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Despite near-record speculative positioning short Treasuries across the curve…

Yields are rising, and rising fast with 10Y breaking  the 3.00% Maginot Line for the first time since January 2014…

After not quite getting there yesterday, today’s selling finally pushed the 10Y over the level…

 

Investors haven’t been this pessimistic on benchmark U.S. Treasuries since February’s sell-off in equities.

And as Bloomberg reports, fund managers who need to insulate their bond portfolios from higher yields are having to pay a stiffer premium for puts over calls now than at the start of the year.

For now, bond yields are running ahead of Jeff Gundlach’s favorite indicator (Copper/Gold)…

But amid all the panic about rising bond yields… the yield curve continues to flatten on the day…

 

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Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Inspectors from the Organization for the Prevention of Chemical Weapons (OPCW) have finally arrived in Douma, Syria, to assess whether a gas attack took place earlier this month. It has taken a week for the inspectors to begin their work, as charges were thrown back and forth about who was causing the delay.

Proponents of the US and UK position that Assad used gas in Douma have argued that the Syrian and Russian governments are preventing the OPCW inspectors from doing their work. That, they claim, is all the evidence needed to demonstrate that Assad and Putin have something to hide. But it seems strange that if Syria and Russia wanted to prevent an OPCW inspection of the alleged sites they would have been the ones to request the inspection in the first place.

The dispute was solved just days ago, as the OPCW Director-General released a statement explaining that the delay was due to UN security office concerns for the safety of the inspectors.

We are told that even after the OPCW inspectors collect samples from the alleged attack sites, it will take weeks to determine whether there was any gas or other chemicals released. That means there is very little chance President Trump had “slam dunk” evidence that Assad used gas in Douma earlier this month when he decided to launch a military attack on Syria. To date, the US has presented no evidence of who was responsible or even whether an attack took place at all. Even right up to the US missile strike, Defense Secretary Mattis said he was still looking for evidence.

In a Tweet just days ago, Rep. Thomas Massie expressed frustration that in a briefing to Congress last week the Director of National Intelligence, the Secretary of State, and the Secretary of Defense “provided zero real evidence” that Assad carried out the attack. Either they have it and won’t share it with Congress, he wrote, or they have nothing. Either way, he added, it’s not good.

We should share Rep. Massie’s concerns.

US and French authorities have suggested that videos shared on the Internet by the US-funded White Helmets organization were sufficient proof of the attack. If social media postings are these days considered definitive intelligence, why are we still spending $100 billion a year on our massive intelligence community? Maybe it would be cheaper to just hire a few teenagers to scour YouTube?

Even if Assad had gassed his people earlier this month there still would have been no legal justification for the US to fire 100 or so missiles into the country. Of course such a deed would deserve condemnation from all civilized people, but Washington’s outrage is very selective and often politically motivated. Where is the outrage over Saudi Arabia’s horrific three-year war against Yemen? Those horrors are ignored because Saudi Arabia is considered an ally and thus above reproach.

We are not the policemen of the world. Bad leaders do bad things to their people all the time. That’s true even in the US, where our own government steadily chips away at our Constitution by setting up a surveillance state.

We have neither the money nor the authority to launch bombs when we suspect someone has done something wrong overseas. A hasty decision to use force is foolish and dangerous. As Western journalists reporting from Douma are raising big questions about the official US story of the so-called gas attack, Trump’s inclination to shoot first and ask questions later may prove to be his downfall.

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US National Home Prices in February are now almost 7% above the 2006 peak according to the latest Case-Shiller data and are surging at 6.8% YoY – the fastest pace since June 2014.

The data showed monthly gains in all 20 cities, including strong advances in expensive areas such as Seattle and Los Angeles, along with cheaper regions including Cleveland and Detroit.

All 20 cities in the index showed year-over-year gains, led by a 12.7 percent increase in Seattle and an 11.6 percent advance in Las Vegas; Washington was slowest at 2.4 percent

This pushed the national home price to a new record high…

“With expectations for continued economic growth and further employment gains, the current run of rising prices is likely to continue,” David Blitzer, chairman of the S&P index committee, said in a statement.

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Just hours before Toronto van attack suspect Alek Minassian was set to arrive in court at 100 Finch Ave. W at 10 am in Toronto, Reuters published a profile of the perpetrator of the worst mass killing in Canada in nearly 30 years.

