolidate decision making in the EU by Soros is not a surprise, as the push for one formal European super-state is now underway – that may be what Brexit truly has created.

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• Brexiters at war as Johnson pulls bid to be PM (FT)
• Soros Says Brexit Has ‘Unleashed’ a Financial-Markets Crisis (BBG)
• World stocks poised for worst month since January (Reuters)
• China to tolerate weaker yuan, wary of trade partners’ reaction (Reuters)
• China central bank criticizes media for publishing ‘inaccurate information’ on yuan rate (Reuters)
• China says U.S. ‘Great Wall’ remark shows misunderstanding of history (Reuters)
• Italy may have to recapitalise weak banks directly after stress tests-govt source  (Reuters)
• Brexit fuels worries about expected U.S. earnings recovery  (Reuters)
• Pound at Risk of Falling in Reserve-Currency Ranks After Brexit (BBG)
• Think Brexit Won’t Happen? A Trump White House Is Just as Likely (BBG)
• Sinopec subsidiaries inflated 2014 revenue, costs by $3.04 billion: government auditor (Reuters)
• EgyptAir Crash-Probe Confirms Smoke, Soot — Could Point to Fire (BBG)
• U.K. Politicians Weigh Price of EU Single-Market Access After Brexit Vote (WSJ)
• BOJ skeptics calling time on Kuroda’s two-year target (Reuters)
• Exxon Touts Carbon Tax to Oil Industry (WSJ)
• Putin says Turkey did apologize for shooting down Russian plane (Reuters)
• Winklevoss brothers choose BATS over Nasdaq for bitcoin ETF listing (Reuters)
• Biggest Diamond in More Than Century Fails to Sell in London (BBG)

 

Overnight Media Digest

WSJ

– Big U.S. banks won permission from regulators Wednesday to boost dividends and buybacks, offering investors some welcome news after the sector got hammered when the UK voted last week to exit the European Union. http://on.wsj.com/297hULR

– Puerto Rico has suffered a population slide that is steeper and more financially disastrous than in any U.S. state since the end of World War II. http://on.wsj.com/297hViL

– The death toll wrought by three suicide bombers at Turkey’s busiest airport rose Wednesday to 42 as the country grappled with what its leaders called a suspected Islamic State offensive that has pulled it deeper into the Middle East’s turmoil. http://on.wsj.com/297hVzo

– Airbnb Inc lined up investors for a new funding round and an employee stock sale that will value the room-rental website at up to $30 billion and help defer an initial public offering, WSJ reported, citing people familiar with the matter. http://on.wsj.com/297i9GP

– For years, the thousands of U.S. dealers selling General Motors Co vehicles were saddled with large cars and trucks when customers were looking for small vehicles. Now, as U.S. auto sales climb to a record pace, many of these same dealers say they are begging for pick-up trucks and sport-utility vehicles. http://on.wsj.com/297icCk

 

FT

Theresa May will launch a bid to become prime minister with a promise to restore business confidence from last week’s Brexit vote.

Deutsche Bank Trust Corp and Santander Holdings USA failed the Federal Reserve’s stress tests as regulators rejected their proposed payouts to shareholders.

General Electric Co’s financing arm GE Capital shed its status as a group warranting tougher regulation in a decision by the U.S. government.

Michael Gove’s wife, Sarah Vine, revealed doubts held by the Tory party and media about would be prime minister Boris Johnson in a leaked email

 

NYT

– Just two days before Puerto Rico plans to default on a large debt payment, the Senate passed and sent to the White House a relief measure to help the financially desperate island surmount its fiscal crisis, ending a grueling, months-long effort to rescue the commonwealth. http://nyti.ms/295P0wS

– United Airlines and leaders of its flight attendants’ union have agreed to a new labor contract that will unify the cabin crews for the first time since United’s merger with Continental Airlines more than five years ago. http://nyti.ms/291KL21

– All but one of largest banks in the U.S. earned an unconditional passing grade from federal regulators on their annual stress tests, which measure their preparedness to weather a financial crisis. http://nyti.ms/29gYc18

– European officials are expected to approve a new agreement with the United States aimed at helping companies such as General Electric and Google, among others, move online data between the two regions despite concerns about how the digital information of Europeans may be retrieved by the American government. http://nyti.ms/29fKknZ

