Futures A Sea Of Green As Dollar Bloodbath Accelerates

In what has been a relatively quiet overnight session, equity futures are once again a sea of green, as the stock market meltup continues.

MSCI’s world equity index hit new highs in a continuation of a long running theme but on Wednesday it was a bit more of a mixed picture.

The biggest news, as noted earlier, is that the dollar losing streak entered its third days and the sell-off accelerated to fresh three year lows, after Steven Mnuchin welcomed its recent weakness amid concerns over an increase in U.S. protectionism, saying its decline provides a boost to the American economy through trade.

“It looks as if U.S. politics are indeed affecting the currency market, especially as they start to affect trade policy,” said Marshall Gittler, chief strategist at ACLS Global, pointing to recently-introduced import tariffs as an example. Trump slapped steep tariffs on imported washing machines and solar panels on Monday, giving a boost to Whirlpool Corp and dealing a setback to the renewable energy industry in the first of several potential trade restrictions.

The dollar weakness also meant the DXY index sank below 90, with the euro and the pound hitting fresh cycle highs. The yen took out resistance at 110 per dollar on momentum selling dropping as low as 109.40, the lowest since September, even as the yield on the 10Y Treasury picked up, rising to a session high of 2.6373% from 2.16131% the day before.

“We’re looking for the dollar to continue to depreciate against most currencies,” Daniel Morris, an FX strategist with BNP Paribas, said in an interview with Bloomberg Television. “The U.S. economy has a current-account deficit and it needs to close that — one way to do that is for the dollar to depreciate.”

While the dollar fell As the euro gained the Stoxx Europe 600 Index initially fell before reversing, while emerging-market equities were little changed after eight days climbing.  The FSTE 100 (-0.5%) lags its peers amid a firmer GBP and softness in Sage shares (-5.5%) after a disappointing earnings update. Looking at the sectors, health care names outperform their peers following the latest earnings update from Novartis (+2.4%), to the downside, utility names lag after Suez Environment (-17%) issued a profit warning, IT names are also seen lower with Infineon and STMicroelectronics near the foot of the DAX and CAC respectively.

Meanwhile, the yen pushed past 110 per dollar for the first time since September due to the weak dollar, and South Africa’s rand traded below 12 per dollar for the first time since May 2015. The greenback’s slide also fed into commodities, with oil in New York holding its ground even amid signs of a possible gain in U.S. crude stockpiles. Bitcoin was trading at around $11,000.

However, it was China were records continued to be broken. The Shanghai Composite rose 0.37% to 3359, a new 2 year high.

The SSE 50 index tracking 50 biggest stocks in Shanghai closed higher for the 19th consecutive day;
The Chinext index tracking mid- and small-caps surged near 2.6% to recover 1800 mark.

Meanwhile, the record streak for Chinese stocks in Hong Kong continued. The Hang Seng Index gained 0.08% to 32958, closing at a new record high for the 7th day in a row. The index broke through 33,000 mark at one point, which was the the first time ever. Meanwhile, Hang Seng’s China Enterprises index climbed near 1%, higher for the 19th consecutive day.

Also in Asia, Australia’s ASX 200 (+0.3%) and Nikkei 225 (-0.8%) were varied with Japanese exporter sentiment weighed by a firmer currency and following a miss on trade data. Japan’s exports to China and Asia hit record levels as shipments rose for a 13th straight month in December and manufacturing growth hit a four-year high in January, pointing to an economy that powered through the fourth quarter and into 2018.

