Nikkei 225 (+1.04%) outperformed overnight, buoyed by S&P 500 posting a new all-time high, a dovish BoJ’s Tankan inflation survey and reports that the GPIF is to invest in funds specializing in Japanese stocks with high returns. Overall, another quiet session this morning as market participants continued to position for the upcoming ECB meeting, with Bunds under pressure amid further unwind of expectation of more policy easing by the central bank. According to ECB sources, there is no clear consensus at present on policy action, intense debate seen on Thursday after March HICP data, adding that it fears “over-interpretation” by market of QE possibility.
And now on the real news: after turning its back on HFT (and fully endorsing IEX), the firm again shocked traders overnight when it announced it is selling its infamous Designated Market Maker Unit at the NYSE (the topic of many posts on Zero Hedge in the early days), confirming a major overhaul is currently in place regarding market structure. Because if Goldman has said enough to the current regime, its days are numbered. Guaranteed. And more importantly, as the crackdown on HFT accelerates, first it will be stocks that are impacted and then, finally, it will be FX – the locus of all the real market rigging. Bloomberg reported overnight that firms using the ultra-fast strategies getting scrutiny thanks to Michael Lewis’s book “Flash Boys” account for more than 35% of spot currency volume in October 2013, up from 9% in October 2008, according to consultant Aite Group; it’s the opposite of equities, where their proportion shrank to 50% in 2012 from 66% four years ago, according to Rosenblatt Securities.
Soon regulators will put two and two together, and if Goldman gives the go ahead the HFT scourge will be eliminated not only from stocks but from FX. Then things like the now daily Yen-carry driven overnight levitation will be a thing of the past. For now however, FX-Spoo correlation pair manipulation is all the rage.
In other news, early this morning as part of the Hollande’s ongoing overhaul of France’s cabient resulting from the socialist drubbing in this weekend’s municipal elections, Hollande appointed Michel Sapin finance minister Wednesday, a post he filled in the early 1990s, as the administration prepares a new drive against austerity policies in Europe. Mr. Sapin, who celebrates his 62nd birthday next week, inherits an economy that is struggling to pick up from a lengthy period of stagnation and is saddled with record high public debt.
Turning to the day ahead, there’s not a whole lot in the European calendar. Euroarea finance ministers continue their meeting in Athens where there could be further headlines around bank supervision and aid for Ukraine. The US ADP employment report will be released around 1:15 London time. Consensus expectations are for a headline gain of 195k, and we’ll probably see forecasters adjust their Friday payrolls estimates shortly after its release. US factory orders and mortgage applications round off the data docket.
Bulletin headline summary from Bloomberg and RanSquawk
- Treasuries decline, 5Y and 7Y lead, curve spreads flatten; first look at March employment comes today with ADP (est. 195k); trading may be cautious before ECB meeting tomorrow (preview here), payrolls on Friday.
- Russia pressed Ukraine to disarm nationalists it says are oppressing its compatriots there, while NATO looked to bolster European security as the alliance’s Cold-War foe massed troops on Ukraine’s border
- Europe may enter a new period of market volatility, former Bundesbank president Axel Weber said in an interview; European Parliament elections at the end of May could affect the decisiveness of European leaders
- The effort to keep Middle East peace talks alive has pushed the U.S. to consider doing what once was unthinkable: freeing convicted spy Jonathan Pollard
- Talks are foundering as Palestinian President Abbas vowed to pursue bid for statehood at the U.N.
