It appears the market is disappointed in Draghi promising – but not delivering anything…
Piet P.H. Christiansen (@pietphc), Danske Bank ECB analyst, points to a lack of detail provided on the latest package:
No meat on the bone on what the package / stimuli might entail.
The European Central Bank is waiting for new economic forecasts before pressing the button on new stimulus that would require preparation in a situation that remains complex, President Mario Draghi says.
Draghi says he told the Group of Seven meeting earlier in July that “it’s difficult to be gloomy today” because there are signs of strength, even if there is quick deterioration in other areas.
But the markets didn’t like his lack of action.
Euro is spiking off kneejerk selling…
Global yields are reversing dramatically higher…
And stocks are tumbling…
And all of this after Draghi said significant monetary stimulus is needed.
via ZeroHedge News https://ift.tt/30ZDpHV Tyler Durden
The manufacturing PMIs have become the holy grail of indicators for many market participants. ECRI’s U.S. Leading Index of Manufacturing PMIs (USLIMPMI) anticipates cyclical shifts in the ISM and Markit manufacturing PMIs for the U.S. to a 2 2/3-year low in June and the Markit PMI fell to a nearly-ten-year low in July.
The USLIMPMI, which typically leads cyclical turns in both PMIs by a couple quarters, turned down in early 2017 (chart, upper panel), and the PMIs followed suit in 2018 (lower panel). With the USLIMPMI falling back towards February’s decade low in May, it was clear that PMIs would remain in cyclical downturns, which has held true, as the ISM PMI slipped.
The USLIMPMI is one of a few ECRI leading indexes that anticipate cyclical turns in PMIs. Indeed, as we highlighted in early 2018, “ECRI’s long leading indexes have statistically significant leads over composite PMIs for the G7 economies.” Meanwhile, the early-2017 downturn in ECRI’s Global Leading Manufacturing Index growth anticipated the late-2017 cyclical downturns in both global industrial growth and the global PMI, even though the global PMI failed to predict the downturn in global industrial growth.
Looking ahead, the USLIMPMI is an important tool for anticipating directional changes in the PMIs, which will continue to shape market perceptions about the economy. The latest USLIMPMI update, released to our clients last month, already clarifies the PMI outlook.
And earlier on Wednseday, we reported the collapse in European Manufacturing PMIs(led by Germany), and 3rd month of contraction in Japan PMIs; US PMIs were expected to modestly rebound in preliminary July data, but instead the picture was mixed:
US Manufacturing PMI missed – printing 50.0 versus 51.0 exp and down from 50.6 in June
US Services PMI beat – printing 52.2 versus 51.8 exp and up from 51.5 in June.
The recent industrial slowdown, abroad and domestic, shows economic growth rates around the world are simultaneously moving lower — and that could spell disaster for the global economy as a cycle of vulnerability could give way to a shock in the next several quarters that would usher in a world wide trade recession.
via ZeroHedge News https://ift.tt/2MeFz27 Tyler Durden
After May’s unexpected plunge, US Durable Goods Orders were expected to rebound modestly but instead, thanks to huge downward revision, Dur Goods surged 2.0% MoM… but at the weakest in 3 years on a YoY basis
This is the biggest MoM jump since Aug 2018…
The noisy aircraft orders segment continue to oscillate, affected by Boeing also.
Nondefense aircraft new orders +75.5%
Defense aircraft new orders -32.1%
But we note that year-over-year, Dur Goods Orders (NSA) are down 4.5% – the weakest in 3 years…
However, under the hood suggests some silver linings that The Fed is going to struggle to explain away.
A proxy for business investment – non-military capital-goods orders excluding aircraft – jumped 1.9% in June after a downwardly revised 0.3% increase in the prior month, according to Commerce Department figures Thursday that topped estimates.
The largest increase in equipment orders since February 2018 was broad-based and could ease concerns that the trade war with China and weakening global growth risk a deeper slowdown in the U.S. economy.
via ZeroHedge News https://ift.tt/30QVAiE Tyler Durden
Having uber-dovishly over-delivered on his promises for future easing (without actually doing anything), Mario Draghi is kicking the patient can down the road and into the hands of Christine Lagarde.
The question for the press conference is simple – if shit’s so bad that you needed to promise all that future easing, why not start now?
Watch live feed here (starts at 0830ET):
via ZeroHedge News https://ift.tt/2ZeazTI Tyler Durden
When Southwest reported its earnings Thursday morning, it also made a stunning announcement that shows just how badly the 737 MAX 8’s best customer has been hurt by the grounding.
Just as Boeing warns that it could halt production of the troublesome 737 MAX 8 if the plane’s return to the skies is delayed any longer, Southwest Airlines, the 737 MAX 8’s best customer, is reportedly planning to cease operations at Newark Airport. The decision is a direct result of the 737 MAX 8’s grounding.
