With a “blockbuster” GDP print on deck in under 2 hours, one which may even have a 5-handle in front prompting president Trump to predict in a Thursday speech that the economy is in terrific shape, and Amazon shares jumping over 4% this morning as the market shifts its attention from the Amazon “growth” story and start focusing on “margins”, the mood has been decidedly relaxed, with stocks in Europe rising broadly following a strong session in Asia, however offset by another red close in China.
Europe’s Stoxx 600 Index was headed for its best week in two months as banks and telecommunications firms gained, with BT Group and BBVA reporting earnings that exceeded analysts’ estimates. France’s CAC 40 underperformed on the back of Kering and L’Oreal (3rd and 4th largest index constituent, currently -7.2% and -3.6% respectively) weighing on the index post-earnings.
Earlier, Asia gave a more mixed picture, with the ASX 200 (+0.9%) and Nikkei 225 (+0.6%) both higher with the Australian benchmark the outperformer as it attempted to reclaim the 6300 level and approached to within a whisker of its highest in over a decade. Japanese stocks gained and were driven by earnings although a firmer JPY capped upside.
In a nail-biter of a BOJ intervention, 10Y JGB yields spiked to the highest in over a year, before the central bank launched its latest fixed-rate “unlimited bond buying” operation, in which it purchased 94BN yen worth of bonds at a rate of 0.10%.
Meanwhile, China again lagged its regional peers with both Hang Seng (+0.1%) and Shanghai Comp. (- 0.3%) were subdued after the PBoC skipped open market operations all week which resulted to a net weekly drain of CNY 370bln, while China also signalled defiance on trade and were said to plan retaliating regardless of the amount of US tariffs.
More concerning is the sharp drop in the Yuan, which tumbled China’s yuan headed for a seventh weekly drop, the longest slide since after a shock devaluation in 2015…
… and send the offshore Yuan as low as 6.8562…
… stoking bets the authorities will tolerate even more weakness and continue devaluing its currency, which in turn will further anger Trump prompting even harsher trade war retaliation.
However, not even the ongoing Chinese (or Japanese) drama was enough to dent sentiment, as all eyes were on Amazon earnings as Amazon’s strong results Thursday countered Facebook Inc.’s disappointing quarter, which led to a historic plunge for the social media goliath.
Traders are cheering the apparent cease-fire over tariffs between Europe and the U.S., while central banks also moved back into the spotlight.
As a result, S&P futures edged higher as investors looked ahead to Twitter Inc. results and the second-quarter GDP report, which may show that the U.S. economy expanded at its fastest quarterly pace since 2014.
Speaking at a steel mill in Granite City, Illinois, on Thursday, Trump doubted the expansion would reach the 5.3 percent some economists have penciled in, but said that “if it has a four in front of it, we’re happy.” He called recent economic figures “unthinkable.” The problem is that while Q2 GDP will indeed be a blockbuster, nearly half of that will be due to “one-time” trade war related events such as inventory stockpiling and a surge in exports. Which means that when Q3 GDP is reported, just days before the midterms, it is likely to be a major disappointment, something which we doubt the Trump admin has thought through. In any case, today’s 4%+ GDP will provide support for the Fed’s ongoing rate hikes, providing some more tailwinds for the US dollar.
And speaking for the greenback, the Bloomberg’s Dollar Spot Index was little changed at 1,177.45 after climbing 0.5% Thursday. The pound slipped against the dollar, heading for a third straight weekly drop, as Brexit uncertainty continued to weigh after the European Union rejected a plan that U.K. PM Theresa May’s team saw as the best chance of a compromise on customs.
The yen edged marginally higher, paring gains after the central bank offered to buy an unlimited quantity of 10-year bonds at a lower yield than its previous operations. The Turkish lira pared some the losses it suffered on Thursday after President Trump threatened sanctions if the nation doesn’t release an American pastor.
In rates, treasuries edged higher before the release of GDP data, which Trump predicted will show the U.S. economy is in “terrific” shape. European bonds were little changed amid limited impetus from offer announcement in France, with next week’s supply offset by large repayments from Spain and Italy
On today’s busy calendar we have GDP data for the second quarter, along with the University of Michigan consumer sentiment survey. Scheduled earnings include Exxon Mobil, Chevron, Merck & Co., AbbVie.