- A Chinese building materials producer will avert what would have been the second default in the nation’s onshore bond market as its guarantor said it would step in to help, two people familiar with the matter said
- China’s overnight money-market rate climbed for a seventh day, the longest stretch in five months, after the central bank drained cash from the financial system
- Northern Chile was shaken by an 8.2-magnitude earthquake that killed five people and forced the evacuation of coastal areas, prompting President Michelle Bachelet to order military leaders to the region to keep order
- Goldman is looking to sell its NYSE market-making unit to a Dutch investment firm, as computers replace traders who once dominated the business at the corner of Wall and Broad streets
- Sovereign yields higher. Asian stocks gain, with Nikkei +1%, Shanghai +0.6%. European equity markets, U.S. stocks futures gain. WTI crude lower, copper and gold gains
US Event Calendar
- 7:00am: MBA Mortgage Applications, March 28 (prior -3.5%)
- 8:15am: ADP Employment Change, March, est. 195k (prior 139k)
- 9:45am: ISM New York, March (prior 57.0)
- 10:00am: Factory Orders, Feb., est. 1.2% (prior -0.7%) Central Banks
- EU finance ministers, central bankers continue Athens meeting
- 12:30pm: Fed’s Lockhart speaks in Miami
- 4:00pm: Fed’s Bullard meets reporters in St. Louis
- POMO – 11:00am: Fed to purchase $2b-$2.5b notes in 2021-2024 sector
EU & UK Headlines
Despite the uptick in excess liquidity in Euro-area banking system, together with a fall in an overnight EONIA fix, funding markets remained volatile this morning, with shorter-dated EONIA trading higher. Nevertheless, further unwind of expectation of QE by the ECB meant that Bunds traded lower since the open, with concession related flow also weighing on the short-end amid supply from Buba (1% 2019 Bobl auction was subsequently successfully offered).
US Headlines
USTs traded lower during the first half of the EU session, dragged lower by Bunds and also on the prospect of more corporate issuance, with 5y in particular focus ahead of the expected USD 1bln 5y deal launch by Nordic Investment Bank today which is excepted to be swapped to floating format.
Equities
Overall, relatively quiet trading session in Europe this morning as market participants positioned for the upcoming ECB governing council meeting, which as a result meant that peripheral equity indices underperformed. Also of note, companies trading ex-dividend in the UK resulted in the FTSE-100 underperforming relative to core equity indices (ex-dividend related stocks subtracted around 4 index points from the benchmark index).
FX
The release of weaker than expected macroeconomic data from the UK failed to weigh on GBP/USD and instead benefited from market participants positioning for the upcoming ECB meeting, which in turn weighed on EUR/GBP, albeit marginally. As a result, heading into the North American open, EUR/USD and GBP/USD are seen largely flat. Elsewhere, having benefited overnight following the release of the BoJ’s Tankan inflation survey, USD/JPY edged off the best levels of the session on touted profit taking related flow.
Commodities
Despite a fall in API inventories, WTI and Brent crude futures traded steady this morning, in minor negative territory, with Brent prices weighed on by further reports of blockade ending within days in Libya. Of note, NATO’s top military commander said that the situation with Russia’s forces on the Ukrainian border remains incredibly concerning. Going forward, market participants will get to digest the release of the latest ADP Employment Change, Factory Orders and the release of the weekly DoE reports.
US API Crude Oil Inventories (Mar 28) W/W -5800k vs. Prev. 6280k
– Cushing Crude Inventories (Mar 28) W/W -1520k vs. Prev. -1030k
– Gasoline Inventories (Mar 28) W/W 1800k vs. Prev. -2840k
– Distillate Inventories (Mar 28) W/W -1700k vs. Prev. 267k
Elsewhere, copper and iron ore prices saw volatility overnight, after mines in Chile were evacuated after an 8.2 magnitude earthquake, followed by sporadic tsunami warnings.
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We conclude with the overnight summary by DB’s Jim Reid
Markets were fortunate yesterday with the S&P 500 (+0.70%) closing at fresh record highs for the seventh time this year. Elsewhere EM and European equities were up for an eight and sixth day respectively. Markets are regaining some poise after the heightened geo-political tensions last month have eased. We now head for the business end of the week with ADP today, the ECB meeting and ISM non-manufacturing tomorrow and payrolls on Friday. Aside from the easing geopolitical tensions, markets also welcomed a number of encouraging data points both on a macro and micro level yesterday. Those hoping for a bottom in China’s economic picture looked to recent copper price moves, which are now about 5% off the recent lows, as fears of commodity financing unwinds fade. Indeed, Shanghai copper futures are up for the 10th time in the last 13 sessions. Over to the US, data yesterday was also heartening for those calling for a recovery in US activity after the weather induced slump lasting most of Q1. We wrote yesterday about market chatter suggesting that the US automakers would post surprisingly strong March sales numbers. Well they didn’t disappoint, posting overall sales growth of 5.7% well above Reuters consensus expectations for a circa 2% increase. Management commentary from Ford and Toyota suggested that customer traffic in dealer showroom improved in the second half of March as weather had kept consumers away in the earlier part of the month. According to data compiled by Reuters, GM sales rose 4%, Ford 3%, Toyota 5% and Chrysler up 13% from a year ago and all beat expectations by industry research firm Edmunds.com.