A representative for the airline said the decision is a “necessary step” to mitigate damages from the “extensive delays” in the recertification process for the MAX. The airline is planning to consolidate its New York-area presence at LaGuardia Airport in Queens, WSJ reports.
The airline is planning to cease operations in Newark on Nov. 3. The airline launched service out of Newark in 2011 and was recently offering 20 daily departures to 10 cities.
At the time of the Ethiopian Air Crash, the second of two crashes involving the 737 MAX 8 that killed a combined 346 people, Southwest had received 31 737 MAX 8s, more than any other airline, and it had orders in for nearly 250 more.
Southwest said its Newark operations have been performing below expectations, while customer demand for more flights out of LaGuardia is “strong.” Customers will be offered options to change their travel plans, and Southwest employees will have the opportunity to relocate to other locations, including LaGuardia.
Because of the 737 MAX 8’s grounding, Southwest expects its available seat miles, a widely watched airline industry metric of passenger-carrying capacity, to decline by 1% of 2% YoY in 2019. Before the grounding, it had anticipated capacity growth of nearly 5%.
As revealed following yesterday’s earnings report, Boeing now expects the 737 MAX 8 will return to the skies either late this year, or in January 2020. According to CEO Dennis Muilenberg, Boeing expects to submit its “final certification package” to the FAA in September.
Shares of the airline tumbled 5% on Thursday in premarket trading after the low-budget carrier said it doesn’t plan to fly the 737 MAX 8 again until next year. It has removed the MAX 8 from its schedules through Jan. 5. Its Q2 revenues came in slightly below estimates.
via ZeroHedge News https://ift.tt/2ZeCpiw Tyler Durden
As expected, the ECB did not cut rates at today’s rate cut, but in a move that was widely expected, the ECB did hint that rate cuts are coming, by adding the “or lower” language, when saying that “Governing Council expects the key ECB interest rates to remain at their present or lowerlevels at least through the first half of 2020.”
Translation: a 10bps rate cut is now assured.
But wait, there was more, with the central bank noting the “need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim.” As a result, the Governing Council noted that it was “determined to act, in line with its commitment to symmetry in the inflation aim. It therefore stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.”
In other words, if the Fed is cutting the ECB will also be cutting, and since the Fed launched “symmetric” inflation targeting, i.e. overshooting inflation to the upside, so will the ECB (how it will get there is another matter entirely).
Finally, the ECB also hinted that QE may be coming as soon as September, noting that the Governing Council “has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.”
As a reminder, earlier this week we noted an analysis from Goldman, explaining why cutting rates without tiering would be disastrous for European banks, which is why – lo and behold – Draghi (formerly of Goldman) announced just that – tiering is coming, which is good news for Europe’s bank and is the reason why they have jumped on the news of even lower rates.
In short, the race to the currency bottom has arrived.
At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term.
The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim. Accordingly, if the medium-term inflation outlook continues to fall short of its aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim. It therefore stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.
In this context, the Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
And now we await Draghi’s press conference in just over half an hour.
via ZeroHedge News https://ift.tt/2JQSMfN Tyler Durden
S&P futures struggled for direction on Thursday, with Nasdaq futs down following a plunge in Tesla following dismal guidance, even as European stock were modestly higher ahead of what many expect will be an easing signal by the ECB as a bevy of earnings reports again pointed to a slowing global economy, while holding up in the face of already reduced expectations.
The S&P 500 and Nasdaq hit a new all-time high once again on Wednesday after Texas Instruments hinted that a global slowdown in microchip demand would not be as long as feared, which countered bleak earnings from bellwether companies Boeing and Caterpillar.
The mood was more subdued on Thursday, when Tesla stock tumbled 12.3% and pressured Nasdaq futures after the electric carmaker pushed back its profit timeline once again after missing its quarterly financial targets. On the other hand, 3M rose 4.5% after the manufacturing conglomerate reiterated its full-year earnings forecast despite slowing growth in high-profile markets such as China. Facebook gained 1%, after the social media giant reported quarterly revenue that beat estimates, but said new rules and product changes aimed at protecting user privacy would slow its revenue growth into next year. Ford Motor dropped 4.6% after the automaker reported a lower-than-expected profit, weighed down by charges to restructure its units in Europe and South America, and gave a disappointing full-year earnings forecast.
Two weeks into the second-quarter earnings season, Reuters reports that about 77% of the 138 S&P 500 companies that have reported so far have topped earnings estimates. Overall earnings are now expected to fall 0.1%, compared with a prior estimate of a rise of about 1%.
Meanwhile, hopes that key central banks would take monetary measures to impede the impact of a protracted U.S.-China trade war has helped Wall Street’s main indexes hit record highs this month; moments ago Turkey became the latest country to join the easing bandwagon when its central bank cut rates by a whopping 425bps to 19.75%, in line with Erdogan’s demands.