 

Canada

THE GLOBE AND MAIL

** Engineering firm WSP Global Inc has decided not to pursue its proposed takeover of British construction advisory business Sweett Group Plc. Montreal-based WSP said on Thursday it had “terminated efforts to acquire Sweet” and would not sweeten its offer price of 0.35 pounds ($0.47) per Sweett share. (http://bit.ly/296IUeK)

** Twelve years after Bombardier Inc executives first outlined plans to build a new family of airliners called the C Series to challenge the single-aisle planes made by Boeing Co and Airbus, the Canadian company has silenced critics and delivered the first of those planes. (http://bit.ly/296IMMq)

** British Columbia Premier Christy Clark has put the province’s real estate industry under government oversight, declaring the industry’s self-regulating body has failed to protect the public from cut-throat and illegal practices and has lost the public’s confidence in its ability to police itself. (http://bit.ly/2915Eup)

NATIONAL POST

** Canada’s telecom regulator quashed Bell Canada’s second attempt to make it harder for competitors to buy wholesale access to its high-speed networks, a decision that will enable indie Internet providers to buy and resell access to ultra-fast fiber Internet connections. (http://bit.ly/296IW6l)

** Canadian Prime Minister Justin Trudeau, U.S. President Barack Obama and Mexican President Enrique Pena Nieto committed to chopping methane gas emissions from the oil and gas industry by 40-45 percent as part of a wide-ranging North American Climate, Clean Energy and Environment Partnership, announced on Wednesday in Ottawa. (http://bit.ly/297g1D6)

** Gold miner Asanko Gold Inc has come under attack from a Toronto-based hedge fund, K2 & Associates, that claims its stock price could plunge 90 percent. (http://bit.ly/294siCn)

 

Britain

The Times

Chief Executive of the Society of Motor Manufacturers and Traders Mike Hawes has warned that the livelihoods of more than 800,000 workers directly employed in the UK across the auto sector are at risk unless the government agrees a positive tariff-free, freedom of movement post-Brexit settlement with the European Union. (bit.ly/296IO91)

House prices in Britain rose 0.2 percent this month, mortgage lender Nationwide said in its latest report on the housing market. This takes annual growth from 4.7 percent in May to a better-than-expected 5.1 percent. (bit.ly/29dJ2wr)

The Guardian

The governor of the Bank of England Mark Carney is expected to say on Thursday that the contingency plans put in place by the central bank have kept funds flowing in the City and bolstered confidence among the business community. (bit.ly/294AdAu)

Tens of thousands of Toyota cars are being recalled in the UK for safety reasons, including fears that their airbags could inflate without warning. The carmaker has been forced to recall 2.9 million vehicle worldwide over possible cracks in the fuel emissions control unit. (bit.ly/294LtxL)

The Telegraph

New Zealand has offered its top trade negotiators to the United Kingdom, relieving the British civil service as it prepares for the strain of seeking new deals with countries across the globe. (bit.ly/296cEe2)

A buying bonanza fuelled the FTSE 100’s remarkable rebound, erasing all of its post-Brexit losses in just two days. London’s benchmark index enjoyed its best day in almost five years, soaring 219.67 points to a two-month high of 6,360.06. (bit.ly/299VpYy)

Sky News

Philip Green has demanded an apology after Frank Field, chairman of the Work and Pensions committee, leading a probe into the collapse of BHS accused Green’s Arcadia empire of “nicking money”. (bit.ly/296eVqX)

Britain’s Department for Work and Pensions will name a new chairman on Thursday as it attempts to safeguard the interests of tens of thousands of members of the BHS and British Steel retirement schemes. (bit.ly/293Dnn7)

The Independent

Two former PricewaterhouseCoopers employees, Antoine Deltour and Raphael Halet, were found guilty in Luxembourg of stealing confidential tax files that helped unleash a global scandal over generous fiscal deals for hundreds of international companies. (ind.pn/293J8Co)

The credit rating agency Moody’s has changed its outlook on 12 UK-based banks and building societies as the finance industry continues to feel the fallout of the vote to leave the European Union. (ind.pn/2925wf3)

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Until Boris Johnson’s shocking announcement moments ago that he would not run for Tory leadership or the UK premiership, the key macro event overnight was a report out of Reuters that China’s central bank is willing to let the yuan fall to 6.8 per dollar in 2016 to support the economy, which would mean the currency matching last year’s record decline of 4.5 percent.