In energy, crude oil erased a gain as an unexpected halt in Saudi shipments via a Red Sea waterway was seen as short-lived. Emerging-market stocks gained for a fourth day, heading for a one-month high. The Russian Energy Minister Novak emerged this morning to point out OPEC+ countries are not discussing options to boost production above 1mln BPD, adding Russia targets a 200K-250K BPD output hike from the 2016 quota. Traders will be eyeing any development in the Red Sea shipping lane (after reports yesterday that Saudi halted shipments amid rebel attacks) while the weekly Baker Hughes rig count is released later.
Market Snapshot
- S&P 500 futures up 0.1% to 2,844.75
- STOXX Europe 600 up 0.1% to 391.04
- MXAP up 0.4% to 168.73
- MXAPJ up 0.4% to 545.44
- Nikkei up 0.6% to 22,712.75
- Topix up 0.6% to 1,775.76
- Hang Seng Index up 0.08% to 28,804.28
- Shanghai Composite down 0.3% to 2,873.59
- Sensex up 0.8% to 37,276.88
- Australia S&P/ASX 200 up 0.9% to 6,300.23
- Kospi up 0.3% to 2,294.99
- German 10Y yield rose 0.3 bps to 0.407%
- Euro down 0.1% to $1.1629
- Brent Futures down 0.4% to $74.24/bbl
- Italian 10Y yield rose 2.6 bps to 2.437%
- Spanish 10Y yield fell 0.4 bps to 1.359%
- Brent Futures down 0.4% to $74.24/bbl
- Gold spot down 0.2% to $1,219.96
- U.S. Dollar Index up 0.07% to 94.85
Top Headline News from Bloomberg
- The Bank of Japan offered to buy an unlimited amount of bonds for a second time this week, seeking to tame a yield increase spurred by speculation that the central bank may consider adjusting its ultra-loose monetary policy. Yields and the yen pared gains
- While market watchers disagree about whether the BOJ will adjust its target of keeping 10-year yields around zero percent, its steady reduction in purchases of longer-maturity debt and more expensive overseas hedging costs mean Japanese funds are already contemplating bringing more money back home.
- President Emmanuel Macron’s World Cup high lost more of its sheen on Friday, with figures showing economic growth unexpectedly failed to pick up
- North Korea released the remains of some U.S. war dead on the 65th anniversary of the armistice, the White House said
- Theresa May put forward a model under which the U.K. would collect the EU’s tariffs on goods entering the country, as part of a plan to keep trade with the bloc flowing freely after the split. But in a blunt and public critique, chief EU negotiator Michel Barnier said the EU would never allow a non-member to collect its tariffs
- Mario Draghi can probably breathe a sigh of relief and enjoy his summer vacation. High levels of business and consumer confidence, expanding credit, falling unemployment and improving inflation back the European Central Bank president’s view that the euro area’s domestic economic fundamentals are solid
- China’s yuan headed for a seventh weekly drop, the longest slide since after a shock devaluation in 2015, stoking bets the authorities will tolerate more weakness as long as there’s no sign of speculative short trades
- Already hit by a run on the currency and a surge in inflation, Turkey’s economy faces a new risk after President Donald Trump threatened to impose “large sanctions” over the detention of an American pastor
Asian equity markets traded slightly mixed after a similar varied performance on Wall St where focus remained on earnings season and Facebook’s historic market cap wipeout. ASX 200 (+0.9%) and Nikkei 225 (+0.6%) were both higher with the Australian benchmark the outperformer as it attempted to reclaim the 6300 level and approached to within a whisker of its highest in over a decade. BHP was among the biggest gainers after it announced the sale of its US onshore assets to BP for USD 10.8bln and return the net proceeds to shareholders, while Japanese stocks also gained and were driven by earnings although a firmer JPY capped upside. Conversely, China lagged its regional peers with both Hang Seng (+0.1%) and Shanghai Comp. (- 0.3%) were subdued after the PBoC skipped open market operations all week which resulted to a net weekly drain of CNY 370bln, while China also signalled defiance on trade and were said to plan retaliating regardless of the amount of US tariffs. Finally, 10yr JGBs were lower as the 10yr yield rose to above 0.1% for a 2nd consecutive day amid firmer than expected Tokyo CPI data coupled with speculation of a BoJ policy adjustment next week. Pressure in JGBs was also exacerbated after the Rinban announcement in which the BoJ disappointed some calls for a special fixed-rate operation and instead stuck to its regular operation for 1yr-10yr JGBs. However, losses were pared heading into the EU open after the BoJ eventually announced an offer to buy unlimited amount of 5yr-10yr JGBs in fixed rate operation.