In Europe, the Stoxx Europe 600 pared some of its earlier gains, with health care shares the top performers after earnings for AstraZeneca and Roche beat estimates. AEX (-0.1%) lagged peers, pressured by Unilever (-0.8%) post-earnings. Meanwhile, France’s CAC 40 (+0.5%) benefited from its largest weighted stock LVMH (+1.5%) which rose after the company posted a 20% Y/Y LFL sales increase in leather goods and fashions. Sectors are mixed with outperformance in Pharma names as heavyweight Roche (+1.3%) raised its 2019 revenue growth outlook. On the flip side, energy names lag on the back of the decline in oil prices yesterday. Individual movers include UK-listed Cobham (+34.7%) was bolstered to the top of the Stoxx 600 as the Co. is expected to be acquired for GBP 4.0bln including debt. Other interesting movers on the back of earnings, with Nokia (+6.3%), AstraZeneca (+5.6%), Kion (+4.6%) all at the top of the pan-European index. On the downside, JC Decaux (-5.2%) slid on the back of disappointing numbers whilst SMI-listed Clariant (-9.9%) fell to the foot of the Stoxx 600 after the Co. suspended talks with Sabic over the proposed JV.
Earlier in the session, Asian stocks advanced, heading for a third day of gains though Korean stocks declined for a second day, after U.S. equities climbed to record highs. Communications and technology were among the best-performing sectors. Most markets in the region were up, with the Philippines leading gains. The Topix added 0.2%, supported by chemical firms, as investors gauged a raft of mixed corporate results. Shin-Etsu Chemical Co. and Advantest Corp. jumped after reporting first-quarter operating profits above estimates. The Shanghai Composite Index rose 0.5%, with banks and Kweichow Moutai Co. among the biggest boosts. Beijing gave the green light for some companies to buy U.S. soybeans free of retaliatory import tariffs in a goodwill gesture amid trade negotiations with Washington. India’s Sensex gained 0.3%, set to end a five-day losing streak, as investors sought out value with equities near a two-month low. Most Nifty companies that have reported earnings so far have either met or exceeded analyst estimates.
In Rates, Germany’s 30-year bond yield fell to a record on deteriorating business confidence:
German Ifo Business Climate New (Jul) 95.7 vs. Exp. 97.1 (Prev. 97.4, Rev. 97.5).
German Ifo Current Conditions New (Jul) 99.4 vs. Exp. 100.4 (Prev. 100.8, Rev. 101.1)
German Ifo Expectations New (Jul) 92.2 vs. Exp. 94.0 (Prev. 94.2, 94.0)
Ifo economists said that the German economy faces a turbulent time ahead. He sees a slightly positive growth rate in H2, although recession is spreading in all important sectors of German industry. Business Climate has deteriorated in key sectors except for the auto industry.
In FX, the euro fell for a fifth day and Treasuries gained along with European government bonds as the market braced for an easing signal from the European Central Bank’s latest meeting. The dollar was little changed, with the yen gaining ground and the Aussie dollar falling to a two-week low after the RBA said policy makers are prepared to lower interest rates again. The pound steadied as new U.K. Prime Minister Boris Johnson picked a pro-Brexit government team. The Turkish Lira first tumbled, then surged after the CBRT cut rates by more than expected 425bps to 19.75%, its biggest rate cut on record.
In geopolitics, North Korea fired 2 projectiles which flew 430km but did not reach Japan’s exclusive economic zone. Following news of the launch, South Korea Defence Ministry spokesperson urged North Korea to stop acts which are not helpful in easing military tensions, while Japanese PM Abe suggested the North Korea missile launch poses no threat.
Expected data include durable goods orders and wholesale inventories. Amazon, American Airlines, Alphabet, Intel, Starbucks, and T-Mobile are among companies reporting earnings.