• Japanese Trade Balance Total Yen (Dec) 359.0B vs. Exp. 535.0B (Prev. 112.2B).
• Japanese Exports YY (Dec) 9.30% vs. Exp. 10.00% (Prev. 16.20%)
• Japanese Imports YY (Dec) 14.90% vs. Exp. 12.40% (Prev. 17.20%)

10yr JGBs were range-bound as initial support from a risk averse tone was later pared, while the BoJ were also in the JGB market for between 1yr-10yr maturities with all the amounts of its Rinban operation kept unchanged. PBoC injected CNY 110bln via 7-day, CNY 100bln via 14-day and CNY 10bln via 63-day reverse repos. PBoC set CNY mid-point at 6.3916

Over in Europe, French, German composite PMIs beat estimates supported by stronger-than forecast readings for the services sector while manufacturing missed; euro-zone composite PMI jumps to 58.6 from 58.1, exceeding the estimate of 57.9. This is Goldman’s take on the latest strong set of European PMIs:

Today’s 0.5pt rise in the flash composite manufacturing PMI reflects a shift in momentum from manufacturing to services. The manufacturing PMI fell 1.0pt to 59.6, but remains in highly expansionary territory. Within the sub-components, manufacturing output fell 0.9pt, new orders fell 2pt and employment fell 0.7pt. The services PMI accelerated, rising 1.0pt to 57.6, its highest level since 2007.

In France and Germany, the composite PMIs were roughly level, indicating that new momentum in the Euro area PMI lies outside its two largest economies. In Germany, a 1.2pt rise in the services PMI was offset by a 2.1pt decline in the manufacturing PMI (which nonetheless remains above 60.0pt). In France, a more modest decline in the manufacturing PMI (-0.7pt to 58.1) was offset by a small rise in services.

Investors will now shift attention to Thursday’s ECB meeting. The euro surged to a fresh three-year high of $1.2345 ahead of Thursday’s European Central Bank meeting, which is in focus following recent commentary that the central bank could change its policy guidance early this year.

This after the euro zone’s economy outpaced that of the U.S. in 2017 and shows further signs of strength in the New Year. In a strong sign of the positive sentiment towards the region, Spain generated over 40 billion euros of demand in a sale of 10-year government bonds in what is likely one of the largest order books in Europe ever.  Indeed, most low-rated “peripheral” euro zone government bond yields are now trading at their lowest level against benchmark German peers in years; another sign of confidence in the region.

Elsewhere, the British pound powered above $1.41, its highest since the Brexit in June 2016, aided by the weak dollar and optimism around Britain’s chances of securing a favorable Brexit deal.

The dollar’s decline has been a boon to commodities priced in the currency, with gold edging up to $1,341.81 an ounce.  Oil prices were consolidating after jumping more than 1 percent on Tuesday when Brent crude hitting $70 a barrel for the first time in a week. Brent futures was off 22 cents at $69.75, still not far off the three-year high of $70.37 reached on Jan. 15, while U.S. crude CLc1 was marginally higher 4 cents to $64.52 a barrel.

Market Snapshot

• S&P 500 futures up 0.2% to 2,843.75
• STOXX Europe 600 down 0.2% to 402.21
• MSCI Asia Pacific up 0.1% to 186.55
• MSCI Asia Pacific ex Japan up 0.1% to 608.68
• Nikkei down 0.8% to 23,940.78
• Topix down 0.5% to 1,901.23
• Hang Seng Index up 0.08% to 32,958.69
• Shanghai Composite up 0.4% to 3,559.47
• Sensex up 0.05% to 36,156.63
• Australia S&P/ASX 200 up 0.3% to 6,054.66
• Kospi up 0.06% to 2,538.00
• Brent futures down 0.3% to $69.78/bbl
• Gold spot up 0.6% to $1,348.56
• U.S. Dollar Index down 0.6% to 89.62
• German 10Y yield rose 1.9 bps to 0.58%
• Euro up 0.4% to $1.2351
• Italian 10Y yield fell 3.3 bps to 1.622%
• Spanish 10Y yield rose 0.3 bps to 1.361%

