With another day of little otherwise completely irrelevant macro news (because following last night’s abysmal Australian jobs data one would think the AUD would be weaker; one would be wrong), market participants – all 3 of them – and algos (which have finally uncovered where Iraq is on google maps) are finally turning their attention to the latest conflict in Iraq (because they obviously no longer care about the martial law in Thailand or the civil war in Ukraine), where the Al Qaeda spin off ISIS overnight seized at least 310K B/D in refinery capacity in northern Iraq according to the Police, and what is more concerning, is now less than a 100 kilometers away from Baghdad. Will ISIS dare to venture further south? Keep an eye on crude for the answer.
More importantly the world cup begins today which means another day of near record low volumes, and thus constant “market” levitation, especially now that the US-hours USDJPY rigging team (must.keep.above.102) is around, is assured.
In Asia, a number of bourses have retreated from their recent highs overnight with the Nikkei (-0.8%) and HSCEI (-0.7%) being the main laggards. Volumes are again fairly low ahead of China’s latest industrial production and retail sales data which will be released tomorrow. There are more reports from domestic Chinese media that the PBoC could expand its use of targeted RRR cuts to support the economy (Securities Journal) amid chatter that tomorrow’s Chinese data could disappoint. In Japan, the BoJ begins its two-day policy meeting today and the discussion around potential BoJ exit strategy has again popped up. Bloomberg is reporting today that BoJ officials could adopt a strategy of maintaining the size of its balance sheet after it reaches the 2% inflation target, using cash flow from maturing assets to buy longer term JGBs. The article says that the BoJ wants to avoid a spike in yields if asset purchases were to abruptly cease given that the BoJ’s assets are now equivalent to half the size of GDP.
European stocks trade little changed as U.S. index futures rise with oil. Asian stocks fall from 6-yr highs. U.S. to report initial jobless claims, retail sales later today.
- S&P 500 futures up 0.1% to 1945.2
- Stoxx 600 little changed at 347.9
- US 10Yr yield up 1bps to 2.65%
- German 10Yr yield unchanged at 1.4%
- MSCI Asia Pacific down 0.3% to 144.1
- Gold spot up 0.1% to $1261.8/oz
EUROPE
- 13 out of 19 Stoxx 600 sectors rise; media, tech outperform, basic resources, autos & parts underperform
- 45.7% of Stoxx 600 members gain, 51.5% decline
ASIA
- Asian stocks fall with the Sensex outperforming, Nikkei underperforming.
- MSCI Asia Pacific down 0.3% to 144.1
- Nikkei 225 down 0.6%, Hang Seng down 0.4%, Kospi down 0.1%, Shanghai Composite down 0.2%, ASX down 0.5%, Sensex up 0.2%
- 2 out of 10 sectors rise with telecom, utilities outperforming and information tech, finance underperforming
Bulletin headline summary from RanSquawk and Bloomberg
- Treasuries extend losses seen since the start of June, 10Y yield just below 2.665% 100-DMA before week’s auctions conclude with $13b 30Y.
- Bonds to be sold today yield 3.473% in WI trading vs. 3.440% in May; 10Y were awarded at 2.648% at yday’s auction, 0.8bp above WI yield at 1pm according to Stone & McCarthy
- Islamic militants’ sweep through northern Iraq and the collapse of the Iraqi army threaten to disrupt global oil markets and raise questions about Obama’s 2011 decision to withdraw all U.S. troops from Iraq and his reluctance to help arm moderate Syrian rebels
- 53% of Americans oppose the Affordable Care Act, Obama’s signature legislation, even as those saying it should be repealed fell to 32%; only 26% of Americans say that the country is headed in the right direction, a Bloomberg National Poll shows
- Iran’s oil exports have increased so far this year, according to Bloomberg calculations, a trend that threatens to violate U.S. sanctions on the Islamic Republic’s main source of revenue
- U.S. House Republican leaders, seeking a swift pivot from the surprising election defeat of Majority Leader Eric Cantor, are pressing for a quick vote of party unity in the anointment of his successor
- The Chinese agency that stockpiles strategic commodities is checking to ensure its copper purchases are free of collateral risks amid an investigation of metals at Qingdao Port, said people with knowledge of the matter
- China’s new yuan loans and money supply topped estimates in May as the government supports economic growth while reining in shadow banking
- New Zealand’s central bank raised interest rates for the third time this year and signaled more tightening to come as the Christchurch rebuild and surging immigration fuel growth, sending the kiwi higher
- Sovereign yields mixed. EU peripheral spreads tighten. Asian equities fall; European equity markets, U.S. stock futures gain. WTI crude and gold higher, copper lower
US Event Calendar
- 8:30am: Retail Sales, May, est. 0.6% (prior 0.1%)
- Retail Sales Ex Autos, May, est. 0.4% (prior 0.0%)
- Retail Sales Ex Autos and Gas, May, est. 0.4% (prior -0.1%)
- Retail Sales Control Group, May, est. 0.4% (prior -0.1%)
- 8:30am: Import Price Index, May, est. 0.2% (prior -0.4%)
- 8:30am: Initial Jobless Claims, June 7, est. 310k (prior 312k)
- Continuing Claims, May 31, est. 2.605m (prior 2.603m)
- 8:45am: Bloomberg June U.S. Economic Survey
- 9:45am: Bloomberg Consumer Comfort, June 8 (prior 35.1)
- 10:00am: Business Inventories, April, est. 0.4% (prior 0.4%) Central Banks
- 2:00pm: BoE’s Carney and Chancellor of the Exchequer Osborne to address annual Bankers and Merchants Dinner in London
- TBA: Bank of Japan sets monetary base target, issues monetary policy statement
- 1:00pm: U.S. to sell $13b 30Y bonds in reopening
- 11:00am POMO: Fed to purchase $550m-$800m TIPS in 2018-2044 sector
FIXED INCOME
Given the absence of tier 1 economic releases this morning, price action was driven by the prospective outlook for monetary policies of the ECB and the BoE, which in turn resulted in further Euribor curve flattening as EONIA fwd rates continued to edged towards zero. At the same time, Gilts underperformed Bunds, while absorption of supply, with Italy selling max targeted amount of EUR 8.5bln (3y BTP sold at record low yield) failed to provide Bunds with any direction for prices.