The report promptly sent the offshore yuan tumbling, sliding much as 0.72% to 6.7021 per dollar, the lowest since January 11, however it promptly recovered losses following significant PBOC intervention in the open market.

In a longer-term context, the swoon in the CNH matched the lows from January.

As Reuters adds, the yuan was already trading at its lowest level in more than five years, so the central bank will aim to ensure a gradual decline for fear of triggering the sort of capital outflows that shook the economy earlier this year and criticism from trading partners such as the United States, said government economists and advisers involved in regular policy discussions.

A surprise devaluation of the yuan last August sent global markets into a spin on worries the world’s second-biggest economy was in worst shape than Beijing had let on, prompting massive capital outflows as investors sought safe havens overseas.

“The central bank is willing to see yuan depreciation, as long as depreciation expectations are under control,” said a government economist, who requested anonymity due to the sensitivity of the matter.”The Brexit vote was a big shock. The market volatility may last for some time.”

The yuan has dropped to the new lows following Britain’s vote to leave the European Union and so far the central bank has stood aside from intervening, suggesting it is happy with the currency’s depreciation. Other emerging market currencies have also fallen, but the yuan is the weakest major Asian currency against the dollar this year.

The yuan hovered near 6.64 per dollar on Thursday, just off the 5-1/2-year intraday lows and bringing its fall so far this year to about 2.3 percent.

Currency dealers said the strength of the dollar and the weakness in economic growth, which hit a 25-year low in 2015, justified a decline in the yuan. But investors and trading partners will be wary of any significant decline after August’s devaluation and a sharp decline in the currency over a matter of days in January that analysts said was engineered by the central bank.

In the past decade, China has also faced criticism from Western lawmakers who say it held back the appreciation of the yuan.

China’s premier, Li Keqiang, has repeatedly said China has no intention to stimulate exports via a competitive currency devaluation. The Foreign Ministry said on Wednesday the exchange rate was not the reason for unbalanced trade with the United States, which runs a goods and services trade deficit with China. However, the sources acknowledged the diplomatic risks of a steep fall in the yuan.

“The pressure from the United States could rise if China allows sharp depreciation,” said a government source.

Others are watching closely and ready to respond as the currency wars accelerate as China has the biggest global exports market share of any country since the United States in 1968, so the yuan’s exchange rate acts as a bellwether for other exporting countries and is a cause of concern for some.

“We are concerned at how quickly the yuan is falling and in turn how the won seems to be tracking its movements,” said a finance ministry official in South Korea, a major exporter that competes with China in textiles, electronics and petrochemicals among other sectors.

Japan was less concerned: a person familiar with Japan’s currency diplomacy, was less concerned, saying the yuan’s decline didn’t seem out of line considering the dollar’s strength. “I don’t think Japan has much to complain about,” this official said. Although Japan rivals China in exports including electronics and heavy machinery Tokyo is struggling with its own currency dilemma of how to contain a sharp rise in the yen following the Brexit vote last week.

* * *

No matter the overnight volatility, however, China’s yuan has already seen the biggest quarterly fall on record after hitting a six-month low. It stabilizied becasue becuse as noted above, the CNH promptly recouped losses after at least two Chinese banks sold USD/CNY after 3pm local time, according to one FX trader in the region, following the Reuters report.  The USD/CNY quickly dropped to around 6.6430 after banks’ selling having hit as high as 6.6550.

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In the latest stunning development out of UK politics, moments ago during a press conference in which Boris Johnson -the man who led the Leave campaign – was widely expected to announce he would run for UK premier and Conservative party leader, the former London mayor, who was considered a frontrunner for the post, announced he would not stand for premier or Tory leader.

“I have concluded that person cannot be me” says Boris Johnson ruling himself out of Conservative election race https://t.co/S2p4nNxJst

— BBC Politics (@BBCPolitics) June 30, 2016

During his press conference in London Johnson said that “having consulted colleagues and in view of the circumstances in Parliament I have concluded this person cannot be me.” 