The Richmond Hill man, who was described by acquaintances as withdrawn and was said to have attended a high school program for students with special needs, is accused of murdering 10 and injuring another 15 when a rented van he was driving jumped a curb and rammed into pedestrians along a 2.2 kilometer stretch of Yonge St. between Sheppard Ave. and Finch Ave. Monday afternoon.

In the Canadian education system, “special needs” is a broad term encompassing students with learning, behavioral or physical disabilities.

One former classmate of Minassian’s described his behavior as extremely unusual, saying he would shuffle through the halls of Thornlea Secondary School in Toronto’s northern suburbs with his hands clasped and his head down while making meowing noises.

Still, she said Minassian never showed signs of violent behavior.

Police say Alek Minassian, 25, was arrested 26 minutes after he allegedly drove a white rental van into a crowd in the north end of Toronto, sending bodies flying.

A bystander video of the incident, shown on CBC TV, shows a man repeatedly pointing an object at a police officer who shouts at him to ‘get down’ as the suspect demands: “Kill me”.

Shereen Chami said her former classmate was not violent. She said Minassian was part of a program at Thornlea Secondary School, in Toronto’s northern suburbs, for high school students with special needs, attending a mix of mainstream and separate classes.

Chami remembers him walking the halls with his hands together and his head down, and making meowing noises.

“He wasn’t a social person, but from what I remember he was absolutely harmless,” she said.

Two other former classmates who asked not to be named confirmed that they had attended special needs classes with Minassian. According to a bare-bones Facebook page found on an Internet archive site, Minassian studied at Seneca College for nearly seven years after graduating from high school in 2011. He had cited “software development” as a professional skill.

In a September 2013 blog post, somebody purporting to be Minassian described their progress developing software at Seneca’s Center for Development of Open Technology. A parking app listed in Google’s Android app store was designed by somebody named Alek Minassian. Police said Minassian had been unknown to them before the attack and that his motives were still murky – though they said the attack “definitely looked deliberate.”

However, CNN reported that a US law enforcement official told its reporters that Minassian had been known to them.

Video of a Toronto police officer subduing and arresting Minassian has provoked astonishment online as the officer managed to take the suspected mass murderer into custody without firing a single shot – despite Minassian shouting that he had a gun in his pocket. In the video, the officer tells the man to “get down”, and when the suspect says he has a gun, the officer repeats “I don’t care. Get down.”

Toronto Police Chief Mark Saunders said the unnamed officer had done a “fantastic job” assessing the “circumstance and environment” to help bring about a “peaceful resolution” to the standoff, BBC News.

Meanwhile, Mike McCormack, president of the Toronto Police Association, told the Globe and Mail newspaper that the officer was a “hero” who could’ve justified opening fire.

Minassian was arrested in the white rental van less than 30 minutes after police received a 911 call reporting the incident.

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Via Global Macro Monitor,

Facts do not matter anymore.  Opinions are now facts.  We truly live in dangerous times.

Reagan And Trump Stock Market

We were stunned by an article posted on the CNBC website over the weekend, The Trump stock market looks a lot like Ronald Reagan’s, Ralph Acampora says – and that may mean trouble.

Are you fricking kidding me?  Nothing could be further from the truth.

The Reagan market looks like the Trump market?   The Trump S&P500 is almost 40 percent above the Reagan S&P after 365 trading days from the election.

We do agree on the last part of the headline that stocks are headed for trouble, however.

Presidents And Stock Markets

We pride are ourselves as students of presidential stock market cycles.  We have posted several pieces on stock market returns during presidential terms over the many years. See here and here and here.

JFK-Trump S&P500 Analog

Our latest venture  has been constructing and tracking the stunningly tight JFK-Trump S&P500 analog.  We did not just stumble upon the analog with a feeling or a religious epiphany, randomly deciding to “overlay two charts on top of each other” (a common criticism of analogs)  but we crunched 70 years of data searching for similar volatility shocks to the one the market experienced in early February.

We found three:  1) The Eisenhower heart attack in 1955; 2) the 1987 stock market crash, and 3) the 1962 “Kennedy Slide” or bear market.   We dismissed the Eisenhower shock as it did not even lead to an official correction, and the 1987 bear market — peak to trough — was over in just 39 days.

Is The Trump Market Similar To The Reagan Market?

Absurd. Take a look at the data in the first analog and you decide.