Market Snapshot
S&P 500 futures little changed at 3,022.50
STOXX Europe 600 up 0.2% to 392.51
MXAP up 0.2% to 161.31
MXAPJ up 0.3% to 530.23
Nikkei up 0.2% to 21,756.55
Topix up 0.2% to 1,577.85
Hang Seng Index up 0.3% to 28,594.30
Shanghai Composite up 0.5% to 2,937.36
Sensex up 0.1% to 37,884.49
Australia S&P/ASX 200 up 0.6% to 6,818.03
Kospi down 0.4% to 2,074.48
German 10Y yield fell 1.4 bps to -0.392%
Euro down 0.07% to $1.1132
Italian 10Y yield fell 10.7 bps to 1.143%
Spanish 10Y yield fell 3.1 bps to 0.316%
Brent futures up 0.7% to $63.62/bbl
Gold spot up 1% to $1,427.32
U.S. Dollar Index little changed at 97.76
Top Overnight News from Bloomberg
Boris Johnson executed a brutal clear-out of more than half of his predecessor’s top team, installing supporters in key roles as the new prime minister signaled his intent to deliver Brexit in 98 days. Sajid Javid picked to steer the British economy through Brexit
The European Central Bank is set to signal that it is once again preparing to step in to support the euro zone. On the eve of the seventh anniversary of President Mario Draghi’s landmark “whatever it takes” speech, policy makers will decide how to confront an economic slowdown amid risks from U.S. protectionism to Brexit
German companies’ business outlook tumbled to the lowest in a decade, adding to signs that Europe’s largest economy is getting dangerously close to a recession
Treasury Secretary Steven Mnuchin said a strong dollar is good for the U.S. economy in the long term and that he wouldn’t advocate for a weak-dollar policy in the near future
North Korea launched at least two short-range missiles into the sea east of the Korean Peninsula, stepping up pressure on the U.S. as it tries to resume nuclear disarmament talks with Pyongyang
Former Federal Reserve Chairman Alan Greenspan endorsed the idea that the U.S. central bank should be open to an insurance interest-rate cut, to counter risks to the economic outlook, even if the probability of the worst happening was relatively low
Oil held its biggest loss in a week as signs that growth is slowing in major economies overshadowed the longest run of declines in U.S. crude stockpiles since the start of 2018
Asian equity markets mostly traded with cautious gains after a similar performance on Wall St where strength in financials and tech fuelled the S&P 500 and Nasdaq to all-time record highs, although the DJIA underperformed on disappointing blue-chip earnings. ASX 200 (+0.6%) and Nikkei 225 (+0.2%) were higher but with gains capped by weakness in mining related sectors and with Tokyo trade also contained by an uneventful currency after source reports suggested a lack of consensus within the BoJ regarding additional easing measures at next week’s meeting. Elsewhere, the KOSPI (-0.4%) underperformed after North Korea conducted a short-range missile launch and with earnings also heavily in focus, while Hang Seng (+0.3%) and Shanghai Comp. (+0.5%) were choppy as another substantial liquidity drain by the PBoC was counterbalanced by trade optimism after suggestions that next week’s US-China trade meeting is to be held in Shanghai to allow the possibility of President Xi joining in and that the meeting will be followed up by talks in Washington. Finally, 10yr JGBs were relatively flat as they mirrored the rangebound trade in T-notes and with demand also dampened by the indecisive gains in the region, although prices later found mild support after the 2yr auction which attracted a higher b/c and narrower tail in price.
Top Asian News
Digger Giant Warns of ‘Dark Turn’ as Chinese Sales Start to Ebb
Hong Kong Names Eddie Yue as Next Monetary Authority Chief
More Chances to Get Rich Quick in China’s New Stock Venue
China’s Embattled Jinzhou Bank Courts Investors as Bonds Tumble
European equities are directionless with large-cap earnings dictating the state of play of thus far. AEX (-0.1%) lags its peers, pressured by Unilever (-0.8%) post-earnings. Meanwhile, France’s CAC 40 (+0.5%) is benefitting from its largest weighted stock LVMH (+1.5%) which rose after the Co. posted a 20% Y/Y LFL sales increase in leather goods and fashions. Sectors are mixed with outperformance in Pharma names as heavyweight Roche (+1.3%) raised its 2019 revenue growth outlook. On the flip side, energy names lag on the back of the decline in oil prices yesterday. Individual movers include UK-listed Cobham (+34.7%) was bolstered to the top of the Stoxx 600 as the Co. is expected to be acquired for GBP 4.0bln including debt. Other interesting movers on the back of earnings, with Nokia (+6.3%), AstraZeneca (+5.6%), Kion (+4.6%) all at the top of the pan-European index. On the downside, JC Decaux (-5.2%) slid on the back of disappointing numbers whilst SMI-listed Clariant (-9.9%) fell to the foot of the Stoxx 600 after the Co. suspended talks with Sabic over the proposed JV. Over in the States, Facebook (+1.2% pre-market) reported last night with miss on top line and a beat on bottom line. The Co. also noted that EPS would have been higher excluding the FTC legal fees of USD 5bln over privacy violations. Meanwhile, Tesla (-10.8% pre-market) missed on top and bottom line. Looking ahead, around 10% of the S&P 500 is reporting today, whilst DJIA component 3M is also on the docket, with a 4.5% weighting in the index.