More details from the FT:

In the latest stunning development out of UK politics, moments ago during a press conference in which Boris Johnson was widely expected to announce he would run for UK premier and Conservative party leader, the former London mayor, who was considered a frontrunner for the post, announced he would not stand for premier or Tory leader.

 

Theresa May, UK home secretary, also launched her Tory leadership campaign on Thursday with a promise to negotiate “the best possible terms when we leave the EU”, as bookmakers installed her as the favourite to succeed David Cameron as prime minister.

 

The infighting between leading advocates of Britain’s exit from the EU has compounded a deep sense of political instability and absence of leadership at a moment when a deeply divided country is contemplating the realities of life outside the union against a backdrop of market turmoil and economic vulnerability.

 

Mr Gove and Mr Johnson were a powerful duo at the head of the campaign to take Britain out of the EU and it had been assumed that the two would join forces at the top of a Tory government whose overriding task is to complete the UK’s divorce from the EU on the best possible terms.

 

Mr Johnson said now was a “moment for hope and ambition” in the UK, adding: “This is our chance to unite our party around those values and at the same time to unite our country and our society.”

 

“It is vital now in the Conservative party that we bring together everybody that campaigned for both the Remain and Leave sides… Having consulted colleagues, and in view of the circumstances in parliament, I have concluded that person cannot be me.”

BoJo’s exit from the race likely means that the more centrist, Home Secretary Theresa May, who currently in the poll leads, will likely be the next Tory leader.  And while May has said she would not force a second referendum, the reaction in the sterling, which has spiked on the news, may suggest that BoJo’s relent hints that UK’s fate is not dead set.

Other Tory leadership candidates include Liam Fox, former defence secretary, and Andrea Leadsom, energy minister and another leading figure from the Leave camp, as well as Stephen Crabb and Andrea Leadsom.

 

Commons leader Chris Grayling, who is backing Theresa May as Conservative leader, says the contest now features a “number of skilled, effective performers”. He says the Conservatives “are no longer Leavers, we are no longer Remainers”, instead the government will carry through the will of the British people. Mr Grayling says he is sure Boris Johnson will have a big role in the future.

Pressed on his team’s commitment to reduce immigration, Mr Grayling says: “We will be working absolutely resolutely to bring it down.” Asked if that’s to the tens of thousands promised in the Conservative election manifesto, he says: “That’s always been the will of this government.”

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Day three of the post-Brexit rally continues, and after some initial weakness due to concerns about Chinese currency devaluation, both European stock and US equity futures were trading at session highs, facilitated by yesterday’s stress test results which saw dozens of US banks unleash a tsunami of stock buyback announcement which in turn pushed S&P futures to new post-Brexit highs.

Risk assets saw a modest selloff around the European open following a Reuters report that the PBOC would let the Yuan weaken to 6.8 (down from 6.63) which would mean the currency matching last year’s record decline of 4.5 percent, policy sources said (more on that shortly). The report sent the Yuan tumbling, however,  it was promptly denied by the PBOC which alongside some intervention by the PBOC to restore the offshore yuan to pre-rumor levels, saw all the initial risk-off sentiment fizzle.

Indeed, as Bloomberg says for the 3rd consecutive day, it is all about central bank efforts to contain the fallout from the Brexit decision helped global equities recoup more than half of the $4 trillion of market value wiped out over Friday and Monday. While the FTSE 100 Index and a Bloomberg gauge of global commodities have recovered pretty much all of their losses since the vote, the rebounds have stalled as political upheaval in the U.K. following Prime Minister David Cameron’s resignation prevents the country from entering talks to determine its future relationship with the EU.

Regarding Brexit, some remain cautious: “It would be premature to suggest the recovery in risk sentiment has solid legs,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “Post-Brexit, the expectations of a lower-for-longer yield environment and the U.K. political vacuum until September are providing a sense of calm and they are providing an uplift to risk assets. So risk appetite is reappearing, but only cautiously.”