The JFK-Trump analog is only 84 bps points apart with respect to price-performance 365 trading days after the election whereas the Reagan-Trump analog illustrates an almost 40 percent divergence.

(Click here for interview)

We love Ralph, but we are having trouble reconciling his comments to CNBC.

“In fact, if you look at the chart you will see Ronald Reagan had a six-month honeymoon.  It lasted…I think the percentage gain was roughly about ten percent.” – Ralph Acampora

Ralph seems to refer to the Dow instead of the S&P, so we included it in the analog.

As the chart illustrates, Reagan’s S&P500 peaked 18 days after election day, rising 8.9 percent bolstered by the surprise November 4th electoral landslide.  The S&P then fell 27.15 percent over the next 430 trading days, bottoming on August 12, 1982.

The Reagan bull market ignited that August day, taking the S&P500 up over 61 percent through 1983 and 179.86 percent by the end of his two terms.

Much of the stock volatility during the first 18 months of Mr. Reagan’s first term was due to very tight monetary policy, a deep recession, and volatile interest rates.

On election day, for example, the yield on the 10-year was 12.46 percent.  The yield continued to rise, finally peaking at 15.84 percent on September 30, 1981, almost a year before the economy emerged from recession and the August 1982 stock market bottom.

Reagan’s Tailwinds, Trump’s Headwinds

We posted a piece in December 2016 comparing the macro initial conditions between the Reagan and Trump administrations on the eve of their presidencies,  Reagan v Trump Macro Initial Conditions, listing several indicators,  including monetary, oil prices, and demographics.  Our conclusion was a Reagan-like bull market is very unlikely during Trump’s tenure.

President Reagan also got his recession out of the way early in his administration

Segue To North Korea

Finally, this exercise reminds me of conversations I have had with friends about the upcoming U.S.-North Korea summit.  As you have probably read, we are worried the U.S. is going to be played by the NorKo’s and Chinese like the dueling banjos in Deliverance.

What always comes up is whether President Trump’s hardline and bluster toward Kim Young Un has worked and brought North Korea to the table.   I have tried to present the facts, as, say, a CIA desk officer at the U.S. embassy in South Korea (still without an U.S. Ambassador, BTW) would.

Sure, I have my biases and confess I’m not a big fan of President Trump’s policies or his behavior.

But here are the facts:

In the first eleven months of the Trump Administration, the North Koreans engaged in twenty missile tests, some nuclear,  compared to only eight during the entire two terms of President Obama.

During Trump’s first year in office, North Korea conducted more than twice as many ballistic missile tests (20) as it did during the first year of Barack Obama’s presidency (8).  – Foreign Affairs

I maintain the president’s bluster and the painting of many red lines baited Kim into mocking and ultimately crossing them, twenty times, to be exact.  Two of the six missiles fired by the North Koreans over Japan occurred in 2017.

It was during these last missile and weapons tests,  North Korea probably obtained their big nuke and ICBM delivery system.

Kim is now finally prepared for nuclear chastity.  That is after the hermit kingdom has lost its thermonuclear virginity.

North Korea has promised to end all its atomic and missile tests – but experts warned last night that the dramatic pledge may mean the rogue state has already perfected its nuclear weapons system.

Dictator Kim Jong Un’s surprise announcement comes prior to a planned summit with President Donald Trump next month.

But while some have greeted the offer as a welcome sign of peace, a leading ex-CIA analyst said the Communist despot may have already achieved his ambition of creating a weapons system capable of hitting any target in the US. – Daily Mail

North Korea now comes to the table stronger than ever and most likely with some sort of secret deal in pocket with the Chinese.

Without equivocating, it’s fair to say that both the declarations on nuclear testing and on halting the tests of ICBMs are significant concessions. Specifically, Kim announced that North Korea will “discontinue nuclear testing” and that the Punggye-ri site will be “dismantled to transparently guarantee the discontinuance of the nuclear test [sic].” On ICBMs, Kim simply said that no “inter-continental ballistic rocket test-fire” would take place after April 21, 2018.

While significant, we shouldn’t be fooled into thinking that these concessions are being made out of a position of weakness or as a necessary show of bona fide goodwill to South Korea and the United States before the upcoming summits. Kim’s rationale for doing away with the nuclear test site was to underline that North Korea had already successfully come up with the nuclear weapons designs it needed. – Daily Beast

There were many articles over the weekend on the wisdom of even holding the summit.