Top Overnight News from Bloomberg

• The Bloomberg Dollar Spot Index extended its slide to make a fresh three-year low in early London session after U.S. Treasury Secretary Mnuchin said a weaker dollar is good for trade; Mnuchin also said he is not “particularly concerned” about the U.S. Treasury market
• There will be more measures to come, U.S. Commerce Secretary Wilbur Ross tells reporters in Davos, Switzerland, when asked about Donald Trump’s decision to impose tariffs on solar panels and washing machines
• China has a long history of tit-for-tat retaliation when it comes to trade disputes and may well dust off the same policy playbook in the wake of the Trump administration’s decision to slap tariffs on solar panels and washing machines
• The Nikkei Japan PMI for manufacturers showed a preliminary reading of 54.4 for January, rising to the highest level since February 2014. New orders were at 56.0, while stocks of finished goods shrank, suggesting demand will continue to be strong in the near term
• French, German composite PMIs beat estimates supported by stronger-than forecast readings for the services sector while manufacturing missed; euro-zone composite PMI jumps to 58.6 from 58.1, exceeding the estimate of 57.9
• China President Economic Adviser: China to cut vehicle import tariffs; measures to open up the economy may exceed expectations
• U.K. Nov. Average Weekly Earnings: 2.5% vs 2.5% est; Earnings Ex-bonus 2.4% vs 2.3% est.
• European Jan P Composite PMIs: France 59.7 vs 59.2 est; Germany 58.8 vs 58.5 est; Eurozone 58.6 vs 57.9 est; Manufacturing below consensus for all three readings, partly reflected weaker growth of new export orders
• Japan Jan P Manufacturing PMI 54.4 vs 54.0 prev; highest in four years
• API inventories according to people familiar w/data: Crude +4.8m; Cushing -3.6m; Gasoline +4.1m; Distillates -1.3m

Asian equity markets traded mixed following an unconvincing close on Wall Street where all majors posted fresh record highs and the Nasdaq 100 outperformed as Netflix led post-earnings, although DJIA failed to hold onto gains and finished flat. ASX 200 (+0.3%) and Nikkei 225 (-0.8%) were varied with Japanese exporter sentiment weighed by a firmer currency and following a miss on trade data. Elsewhere, a cautious tone was seen in Chinese markets with the Hang Seng (-0.1%) and the Shanghai Comp. (+0.3%) choppy alongside early weakness in Shenzhen, as ChiNext heavyweight Leshi Internet & Tech Co. returned from a 9- month trading halt to hit limit down with losses of 10% at the open. Finally, 10yr JGBs were range-bound as initial support from a risk averse tone was later pared, while the BoJ were also in the JGB market for between 1yr-10yr maturities with all the amounts of its Rinban operation kept unchanged. PBoC injected CNY 110bln via 7-day, CNY 100bln via 14-day and CNY 10bln via 63-day reverse repos. PBoC set CNY mid-point at 6.3916

Top Asia News

• Vietnam’s Biggest Stock Bourse Sees Halt Move to Second Day
• China Pharma Tycoon Said to Mull $500 Million IPO of Clinic Arm
• Former Chinese Web Star Plunges as Analyst Tips More Declines
• Top Indian Steelmaker Seeks to Buy Bhushan, Monnet Assets
• India Ending Curbs Will Allow 10 Foreign Retailers to Set Shop

European equities (Eurostoxx 50 +3.00 to 3662) trade with little in the way of firm direction in the wake of what was a relatively mixed session during Asia-Pac trade. In terms of outliers from an index perspective, the FSTE 100 (-0.5%) lags its peers amid a firmer GBP and softness in Sage shares (-5.5%) after a disappointing earnings update. Looking at the sectors, health care names outperform their peers following the latest earnings update from Novartis (+2.4%), to the downside, utility names lag after Suez Environment (-17%) issued a profit warning, IT names are also seen lower with Infineon and STMicroelectronics near the foot of the DAX and CAC respectively.