In terms of the market reaction, the S&P 500 auto sector (+2.5%) was the clear outperformer yesterday, underpinned by Ford who recorded a 4.6% gain on the day. Others had a more bearish interpretation of the data, saying that incentives rose by an average of 8% to around $2,800 per vehicle as dealers tried to clear excess stock.
While the auto sector shakes off the effects of the weather, the lingering impact of the recent cold snap is still being felt in other parts of the US economy. According to the International Council of Shopping Centers, the US saw its highest percentage over the last four years of consumers reporting that they didn’t shop through any channel over the last week. This coincided with cooler national temperatures last week which were on average 4 degrees Fahrenheit cooler than normal, marking the 4th coldest last week of March in more than 23 years. Nevertheless, ICSC retail store sales last week rose 3.6% week-on-week, compared to a decline of 1.5% prior.
Staying with the US, on the macro side, though the ISM manufacturing headline number came in below estimates (53.7 vs 54.0), it was a 0.5pt improvement on last month’s outcome and many pointed to the encouraging signs in the various subcomponents. Our US economists note that the most forward-looking component, new orders, was up 0.6 to 55.1, its highest reading since December (64.4). Production advanced the most among the subcomponents, up 7.7 points to 55.9, also the highest reading since December (61.7). For the quarter, the ISM averaged 52.7, which is consistent with Q1 real GDP growth around 2% in their view. There was a small pop in equities following the ISM but equities were already on their way to a solid day well before the release of the data.
Overnight markets are trading with a positive tone led by the strong finish to the S&P 500 yesterday. There was a bit of market volatility after news that a magnitude 8.2 earthquake struck off the coast of Chile overnight at 9pm local time. Already there are reports of 1.5m to 2m waves hitting the Chilean coastline and coastal areas are currently being evacuated. The extent of damage is so far unclear but there have been reports of power outages in a number of Chilean towns. Japan’s meteorological bureau said that a tsunami may reach the coast of Japan over the next 24 hours. COMEX copper futures traded as high as +1.3%, on fears of supply disruptions from Chile, but they have given up most of those gains to trade +0.4% as we type. In Asia, the Nikkei (+1.8%) is outperforming the rest of the region after getting a boost from an article in the Nikkei saying that Japan’s Government Pension Investment Fund will be targeting high yield stocks as part of an overhaul of its investment strategy. Indeed, a number of the yield sensitive sectors such as banks (+2.3%) and real estate (+3.8%) have been beneficiaries today. The BoJ said today that latest inflation expectations from Japanese enterprises point to a pickup in prices to 1.7% over three years, and price rises of 1.5% over the next twelve months – though this is somewhat lower than the central bank’s own inflation targets. Elsewhere Chinese stocks are posting modest gains (Shanghai Comp +0.4%) led by property developers with domestic newswires saying that a number of large cities are considering easing property market purchase restrictions.
Returning to yesterday, in addition to the theme of higher equities we saw curve steepening in USTs and a continued bid for yield and duration in credit. The USTs 2s/30s curve added 4bp, led mostly by the long end as the treasury curve partially retraces its post FOMC bearish flattening. The 30year yield increased for the third straight session. The tightening in credit spreads that we saw into quarter end extended into Q2, with the European Crossover index tightening for the sixth straight session while in the US, the CDX IG index closed firmer for the fourth straight day. The strong sentiment allowed EM to have one of its busiest days in term of new issuance with billions in corporate and sovereign deals being priced. On a similar vein, the WSJ noted yesterday that US investment grade market just capped off its the second busiest quarter ever for new issuance in Q1.
Turning to the day ahead, there’s not a whole lot in the European calendar. Euroarea finance ministers continue their meeting in Athens where there could be further headlines around bank supervision and aid for Ukraine. The US ADP employment report will be released around 1:15 London time. Consensus expectations are for a headline gain of 195k, and we’ll probably see forecasters adjust their Friday payrolls estimates shortly after its release. US factory orders
and mortgage applications round off the data docket.
via Zero Hedge http://ift.tt/1ops4eP Tyler Durden