Top Asian News
- BOJ Holds 2nd Fixed-Rate Operation This Week After Yields Climb
- Historic Win for Imran Khan Breaks Pakistan’s Dynastic Rule
- China’s Bond Traders Embrace Leverage Again on Policy Shift
- Bank Indonesia Sees 90% of FX Earnings From Exports Repatriated
European equities are mostly higher (Eurostoxx 50 +0.4%) amid a slew of pre-market earnings. France’s CAC 40 underperforms on the back of Kering and L’Oreal (3rd and 4th largest index constituent, currently -7.2% and -3.6% respectively) weighing on the index post-earnings. Telecom names are the clear outperformers after BT’s (+3.8%) earnings boosted the sector, dragging up Italy’s Telecom Italia (+4.8%) and Germany’s Deutsche Telekom (also influenced by a broker move, +2.7%) Other notable movers post-earnings: Carrefour (+11.5%), SES (+8.0%), Reckitt Benckiser (+7.8%), Capgemini (-2.8%) and Banco de Sabadell (-2.6%). Stateside, Amazon shares currently trade higher by 4.1% pre-market after posting a record USD 2.5bln profit.
Top European News
- French Economic Growth Fails to Accelerate, Stymied by Strikes
- SBM Offshore Regains Access to Brazil After Settlement
- Major French Tech Company’s CEO Fears Effects of Hard Brexit
- Deutsche Bank’s Most Bullish Analyst Lowers His Price Target
In FX, the DXY index is trying to build on recovery gains back above the 94.500 level and inch towards 94.900 amidst broad-based Dollar gains and lofty expectations for strong US growth in Q2 as forecasts range from 4 to 5% for the headline y/y annualised rate. However, an in line print could be deemed somewhat disappointing and risk a buy rumour/sell fact reaction, especially with at least one bank model flagging a ‘strong’ Usd sell signal for month end portfolio rebalancing. JPY/CAD/AUD – Relative outperformers, or at least holding their own against the Usd, with the Jpy containing losses beyond the 111.00 mark ahead of next Tuesday’s BoJ meeting and a decent (near 1 bn) option expiry at 111.50 , the Loonie still bolstered by improved NAFTA deal prospects within 1.3050-80 parameters and the Aud resilient between 0.7370-95 even though the CNY and CNH are both on the ropes again (6.8000+) after a rebound in the PBoC’s mid-point fix. EM – More pain for the Lira following Thursday’s threat of additional sanctions by the US, as Usd/Try trades above 4.8500, but the Rouble and Rand are both keeping their heads above water, with Usd/Rub around 62.9800 and Usd/Zar just below 13.2500 ahead of the CBR rate decision (unchanged consensus) and after the SARB repeated a willingness to act if inflation exceeds target.
WTI (-0.3%) and Brent (-0.2%) trades lower on the day with both benchmarks just under USD 69.50/bbl and USD 74.50/bbl respectively. The Russian Energy Minister Novak emerged this morning to point out OPEC+ countries are not discussing options to boost production above 1mln BPD, adding Russia targets a 200K-250K BPD output hike from the 2016 quota. Traders will be eyeing any development in the Red Sea shipping lane (after reports yesterday that Saudi halted shipments amid rebel attacks) while the weekly Baker Hughes rig count is released later. Spot gold (-0.2%) continues to be pressured by a firmer dollar. Meanwhile, global steel output (a gauge of economic health) jumped in the first half of the year after major producing countries ramped up production due to strong margins.
US Event Calendar
- 8:30am: GDP Annualized QoQ, est. 4.2%, prior 2.0%;
- Personal Consumption, est. 3.0%, prior 0.9%
- Core PCE QoQ, est. 2.15%, prior 2.3%
- 10am: U. of Mich. Sentiment, est. 97.1, prior 97.1; Current Conditions, prior 113.9; Expectations, prior 86.4
via RSS https://ift.tt/2LrkBht Tyler Durden