Others however, are willing to forget it ever happened, especially with central banks there to prop everything higher: “The initial shock over the U.K. voting out of the EU is easing across the world,” Mitsushige Akino, a Tokyo- based executive officer at Ichiyoshi Asset Management, said by phone. “We’ve survived the event-related risk, and investors are beginning to see that the impact on the actual economy is limited. There’s hope for policy measures globally, not just in Japan, so that’s supporting markets”

As a result, the Stoxx Europe 600 Index was higher for a third day in a rally that’s helped it recover about half of its losses since Britain’s EU referendum, while emerging-market equities and the Bloomberg Commodity Index also advanced. Yields on euro-area government bonds rose from near all-time lows. Crude oil slipped after touching $50 a barrel on Wednesday. The sterling corporate bond market reopened, with the first offerings since the U.K. voted to leave the EU.

“Now we’re in the stage where we don’t know where to go forward,” said Peter Dixon, global equities economist at Commerzbank AG in London. “We’ve walked into a huge right hook which nobody saw coming and businesses haven’t had enough time to plan for a Brexit. Now the clock starts ticking and only when companies start saying exactly what their plans are will investors be able to price Brexit properly.”

The Stoxx 600 added 0.2 percent at 11:11 a.m. in London, erasing declines of as much as 0.9 percent. The FTSE 100 advanced 0.4 percent after late Wednesday erasing its post-Brexit losses and returning to its highest level since April. It’s also the last day of trading for a second quarter that’s been complicated in the final week by Britain’s referendum. Futures on the S&P 500 were 0.4 percent higher, after U.S. equities posted their biggest two-day advance in four months.

Federal Reserve Bank of St. Louis President James Bullard is due to speak Thursday in London and may shed light on his unique flipflopping on the Fed’s rate forecast, which he now expects to not change for year. Taiwan’s central bank cut its benchmark rate at a monetary policy review, while Mexico’s is seen raising borrowing costs, according to a Bloomberg survey. Data on initial jobless claims and the Chicago Purchasing Manager Index are scheduled for release Thursday.

Market Wrap

• S&P 500 futures up 0.4% to 2072
• Stoxx 600 up 0.3% to 327
• FTSE 100 up 0.4% to 6385
• DAX up 0.2% to 9634
• German 10Yr yield up 3bps to -0.1%
• Italian 10Yr yield up 3bps to 1.4%
• Spanish 10Yr yield up 2bps to 1.28%
• S&P GSCI Index down 0.4% to 379
• MSCI Asia Pacific up 0.8% to 129
• Nikkei 225 up less than 0.1% to 15576
• Hang Seng up 1.8% to 20794
• Shanghai Composite down less than 0.1% to 2930
• S&P/ASX 200 up 1.8% to 5233
• US 10-yr yield up 1bp to 1.53%
• Dollar Index down 0.11% to 95.66
• WTI Crude futures down 1% to $49.40
• Brent Futures down 0.9% to $50.13
• Gold spot down less than 0.1% to $1,319
• Silver spot up 0.5% to $18.39

Top Global News

• Airport Attack Hits Turkey Tourism Industry When It’s Down: attack on city airport leaves 41 dead, 13 said to be foreign
• Carney Strikes Preemptively With BOE Crisis Communication Blitz: BOE governor to make televised address in London on Thursday
• Soros Says Brexit Has ‘Unleashed’ a Financial-Markets Crisis: George Soros speaks in European Parliament
• Candidates Prep Pitches to Succeed Cameron as U.K. Leader: U.K. Home Secretary Theresa May and former Mayor of London Boris Johnson will make their pitches Thursday to succeed David Cameron as Conservative Party leader
• Gove Joins U.K. Tory Race Saying Johnson Unfit to Be Premier: number of candidates now at least five
• U.K.’s Fox Says No Snap Election If He’s Chosen as Tory Leader: Liam Fox speaks on BBC TV
• Hollande Endorses Clinton Saying Trump Would Hurt EU-U.S. Ties: speaks in interview with Les Echos newspaper
• Trump Campaign Broke Law by Soliciting Foreign Donations, Groups Allege: presumptive Republican presidential nominee reportedly sent a fundraising e- mail to foreign government officials
• Italy to Boost Bank Rescue Fund Atlante by EU4b-EU5b: Repubblica: newspaper cites unidentified people familiar
• Deutsche Bank May Be Top Contributor to Systemic Risk, IMF Says
• BMW Is Said to Team Up With Intel, Mobileye on Self-Driving Cars: senior executives from each company will hold an event on Friday to discuss the driverless-vehicle initiative