Top European News
German Business Confidence Deteriorates as Factory Slump Deepens
Merkel Leaves Europe’s Sputtering Engine to Ride Out the Storm
ECB Is Set to Signal Rate Cut as Economy Slows: Decision Day Guide
ABB Beats Estimates as Activist-Driven Overhaul Bears Fruit
Wizz Air Jumps on Raised Growth Target at Expense of Rivals
In FX, EUR/TRY are not the biggest currency movers, but both certainly prone to big reactions and price action depending on Central Bank policy decisions as the ECB and CBRT both deliver verdicts today. Market pricing for the former is extremely tight between no change and -10 bp, even though the ‘consensus’ leans towards a tweak in guidance for easing in September rather than any adjustments this time, with the probability roughly 50-50. However, the latter is unanimously expected to lower its benchmark and the uncertainty rests on how much given a gaping range of forecasts, from -100 bp to -500 bp, while some observers also suggest that a loud -800 bp call exists. In the run up, the single currency and Turkish Lira are on the defensive, with Eur/Usd teetering above ytd lows in a 1.1145-23 range and capped by yet another bleak German survey in the form of Ifo that missed consensus across the board and compounded by a gloomy statement from the institute noting the spread of recession through all key industrial sectors. Meanwhile, Usd/Try is pivoting 5.7100 and also acknowledging a deterioration in manufacturing sentiment and a decline in cap u.
NZD/AUD – Dovish rate vibes are undermining the Kiwi and Aussie as well, with Westpac recalibrating its RBNZ outlook to match the RBA by pencilling in 2 more 25 bp eases from 1 previously. Nzd/Usd has retreated from 0.6700+ in response, but the Aud/Nzd cross remains anchored near 1.0400 as Aud/Usd slips a bit further from 0.7000 to 0.6965 in wake of comments from RBA Governor Lowe indicating further OCR reductions if demand disappoints and acknowledging that inflation will take time to hit target.
JPY/CAD/GBP/CHF – All narrowly mixed vs a solid Greenback, as the DXY continues to test a key Fib retracement level at 97.776 within a tight 97.778-679 band, with the Yen still stuck around 108.00 and embroiled in decent option expiries (1.7bn from 107.75 to 107.80 and 1.5 bn between 107.90-108.00) vs technical resistance at 108.31 (also a Fib). Meanwhile, the Loonie hugs 1.3128-44 ahead of Canadian wage data, Cable retains a recovery tone within 1.2450-1.2500 and the Franc remains underpinned around 0.9850 vs the Buck and over 1.1000 against the Euro, expecting the SNB to match or counteract any ECB moves.
ZAR – The Rand is underperforming after a stark warning from Moody’s that the latest state aid for Eskom will put further strain on the Government’s finances and threaten SA’s rating, with Usd/Zar nudging the top of 13.9750-8600 range.
In commodities, WTI and Brent futures are marginally firmer, albeit it seems to be more of a consolidation from yesterday’s DoE-induced decline and on the news that Kuwait and Saudi officials discussed resuming production from the neutral zone which had previously provided around 500k bpd of supply. WTI and Brent currently reside around the 56.00/bbl and 63.50/bbl levels with the former eyeing its 50 DMA at 56.87/bbl ahead of its 200 DMA at 57.11/bbl (with the psychological 57/bbl level in-between). News flow for the complex has been light thus far with traders eyeing the ECB’s latest monetary policy decision (full preview available in the Research Suite) for the next possible catalyst. Elsewhere, gold prices are relatively steady above the 1400/oz mark with Central Bank decisions very much in focus. Elsewhere copper is little changed amid the cautious/tentative risk tone whilst Shanghai lead climbed over 1% overnight amid revived supply concerns due to maintenance activity in China.
US Event Calendar
8:30am: Durable Goods Orders, est. 0.7%, prior -1.3%; Durables Ex Transportation, est. 0.2%, prior 0.4%
8:30am: Cap Goods Orders Nondef Ex Air, est. 0.2%, prior 0.5%; Cap Goods Ship Nondef Ex Air, est. -0.2%, prior 0.6%
8:30am: Wholesale Inventories MoM, est. 0.5%, prior 0.4%; Retail Inventories MoM, est. 0.2%, prior 0.5%
8:30am: Initial Jobless Claims, est. 218,000, prior 216,000; Continuing Claims, est. 1.69m, prior 1.69m
9:45am: Bloomberg Consumer Comfort, prior 64.7
11am: Kansas City Fed Manf. Activity, est. 2.8, prior 0
DB’s Jim Reid concludes the overnight wrap
Welcome to ECB day, and a meeting where we should move closer to what is likely to be a round of global policy easing in the months ahead. Mr Draghi paved the way at Sintra last month where he laid the foundations to make further policy easing feel less conditional. Our economists, in their preview note last week ( link ), believe that September is the natural occasion for the big decisions and details but expect some preparation today. They expect the “or lower” easing bias to be reintroduced into rates guidance and that this will be the prelude to a 10bp deposit rate cut and tiering in September. They also expect a further 10bp cut in December. They also believe we will see upgraded forward guidance used to underline the ECB’s “absolute commitment” to the price stability mandate. If the Council is unable to strengthen forward guidance sufficiently, a new wave of net asset purchases may be required in the not too distant future. If so, the team would not be surprised by new QE of EUR30bn per month for a minimum 9-12 months split equally between public and private assets and with a commitment to relax the limits if necessary.