Top European News

• Euro-Area Economy Opens 2018 With Best Growth in Almost 12 Years
• U.K. Labor Market Shows Surprise Strength as Employment Rises
• Spain Is Said to Pressure Abertis Investor to Accept ACS Bid
• Glapinski: Polish Rates May Increase in 2019 on Wage Pressure

 

In FX, the USD has succumbed to yet more selling pressure, and right across the board as the Greenback’s losses stack up against G10 peers, EM currencies and commodities. The USD was dealt a further blow during European trade after US Treasury Secretary Mnuchin stated that the weaker USD is good for trade. The Index is below layered chart ‘supports’ under 90.000 and now looking at 89.370 to potentially arrest the slide before the next round number. In terms of USD pairings, the 110.00 handle vs JPY has given way and 109.56 ahead of 109.07 are now within sight, while Cable has extended post-Brexit vote highs above the 1.4000 level to around 1.4075 and briefly broke above 1.4100 following the latest jobs report with UK employment at a record high. EUR/USD has probed a bit further beyond 1.2300 to 1.2345, but displaying some caution ahead of tomorrow’s ECB meet and a Fib level at 1.2377. USD/CAD has dipped below 1.2400 amidst some constructive NAFTA noises after the 1st day of the latest round of talks and 1.2355 is the nearest support/recent low. USD/CHF has also breached its previous January base and 0.9500 is within sight, while AUD/USD and NZD/USD are both on track to post fresh year-to-date peaks.

In commodities, WTI crude futures trade in close proximity to the lows seen yesterday in the wake of the latest API inventory report which showed an unexpected build in headline crude stockpiles. Elsewhere in energy newsflow, source reports suggest that Saudi Arabia intend on keeping their Q1 crude oil production at 9.8mln bpd and exports at around 7mln bpd, despite planned domestic refinery maintenance. In metals markets, despite being relatively rangebound overnight, gold has benefitted during European trade from the broad softness in the USD. Elsewhere copper nursed some of its recent losses during Asia-Pac trade amid touted shortcovering. US API weekly crude stocks (19 Jan, w/e) +4.755M vs. Exp. -1.600M (Prev. -5.120M). Saudi Arabia intend on keeping their Q1 crude oil productions 9.8mln bpd, and exports around 7mln bpd, despite planned domestic refinery maintenance

Looking at the day ahead, the latest monthly PMIs with flash January manufacturing, services and composite prints are due for the Euro area, Germany, France and the US. In the UK, the November and December employment stats are due. Also due in the US are December existing home sales and the November FHFA house price index. General Electric and Ford Motor are due to report.

US Event Calendar

• 7am: MBA Mortgage Applications, prior 4.1%
• 9am: FHFA House Price Index MoM, est. 0.5%, prior 0.5%
• 9:45am: Markit US Manufacturing PMI, est. 55, prior 55.1; US Services PMI, est. 54.3, prior 53.7; US Composite PMI, prior 54.1
• 10am: Existing Home Sales, est. 5.7m, prior 5.81m; MoM, est. -1.89%, prior 5.6%

DB’s Jim Reid concludes the overnight wrap

It seems it would take more than a glass of water to halt the melt up in equities at the moment although yesterday was a day of differentiation as earnings saw winners and losers. The Stoxx 600 (+0.17%) rose for the 11th out of 16 days in 2018 with the DAX (+0.71%) beating the CAC (-0.12%) on decent earnings and a strong ZEW survey (see below). Although the broad US equity indices were flat to slightly higher (S&P +0.22%, Dow -0.01%), the NASDAQ climbed +0.71% as Netflix soared +9.98% after the previous night’s subscriber numbers impressed. On the other side, the DOW was held back by P&G (-3.09%) and Johnson and Johnson (-4.26%) despite headline beats to earnings, in part as some investors were hoping for a faster turnaround at P&G and the US appeals court ruled J&J’s Remicade patent was invalid. As an aside Netflix market cap is now above $100bn after nearly doubling over the last 12 months. Talking of big round numbers, Microsoft climbed above $700bn market cap this week and Apple is also above $900bn. Could the latter soon be the first trillion dollar company since PetroChina hit that mark for one day back in the heady days of 2007?

Staying with records, the MSCI emerging markets index rose for the 8th consecutive day (+1.12%). The last time this occurred was in July 17 and the recent record to beat was back in March 15 when the index rose for 11 straight days. Similarly the HK H-shares index was up for the 18th consecutive day with a cumulative gain of 16.1% (vs. Hang Seng at 11.3%), partly aided by inflows from mainland China. This morning it is up +0.16% as we type, clinging on to  a 19th day of gains, comfortably a record run.