Looking at regional markets, Asia stocks traded higher as the post-referendum rebound remained intact and also followed Wall St.’s firm lead where S&P 500 posted its largest 2-day gain in 4-months. Nikkei 225 (+0.1%) is positive although off best levels as a contraction in Industrial Production figures capped gains. The ASX 200 (+1.7%) was lifted amid strength in energy names after WTI rallied above the USD 49/bbl level on a DoE drawdown. Elsewhere, Chinese markets are mixed with the Shanghai Comp (-0.1%) the laggard amid weakness in Telecoms, while the Hang Seng (+1.8%) outperformed ahead of tomorrow’s market holiday. The MSCI Asia Pacific Index climbed 0.8 percent as benchmark stock indexes advanced across most of the region. Gauges in Australia, Hong Kong and Singapore all rallied more than 1 percent. Singapore Exchange Ltd. gained as much as 4 percent after UBS AG raised its stance on the stock to neutral. AU Optronics Corp. climbed more than 6 percent in Taipei, buoyed by an upgrade in Credit Suisse Group AG’s recommendation on the stock. Finally, 10yr JGBs were flat with a lack of demand seen amid the heightened risk-appetite in Asia, while the latest securities transaction figures showed foreign investors rapidly increasing their selling of Japanese bonds in the prior week.

Top Asian News

• Japan’s Industrial Production Drops Much More Than Forecast: Manufacturers left with more stock as shipments also decline
• SoftBank Said to Face U.S. Inquiry Over Alleged Arora Conflicts: U.S. SEC is checking complaints
• Singapore’s UOB Halts London Property Loans After Brexit Vote: DBS, OCBC continue to offer loans, though urge caution
• Hutchison, VimpelCom Said to Plan Italy Disposals to Sway EU: Cos. hoping to win speedy approval for Italian mobile JV
• Headwinds Loom for Hong Kong Land Amid Rising Supply, Few Takers: Land premiums expected to fall faster than housing prices
• Bank of Korea Has Rate ‘Adjustment’ Room, Board Member Says: Hahm says still too early for S. Korea to discuss adopting QE

In Europe, a choppy session has been seen in Europe as equities were initially pressured at the open after source reports stated that the PBoC are willing to let the CNY depreciate to 6.80/USD in 2016. This had been seen by some as contradictory to the recent rhetoric from the central bank, whereby they have suggested they would keep the CNY stable. However, equities went on to recover, with the upside attributed to month-end rebalancing with Goldman Sachs highlighting that equities are likely to be supported. As such, credit markets have been pressured with Bunds hovering around 166.50 albeit off their worst levels of the day, while the German yield curve have also seen some notable bear steepening.

Top European News

• Hutchison, VimpelCom Said to Plan Italy Disposals to Sway EU: cites two people familiar with the EU probe
• AB InBev-SAB Deal Gets Conditional Clearance in South Africa: approval moves $104b deal a step closer to completion
• Hungary’s Richter Buys Swiss Biotech Co. Finox for CHF190m: comments in statement
• Costain Says On Course for FY Result In Line With Expectations: co. says 1H trading has been strong
• UBS’s Murphy and Naylor Leave as Orcel Overhauls Senior Team: Hanning also departs; co-heads take control of divisions

In FX, the offshore yuan touched its lowest level since January after Reuters reported that China’s central bank is prepared to allow the exchange rate to weaken to 6.8 per dollar in 2016 to support the economy. It fell as much as 0.7 percent to 6.7021 immediately after the report, before paring declines to 0.1 percent. The Reuters report cited unidentified government economists and advisers involved in regular policy discussions.

In commodities, crude oil fell 0.8 percent to $49.49 a barrel in New York, after jumping by almost 8 percent over the last two sessions as data showed U.S. stockpiles are declining. Goldman Sachs Group Inc. said the price may slip below its $50 forecast in the second half of 2016 because of a cease-fire between militants and the government in OPEC member Nigeria.  Gold fell 0.2 percent, trimming its post-Brexit surge to 4.8 percent.  Corn in Chicago rose 1.1 percent before the U.S. Department of Agriculture updates its quarterly reserve estimates on Thursday. U.S. corn inventories as of June 1 probably rose to a 28-year high for the date, while soybean stockpiles jumped 33 percent to the most for the second quarter since 2007, according to analysts surveyed by Bloomberg. Wheat supplies probably advanced 31 percent to the highest since 1988 for the date.