 White House privately skeptical of North Korea’s plans to freeze nuclear testing  – Washington Post

Mr. Kim’s moves are also unsettling officials in the U.S., Japan and China. Some suspect he is merely posturing in advance of the meeting, as well as before a separate one with South Korea’s president. Others worry that his gestures could put Mr. Trump on the defensive in the grinding negotiations over the future of North Korea’s nuclear weapons.  – NY Times

Trump tempers expectations on North Korea  – Politico

Both leaders go into the meeting leader that are impulsive, unprepared, and the U.S. is way understaffed in its expertise and professional diplomatic corps.

Moreover, both sides don’t even seem to be in the same zip code in terms of perspective, motive, and expectations.

The North Koreans seem to believe that their nuclear breakthroughs forced Mr. Trump to accede to a leaders’ summit meeting, something they have long desired as a way to prove themselves a peer of the major powers.

But American officials have said Mr. Kim was the one forced to the table, compelled there by American sanctions and military threats.

North Korea’s statements suggests that the country sees itself as on the verge of forcing the world to accept it as it is, finally securing its long-term survival.
– NY Times 

Let’s just say we are not expecting a Reagan-Gorbachev breakthrough.

By the way,  our friends seem to think Trump deserves the Nobel Prize based on their feelings, fantasies,  and the spin that is swirling about the ether and Twittersphere.

We sincerely hope they are correct,  but we fear disaster based on our observation of the facts.  Both sides are about to engage in a high-wire act without a safety net.

Has the market priced the risk?

And the Reagan stock market is the Trump stock market.

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Another day, another flashing red warning that sales of the iPhone X are far worse than Tim Cook had ever expected; this time courtesy of Austrian chipmaker AMS AG – which makes the optical sensors that control brightness and color  – which just days after a similar warning from semiconductor giant Taiwan Semi, became the latest Apple-supplier to cast doubt over the iPhone’s chilled reception.

AMS shares plunged as much as 14%, the most this year, after warning on negative operating margins because of low production capacity at its Singapore factories, and after its guidance for sequential revenue drop in 2Q missed the lowest estimate among analysts in a Bloomberg survey, adding to the recent negative datapoints in the iPhone X supply chain.

Mirabaud analyst Neil Campling said AMS’ “spectacular miss on guidance” was so bad, “it’s surprising the company didn’t preannounce.” Campling also said that major product changes and product transitions blamed are “all Apple, specifically iPhone X” and added that “phasing down iPhone X has taken the supply chain by surprise.”

With regard to AMS, he said that even as 3D sensing is a complex technology, AMS is another semiconductor company to have re-rated higher, valuation needs to reset. And while other analysts noted AMS’ expertise in complex 3D sensing technology should provide some long-term cover, the lack of short-term visibility will keep shares under pressure in the near term.

Following the AMS reports, European chipmakers including Dialog Semi, STMicro and IQE all fell, with industry concerns further fueled by a disappointing report from South Korea’s SK Hynix. Following last week’s surprise guidance miss, today the bulk of Apple’s supply chain was lower, with Dialog Semi -5.9%, STMicro -4%, ASML -2.1%, and Infineon -1.6%.

Following the report, Apple’s five largest device assemblers have all reported a sharp slowdown after peaking at the end of last year, suggesting demand for the high-end device may have faded just a quarter after its release. As Bloomberg notes, while Hai Precision Industry Co., Pegatron Corp. and three other key suppliers reported an 8 percent rise in their total sales across the March quarter, growth cratered later in the period – a drop that in the past has presaged a downturn for Apple, hardly what AAPL longs want to hear one week ahead of earnings, which are expected on May 1.

As Bloomberg also notes, the concern is that the iPhone X, while enjoying a customary holiday quarter spike for new-generation Apple gadgets, “fizzled out rapidly.”

Apple’s costliest smartphone has struggled to draw customers in emerging markets, while competitors from Huawei to Xiaomi roll out more premium phones and dominate China — the U.S. company’s biggest foreign market. On Friday, Morgan Stanley cut its estimate on iPhone shipments by 6 million, underscoringthe growing unease since Taiwan Semiconductor Manufacturing Co., the maker of iPhone processors, issued a disappointing outlook that triggered a 7 percent loss in Apple’s value over the past three days.