US HEADLINES
Newsflow out of the US remains light with attention now turning to the weekly US jobs report, retail sales, import price index and EIA natural gas storage change.
EQUITIES
Lack of positive catalysts resulted in a somewhat cautious price action, with the more defensive sectors outperforming. Basic materials sector underperformed, dragging the FTSE-100 lower, after MS cut Anglo American to underweight from equal weight. Elsewhere, Unilever +1.0%, after reports a PE consortium may launch a GBP 40/shr in a bid to break up Co.
FX
EUR remained under pressure this morning, with EUR/GBP trading at its lowest level since early December 2012, amid policy divergence between the ECB and the BoE. This has seen GBP/USD trade higher after taking out stops through its o/n tight Asian range and 50DMA at 1.6802.
Elsewhere, NZD/USD reached a 3-week high after the RBNZ hiked its key benchmark rate by 25bps to 3.25% (as expected) and struck a less dovish than expected tone in its statement, signalling further hikes this year, which was outside of market expectations. This morning, RBNZ’s deputy governor said might have to raise rates higher than expected if NZD were to depreciate, adding that a neutral level for rates is 4.5%-5%.
COMMODITIES
Uncertainty surrounding potential supply disruptions from Ceyhan-Kirkuk pipeline which carries 1.6mln bbls per day amid fears that the Islamic State of Iraq and Syria (ISIS) will continue to seize cities in Iraq pushed up WTI prices to its highest level since September 2013.
Rise in risk-premium supported gold and silver prices, while platinum and palladium prices reversed overnight gains after yet another rise in palladium-backed ETFs, following reports that the AMCU Treasurer is to present wage offer to members in Rustenburg today.
* * *
DB’s Jim Reid concludes the overnight recap
Global stocks took a breather yesterday markets as profit taking took hold across asset classes and investors became more selective following a strong run up in the past few days. Yesterday was the first real pull back in risk since the ECB last week but the conviction seemed low with small volumes in many markets. The low volumes can also be blamed on the light global data docket. Indeed, S&P500 volumes were the lowest for a Wednesday since the day before Thanksgiving last year. The S&P500 and Dow had their worst day in three weeks while the Stoxx600 fell by the most in a month, but the absolute quantum of the moves were not large at -0.65%, -0.60% and -0.56% respectively. The weakness started during the European session with a few negative corporate announcements and profit warnings largely to blame – not to mention a return of Middle Eastern geopolitical risks (more on that below).
In Asia, a number of bourses have retreated from their recent highs overnight with the Nikkei (-0.8%) and HSCEI (-0.7%) being the main laggards. Volumes are again fairly low ahead of China’s latest industrial production and retail sales data which will be released tomorrow. There are more reports from domestic Chinese media that the PBoC could expand its use of targeted RRR cuts to support the economy (Securities Journal) amid chatter that tomorrow’s Chinese data could disappoint. In Japan, the BoJ begins its two-day policy meeting today and the discussion around potential BoJ exit strategy has again popped up. Bloomberg is reporting today that BoJ officials could adopt a strategy of maintaining the size of its balance sheet after it reaches the 2% inflation target, using cash flow from maturing assets to buy longer term JGBs. The article says that the BoJ wants to avoid a spike in yields if asset purchases were to abruptly cease given that the BoJ’s assets are now equivalent to half the size of GDP.
Returning to yesterday, US treasury yields spent much of the day within a 2bp trading range and closed basically unchanged at the end of the day. 10 UST yields popped a couple of basis points following yesterday’s lacklustre 10yr auction which left dealers with the largest share in almost a year. There was better demand for USTs coming after headlines that militants from al-Qaeda offshoot ISIS had captured the country’s largest oil facility in the town of Baiji. This was disputed by government officials however. Reports suggest that ISIS and other militant groups have now taken Tikrit, Mosul and Fallujah – the latter being fairly close in proximity to Baghdad. The wider implications of these events are unclear. Foreign Policy magazine said that ISIS is getting closer “to achieving its dream of a caliphate that reaches from the Mediterranean coast….to Iran’s Zagros Mountains”. Others were more sanguine saying that there is a risk that northwestern Iraq could become another principal destabiliser in the region (CNN). The Iraqi government has asked the US to assist with air strikes targeting militant staging camps in the country’s west but there hasn’t been a formal response from the White House. So far there has been no reported disruptions to oil supplies though there is some concern that crude prices could head upwards ahead of the northern hemisphere driving season. Brent closed 0.39% higher yesterday, and that performance is being matched in trading this morning.
After a quiet couple of days for data, today’s focus will be on US retail sales where consensus is expecting a rebound to +0.6% m/m from April’s +0.1%. DB is calling for +0.7%. Other highlights on the radar include US initial jobless claims, business inventories and the ECB’s monthly report. The Bank of Canada will publish its Financial System Review today.
via Zero Hedge http://ift.tt/1mLIIPl Tyler Durden