Elsewhere in Asia, markets are taking a breather and are modestly lower. The Kospi is broadly flat (-0.06%), while the Nikkei (-0.67%) and Hang Seng (-0.03%) are all down as we type. The January Nikkei manufacturing PMI was 54.4 (vs. 54 previous). After the bell last night, the world’s largest maker of analog chips Texas instrument fell c7% after its 1Q profit missed market expectations. This morning the main event are the European flash PMIs with the recent strength in this data setting the tone for the global equity rally over the last 18 months so always an important release.

Looking back to yesterday now, in the US, the Fed nominee Marvin Goodfriend received a bit of grilling at the Senate Panel although it is unlikely to jeopardise his confirmation prospects. Elsewhere the US Senate has voted 84-13 to confirm Jerome Powell as the Fed chair.

Now recapping other markets performance from yesterday. Government bonds were firmer with UST 10y yields down the most in c1 month (-3.7bp), partly aided by the dovish BOJ speak earlier while Bunds and Gilts also fell 0.6bp. Peripheral 10y bond yields also declined c3bp, in part as Spain’s biggest syndicated debt offering since 2014 was well received with bids c4.5x higher than the amount offered (€10bn 10-yr notes).

Turning to currencies, the US dollar index extended on its 3 year low (-0.31%), while the Euro and Sterling gained 0.30% and 0.09% respectively. In commodities, WTI oil was up 1.42% ahead of data on US crude stockpiles and Brent was back near $70/bbl again. Elsewhere, precious metals strengthened (Gold +0.55%; Silver +0.20%) but  copper fell 2.01% to a five week low due to concerns of rising inventories while other base metals were little changed (Zinc +0.02%; Aluminium -0.17%).

Away from the markets and onto US trade. China’s Ministry of Commerce noted China is “strongly” dissatisfied with the US tariffs hikes on imported solar panels and washing machines yesterday, calling them a misuse of trade measures. Back home, Senator Pat Roberts noted the President has had a “more populist view” on trade and “I do not know of a Senator in the Republican conference who has not voiced concern about our trade policy”, in part as goods assembled in the US with imported parts can create jobs in both countries too. In markets generally yesterday there was chatter as to whether this marked another small step towards a more protectionist world. Elsewhere, Mexico’s Economy Minister Guajardo said “Mexico is ready to work constructively towards getting” a good agreement on NAFTA and it could happen anywhere from March and even July when the national elections will be on.

Over in Germany, the latest Forsa poll suggests the majority of Germans (59%) support the coalition talks between the SPD and Ms Merkel’s bloc. Notably, 65% of SPD voters welcome the negotiations for a “grand coalition” and support is much higher among CDU and CSU voters (c87%).

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the January Richmond Fed manufacturing index was below market at 14 (vs. 19). In Europe, both the Eurozone’s January ZEW survey on expectations (31.8 vs. 29 previous) and consumer confidence (1.3 vs. 0.6 expected) readings beat expectations, with the latter marking a fresh high since August 2000. In Germany, the January ZEW survey on current situations (95.2 vs. 89.6) rose to a fresh 27 year record high and the expectations index (20.4 vs. 17.7) also beat. In the UK, the public sector net borrowing was lower than expected at £2.6bln (vs. £5bln) as Britain benefited from a strong rise in value-added tax receipts and a £1.2bln credit from the EU due to 2017 budget amendments. Elsewhere, the January CBI trend total orders index was also above at 14 (vs. 12 expected) with trends selling prices higher than last month’s reading (40 vs. 23).

Looking at the day ahead, the latest monthly PMIs with flash January manufacturing, services and composite prints are due for the Euro area, Germany, France and the US. In the UK, the November and December employment stats are due. Also due in the US are December existing home sales and the November FHFA house price index. General Electric and Ford Motor are due to report.

via RSS http://ift.tt/2rEmE8q Tyler Durden