Looking at today’s calendar, the highlight looks to be at 4pm BST when Bank of England Governor Carney is due to speak in London to members of the press and finance industry. In terms of data there’s actually a fair bit to get through, especially this morning in Europe. Kicking things off will be Germany where the May retail sales figures will be released. Following that we’ll get the June CPI report in France before we’re back to Germany with this month’s unemployment rate release. The final revision to Q1 GDP in the UK gets released a short time after that (no change to +0.4% qoq expected) before we then get the June CPI estimate for the Euro area (0.0% yoy expected). Over in the US this afternoon we’ll get the latest initial jobless claims print along with the Chicago PMI for June. It’s worth keeping an eye on the latter with tomorrow being the release of the manufacturing ISM.

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Bulletin Headline Summary from RanSquawk and Bloomberg

• Source reports suggesting the PBOC are willing to let the CNY fall to 6.80/USD in 2016 dictate play early European trade, seeing downside in commodity linked currencies and equities
• Elsewhere, equities recovered by mid-morning, with the move attributed to month end rebalancing as we reach the last day of the month and H1
• Highlights today include Canadian GDP, US Weekly Jobless Claims and comments from Fed’s Bullard

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US Event Calendar

• 8:30am: Initial jobless claims, June 25, est. 267k (prior 259k); Continuing claims, June 18, est. 2.151m (prior 2.142m)
• 9:45am: Chicago purchasing manager, June, est. 51.0 (prior 49.3)
• 9:45am: Bloomberg consumer comfort, June 26 (prior 44.2)
• 11:00am: BOE Governor Carney gives a speech in London
• 3:15pm: Fed’s Bullard speaks in London

DB’s Jim Reid Concludes the overnight wrap

The risk asset recovery has been impressive with the FTSE 100 last night (+3.58%) closing above its pre ballot box closing levels and +9.87% higher than its lows early Friday morning. To be fair this index has seen dollar earners spike notably higher since the vote more than offsetting the collapse in bank shares. The domestic orientated FTSE 250 is still -7.68% lower since the results but this index was -13.74% at its intraday lows on Monday. The rebound for the Pound continued yesterday as Sterling closed up +0.64% versus the Dollar at 1.3429 although did actually trade above 1.350 for a brief moment during the afternoon. Sterling is now +2.35% higher than it its intraday Monday lows. Meanwhile there were similarly impressive gains across the rest of Europe. The Stoxx 600 closed up +3.09% and so trimmed its post-Brexit loss to -5.73%. It had been as much as -11.12% intraday on Monday. Peripherals also had a good session with the IBEX and FTSE MIB closing +3.45% and +2.21% respectively. The post-Brexit losses for those markets now are -8.78% and -11.24% although that compares to being down as much as -14.69% and -16.41% at the Monday lows. It’s worth noting that a possible bank bailout in Italy came under scrutiny by German Chancellor Merkel yesterday who insisted that Italy needs to stick to the rulebook that was put in place to prevent taxpayer bailouts.

While we’re on banks, after initially being at the forefront of the selloff (the Euro Stoxx Banks index dropped -18.02% on Friday and -6.23% on Monday), the recovery in the last two days – while being positive – has been relatively small by comparison (+2.88% on Tuesday and +2.05% on Wednesday) and so leaving the index a little more than -19% down from its Thursday closing level. With no immediate liquidity or credit events in the sector, this is probably more of a reflection of the move lower in bond yields (to more negative in some cases) which adds to concerns about long-term profit deterioration for the sector.

Elsewhere Wall Street carried on the positive risk tone into the evening with the S&P 500 finishing up +1.70% and so moving back into positive territory YTD. EM currencies were the big winners in the FX space with +2% rallies for currencies in South Africa, Brazil and Colombia. A big rally for Oil (WTI +4.24%) and the wider commodity complex (Gold included) helped, while credit markets were also materially tighter. Indeed the iTraxx Main and Crossover indices were 8bps and 19bps tighter respectively (Main is now just c.10bps wider than pre-Brexit) while in the US CDX IG was 3bps tighter. Look no further than the primary markets in credit for the change in sentiment. Over $20bn of deals priced in the US IG market yesterday which was said to be the biggest volume day since May 17th so it looks like corporates have been given the green light again. The primary market in Euros has been a little more hesitant although Molson Coors did break the Brexit ice with an €800m tranche as part of their wider bumper deal yesterday.