Ahead of this, fixed income rallied across Europe yesterday as the European preliminary PMIs for July showed the manufacturing sector continuing to disappoint – something the ECB will have to acknowledge. The manufacturing PMI for the Eurozone fell to its lowest in over six years at 46.4 (vs 47.6 last month), the German figure fell to a seven-year low of 43.1 (vs. 45.0) and France recorded a flat 50.0 (vs. 51.9) reading. The services readings also fell, but were mostly in line with expectations, with the Eurozone figure at 53.5 (vs. 53.6 last month), Germany at 55.4 (vs. 55.8) and France at 52.2 (vs. 52.9). In response, ten-year bund yields closed down –2.3bps with the previous on the run hitting a fresh all-time low of -0.423%. BTPs fell -10.9bps to a fresh one-year low on news that auctions had been cancelled, while Greek ten-year yields fell -5.7bps to close below 2% for the first time ever. That takes their yield to -6.2bps lower than US treasuries, their lowest level versus the US benchmark since October 2007. Treasuries joined the European rally with 10-year yields ending -3.8bps lower at 2.043%.
Despite the rally for rates and the tepid manufacturing surveys, equities mostly rallied yesterday. The S&P 500 gained +0.47% to 3019.6, a new all-time high. The DOW (-0.29%) again lagged as Boeing (-3.12%) and Caterpillar (-4.48%) dragged on the index after their earnings reports. Boeing saw a net loss of -$2.94bn in the second quarter, paired with a -35% yoy drop in revenues, as the company continues to suffer from the grounding of the 737 MAX. Caterpillar is viewed as a global macro bellwether, and overall its guidance was soft, saying they expect profits “to be at the lower end” of their full-year outlook range. Digging into their results showed healthy sales growth in North America (+11%) and Latin America (+9%), but weakness in Europe, Africa, and the Middle East (-6% combined) and in Asia (-7%), which is consistent with the general trend of US macro outperformance.
Away from industrials, tech was also in focus yesterday. The NASDAQ and Philly semiconductor indexes advanced +0.85% and +3.10%, respectively, both to new record highs. The sector benefited from positive sentiment post Texas Instrument’s (+7.44%) strong earnings report from Tuesday night, plus further strong guidance from Taiwan Semiconductor Manufacturing co, the world’s biggest chipmaker. Facebook (+0.80% after hours) posted strong revenue and active users figures, which ended up trumping new regulatory headwinds for the company. Facebook announced that the Federal Trade Commission has opened an antitrust investigation of the company, which comes after Facebook said earlier that it had agreed to pay a $5bn settlement and accept new privacy restrictions on its social media platform, to address a separate investigation.
This morning in Asia markets are largely trading up with exception of the Kospi which is -0.60%. The Nikkei (+0.36%), Hang Seng (+0.26%) and Shanghai Comp (+0.29%) are all up. The Australian dollar is trading down -0.07% after the country’s central bank chief Philip Lowe said that he’s ready to ease policy further if his recent back-to-back cuts fail to revive economic growth and flagged “an extended period” of low interest rates. Elsewhere, futures on the S&P 500 are trading flat while those on the Nasdaq are down -0.26%. In terms of overnight data releases, South Korea’s preliminary Q2 GDP printed at +2.1% yoy (vs. +1.9% yoy expected and +1.7% yoy last quarter). In details it showed that private-sector investment shaved 0.5pp off quarterly growth, meaning government investment drove the expansion and underlines the fragility of the rebound in growth.
In other overnight news, India is considering an option to raise $10bn from its first sovereign foreign currency bond offering with bonds likely to be denominated in either the Japanese yen or euros to take advantage of lower yields. The proposed offering could come to markets in October. Elsewhere, North Korea launched at least two short-range missiles into the sea east of the Korean Peninsula, stepping up pressure on the US as it tries to resume nuclear disarmament talks with Pyongyang and bringing geopolitical risks back into some focus.
Back to yesterday and in the UK, Boris Johnson was appointed by the Queen as the prime minister yesterday, facing perhaps the most difficult set of circumstances of any incoming PM for decades. On the steps of Downing Street, Johnson struck an aggressive tone on Brexit, reiterating that the decision of the referendum in 2016 must be respected. He said he wanted to reach a “new deal” with the EU, with the backstop removed, and see the country leave on the October 31 deadline “no ifs or buts”. Johnson also said that he would prepare for a no-deal outcome and that “the doubters, the doomsters, the gloomsters are going to get it wrong again.” In a letter to the incoming Prime Minister, European Council President Donald Tusk said pointedly that “I look forward to meeting you to discuss – in detail – our cooperation.”
Johnson began assembling his cabinet after his appointment, and the clear signal is that committed supporters of Brexit are in the key positions, and also those who support his pledge to leave the EU without a deal if necessary by October 31. Former DB employee Sajid Javid was appointed as Chancellor of the Exchequer, while Dominic Raab was made foreign secretary. In terms of the market reaction, sterling was unaffected by Johnson’s speech, although it strengthened +0.33% against the dollar before Johnson’s meeting with the Queen.
Without a general election, Johnson faces much the same constraints as his predecessor, in that his party lacks a majority in the House of Commons and relies on the DUP’s 10 MPs in order to win key votes. With an upcoming parliamentary by-election next week in Wales, where pro-EU Liberal Democrats are favourites to take the seat off the Conservatives (per the Independent), that could shrink even further. So the honeymoon won’t last long.
In terms of other data released yesterday, the flash PMIs from the US also saw an increasing divergence between manufacturing and services, repeating the theme seen in Europe. The manufacturing reading fell to a flat 50.0 (vs. 50.6 last month), its lowest level since 2009, while the services reading rose to 52.2 (vs 51.5 last month). Elsewhere, the new home sales data disappointed, with the 646k reading for June below the 658k expected, while the previous month’s reading was revised down by 22k. In France, the Insee’s business climate indicator fell by one point to 105 in July (vs. 106 expected). The business climate indicators for both the manufacturing and services indicators also fell by one point, to 101 and 106 respectively, while the employment climate reading rose by one point to 107.
In terms of the day ahead, the aforementioned ECB policy decision and press conference will be the highlight, (along with Prime Minister Johnson’s first appearance as PM in the House of Commons). Looking at data releases, we have US durable goods orders, wholesale inventories, and weekly initial jobless claims. There’ll also be the Kansas City Fed’s manufacturing index, the German Ifo Survey, and the latest CBI data from the UK. Elsewhere, Amazon and Alphabet will be announcing earnings.
via ZeroHedge News https://ift.tt/2Yhj0QX Tyler Durden
“The temperature’s rising, it isn’t surprising.. “
Lots of stuff to think about this morning – will weakening European manufacturing and orders cause the ECB to make an early slice on European rates? What will a cut from -Ve 0.4% in European rates actually do? (Clue – what is the very smallest thing you can think of.) The market thinks the ECB might act – which is why European bond yields continue to spiral lower. I reckon it’s unlikely – the ECB likes to wait and see, then wait some more. I think the September meeting will be a much more dramatic moment; one meeting before Draghi’s last and Legarde takes over. Reopening the QE asset purchase programmes is more problematical – the shortage of Bunds and the EBC’s rules about proportionality means it is at its limits on some country debt!
Next week we have the Fed meeting to look forward to. Whoopee..
Boeing’s warning it may stop production of the B-737 Max is fascinating. Thus far the company has “burnt” some $1 bln plus in unsold plane costs. That’s the cost of building a plane, parking it on the apron, and not getting paid for it. That number is growing as each month it adds another 42 unsold but costly to build lumps of metal to the parking lot. The CEO says he “can’t foot the extra expenses indefinitely”. No S**t Sherlock. There is still no clear timeline to get the plane back in the air – assuming anyone will still want to fly it.
Boeing results yesterday were… “interesting” – confirming the new B777x is going to be delayed – which is exactly what we expected: the company has been forced to totally rethink branding completely new aircraft as “upgrades” to aid sales and cut regulatory costs. It’s a spectacular backfire – yet Boeing stock is only down some 14% since the second Max crash. I still think it could get worse as the market understands what a long-term technical and reputational hole the company has dug itself into. Fubar describes it nicely.
Back in Yoorp, Germany’s auto-industrial sector is not a happy place. They are still struggling with the legacy of falsified emission tests, and now its slumping China demand and the possibility their biggest external European market, the UK, will be closed to them. How bleak is the future for conventional Autos?
Which brings us to you know who… The best argument for buying Telsa is that they are clearly the leader in Electric Vehicles. Supporters of Tesla point to the fact it is now building more cars than ever, the smokestack petrol obsolescence of the leading car makers (including the German superbrands), and that none of them are catching Tesla. It is top of many car buying league tables in the US – best selling premium car! Should I be worried the demand charts all seem to be flat at the top of their respective S-Curves? Of course not – so I am told.
Tesla delivered nearly 100,000 cars in Q2, but it’s posted another set of poor results and a $400mm loss. Cutting the price and margin, and the lease cost on the Model 3 shifted cars. I’m told it doesn’t matter – its selling cars and will get to 400k cars per annum! Are you sure cutting margins and losing money doesn’t matter? It’s producing more of its cheaper, lower margin models, and it just got rid of the co-founder JB Straubel. It’s still struggling to build cars – production lines are still in tents at its Fremont factory – although it should open a new Shanghai plant by year end.