In terms of the actual newsflow yesterday it was unsurprisingly centred on the various snippets coming out of the EU Leaders summit again. The final statement to emerge from the leaders revealed that ‘there is a need to organize the withdrawal of the UK from the EU in an orderly fashion’ and that ‘this should be done as quickly as possible’. So nothing that was particularly new. France President Hollande warned that should the UK want to access the single market then it ‘would have to accept all the rules and all the obligations, especially one which is to financially contribute to the functioning of the single market’. EU Council President Tusk added that ‘there will be no single market a la carte’ while the generally adamant mood was shared by various other European leaders.

The prospect of Scotland potentially staying in the EU appears to be more dividing however. EC President Juncker said that Scotland has ‘won the right to be heard’. However Spanish PM Rajoy said ‘I am radically against it, the treaties are radically against, and I think everyone else is radically against’. Clearly with the situation in Catalonia it’s unsurprising to see Rajoy adopt a fairly hard stance on the matter.
Refreshing our screens this morning the positive tone has continued into Asia again where it looks like most major bourses are going to close the quarter on a positive note. Indeed the Hang Seng (+1.83%) and ASX (+1.81%) are leading the way, with the Nikkei (+0.82%) and Kospi (+0.50%) also up. Markets in China are flat to modestly higher while credit markets are a few basis points tighter. Sterling has weakened a relatively modest -0.17%. There was also a bit of data out of Japan this morning where industrial production declined sharply in May and alot more than expected (-2.3% mom vs. -0.2% expected).
Meanwhile US equity futures are up slightly this morning. In the wake of the Fed’s stress tests yesterday (of which 31 out of 33 banks passed) Morgan Stanley, Citi, JP Morgan, Goldman Sachs and Bank of America all announced that they were to undertake stock buybacks which sent their respective share prices up in extended trading.

Away from that it was actually a relatively busy day for data yesterday. Across the pond personal income rose +0.2% mom in May which was a little less than the +0.3% expected. Personal spending rose +0.4% mom as expected while both readings also received a marginal upward revision to the April numbers. In terms of the inflation data, both the PCE deflator and core readings came in at +0.2% mom as expected for May. That saw the YoY rate for the former dip two-tenths to +0.9%, while the YoY rate for the core has held steady at +1.6%. Elsewhere, pending home sales in May were down a sharp -3.7% mom (vs. -1.1% expected). On the back of yesterday’s data the Atlanta Fed nudged up their Q2 GDPNow forecast to 2.7% (an increase of one-tenth).

Prior to this in Europe the European Commission had released its latest sentiment surveys. The headline economic confidence indicator held in relatively well at 104.4 for June (vs. 104.7 expected) which is down from 104.6 in May. Again however like the US data from Tuesday the survey period was done prior to the Brexit outcome so next month’s reading is the key one. Elsewhere, German CPI for June rose a little less than expected (+0.1% mom vs. +0.2% expected) although that has lifted the YoY rate by two-tenths to +0.3%. In the UK mortgage approvals rose 67.0k in May (vs. 65.3k expected)

Looking at the day ahead, the highlight looks to be at 4pm BST when Bank of England Governor Carney is due to speak in London to members of the press and finance industry. In terms of data there’s actually a fair bit to get through, especially this morning in Europe. Kicking things off will be Germany where the May retail sales figures will be released. Following that we’ll get the June CPI report in France before we’re back to Germany with this month’s unemployment rate release. The final revision to Q1 GDP in the UK gets released a short time after that (no change to +0.4% qoq expected) before we then get the June CPI estimate for the Euro area (0.0% yoy expected). Over in the US this afternoon we’ll get the latest initial jobless claims print along with the Chicago PMI for June. It’s worth keeping an eye on the latter with tomorrow being the release of the manufacturing ISM.

via http://ift.tt/29swqxy Tyler Durden