I’m told these production, margin and distribution problems are just growing pains, and Tesla’s Model 3 (because the S and the X are now very long toothed) is the future – a car the world and America wants. Once Tesla get’s production sorted, then it’s a screaming buy? If its selling lots of cars, and can charge premium prices for them.. Why not?
But what if it is not? My big doubt about Tesla is competition. It’s still in competition with conventional car makers. While stock market minnow Ford might make petrol-punk pick-ups and SUVs, it makes money. Tesla is also in competition for Electric vehicles – back in May, Tesla sold 1000 of its Model X in the US. Audi sold 856 of its more expensive e-Tron SUV. Even the Jag I-Pace (which I’ve driven) sold over 200. (And sure, the X is a very old car, but the e-Tron barely beats it.) Even the new Porsche SUV E-car the Taycan EV can’t beat the old Tesla S on speed – and its nearly twice the price!
How much longer can Tesla stay ahead of the opposition? Other car makers are not blind to the changing opportunity. Can Tesla stay ahead long enough for it to become a real, profitable car maker, and then deliver all the other distractions Musk focuses on? I am not utterly convinced.. but prepared to listen to the arguments. Tesla stock took a pounding last night on the losses..
Another problem facing the German car makers is logistics. Years and years ago I was exploring the Bloomberg and discovered it has the depth of the River Rhine somewhere in its base info. That’s a critical measure in Germany – as the Rhine gets lower because the extraordinary summer heat, the amount of “stuff” Germany ships around on it gets trapped. Great story on BBerg – well worth a read. Basically, its not just heat from Africa we should be worried about, but disappearing glaciers mean Europe’s major rivers are drying up. Last week I read the permafrost that holds the Alps together is melting, and iconic mountains like the Matterhorn are collapsing and becoming too dangerous to climb.
via ZeroHedge News https://ift.tt/30Tv7RI Tyler Durden
When Turkish president Erdogan sacked the now former Turkish central bank head Ceitnkaya two weeks ago because the latter refused to ease monetary policy despite the country’s surging inflation and tumbling currency, it was no longer a question if the central bank would cut rates but by how much.
We got the answer this morning, when the CBRT (and it new head) announced that it slashed the benchmark 1-week repo rate by a whopping 425bps, from 24% to 19.75%, almost double the 250bps consensus expectation of a Bloomberg survey, due to “a moderate recovery in the economic activity.”
This is how the CBRT justified its decision to follow Erdogan’s demands for lower rates for this massive cut which will make the TRY a far less attractive carry currency, and likely lead to a resumption of the TRY’s devaluation:
Recently released data indicate a moderate recovery in the economic activity. Goods and services exports continue to display an upward trend despite the weakening in the global economic outlook, indicating improved competitiveness. In particular, strong tourism revenues support the economic activity through direct and indirect channels. Looking forward, net exports are expected to contribute to the economic growth and the gradual recovery is likely to continue with the help of the disinflation trend and the partial improvement in financial conditions. The composition of growth is having a positive impact on the external balance. Current account balance is expected to maintain its improving trend.
Recently, weaker global economic activity and heightened downside risks to inflation have strengthened the possibility that advanced economy central banks will take expansionary monetary policy steps. While these developments support the demand for emerging market assets and the risk appetite, rising protectionism and uncertainty regarding global economic policies are closely monitored in terms of their impact on both capital flows and international trade.
The CBRT also saw little risk in runaway inflation accelerating from here, despite prices – especially food – still soaring:
Inflation outlook continued to improve. In the second quarter, inflation displayed a significant fall with the contribution from a deceleration in unprocessed food and energy prices. Domestic demand conditions and the tight monetary policy continue to support disinflation. Underlying trend indicators, supply side factors, and import prices lead to an improvement in the inflation outlook. In light of these developments, recent forecast revisions suggest that inflation is likely to materialize slightly below the projections of the April Inflation Report by the end of the year. Accordingly, considering all the factors affecting inflation outlook, the Committee decided to reduce the policy rate by 425 basis points.
And while the initial kneejerk reaction was one expecting even more rate cuts, the CBRT did note that it would remain data-dependent and cautious on monetary policy, which prompted some to anticipate less easing in the future.
The Committee assesses that maintaining a sustained disinflation process is the key for achieving lower sovereign risk, lower long-term interest rates, and stronger economic recovery. Keeping the disinflation process in track with the targeted path requires the continuation of a cautious monetary stance. In this respect, the extent of the monetary tightness will be determined by considering the indicators of the underlying inflation trend to ensure the continuation of the disinflation process. The Central Bank will continue to use all available instruments in pursuit of the price stability and financial stability objectives.
In response, the Turkish lira initially tumbled as low as 5.7681, but then promptly retraced all losses, and has since soared as high as 5.6579, on what some suspect was central bank intervention to prevent the initial momentum from being in a downward direction.
via ZeroHedge News https://ift.tt/2Y2d6nf Tyler Durden