As AAPL’s recent stock troubles confirm, investors remain concerned that iPhone failed to meet their lofty expectations. Mia Huang, an analyst at Taipei-based research firm Trendforce, estimates that overall iPhone production volumes grew slightly to 54-56 million units in the March quarter – barely up from 52 million in the same period of last year, when it was propelled by demand for lower-priced and older models like the iPhone 6S and ramp up of the iPhone 7.

“According to our estimates, iPhone X’s production volume fell by 50% in the first quarter compared to the fourth quarter,” said Huang.

Hardly a ringing endorsement for the world’s most valuable company…

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One can seek the reasons for today’s bullish, risk-on move in global stocks in the halt to the bond selloff, in strong earnings by SAP, Verizon and CAT, on a goldilocks increase in the price of oil (over $69, the highest since 2014), and so on, or alternatively one can assume that algos somehow got an advance look at what Dennis Gartman was going to say this morning in his latest letter to clients and trading accordingly.

In the very short term we can be and have been ever-so-slightly positive of stocks, but once again to make very certain that we are perfectly clear about our view on equities we are lifting whole clothe once more that which we had written last week… several times: That although we may be bullish of shares in the short run… because the CNN Fear & Greed Index has turned upward from single digit over-sold levels and nothing more… we are still very much certain that we’ve entered a longer term, bear market here in the US and abroad. We believe the highs made globally earlier this year when our International Index rose to 12,857 on January 29th are very nearly sacrosanct and likely shall not be seen again for quite some very long while into the future as each interim high since then has been lower as has each new interim low… or nearly so. We trust we are clear.

As for our retirement account here at TGL the only change we made was to take a very small short derivatives position early yesterday morning to focus our attention upon that side of the market; however, it was small enough only to force us to pay heed and nothing more. Otherwise, our positions are as they were last week: long of the shares of a business development company; long of a short duration bond fund; long of cotton via the cotton ETF and long of gold via a gold fund.

S&P futures were up 16 points shortly after Gartman’s note.

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While the UN, EU, International Atomic Energy Agency and a host of implored President Trump late Monday to preserve the landmark Iran nuclear deal – even if the US couldn’t achieve concessions on Iran’s ballistic missiles program that it has been aggressively pushing – Iranian officials have been cranking their rhetoric up to “11”, with Ali Shamkhani, the Secretary of Iran’s Supreme National Security Council, acknowledging during a news broadcast on state television that the Iranian leadership had discussed leaving the Nuclear Nonproliferation Treaty as “one of three options that we are considering” in response to the US scrapping the deal.

Iranian President Hassan Rouhani

While this isn’t the first time Iran has threatened to leave the NPT – the cornerstone of the international nonproliferation order – it’s the first time the leadership has threatened to leave as a tit-for-tat response to the US leaving the Iran deal. While Iran committed to not pursuing a nuclear weapon when it joined the NPT in 1970, the Iran deal imposed tighter restrictions on the regime, per Reuters.

Of course, by leaving both agreements, Iran would only fuel its enemies’ claims that the Islamic Republic is explicitly seeking to build a nuclear weapon.

Per the Jerusalem Post, Shamkhani, who spoke with reporters shortly before departing for Russia, said the Atomic Energy Organization of Iran was ready for some “surprising actions” if the nuclear deal is scrapped.

A senior Iranian official said on Tuesday that Tehran might quit a treaty designed to stop the spread of nuclear weapons if U.S. President Donald Trump scraps the nuclear accord Iran signed with world powers in 2015.

Trump has said that unless European allies fix what he has called “terrible flaws” in the accord by May 12, he will restore U.S. economic sanctions on Iran, which would be a severe blow to the pact.

The other powers that signed it – Russia, China, Germany, Britain and France – have all said they want to preserve the agreement that curbed Iran’s nuclear program in return for the lifting of most international sanctions.

Meanwhile, over the weekend (and again on Monday), Iranian Foreign Minister Javad Zarif warned that Tehran would reactivate its centrifuges should the US drop out of the deal and reimpose economic sanctions. On Tuesday, the war of words ratcheted higher when Iranian President Hassan Rouhani warned that Trump should keep the deal in its current format or face “severe consequences.”

“I am telling those in the White House that if they do not live up to their commitments…the Iranian government will firmly react,” Rouhani said in a speech.

“If anyone betrays the deal, they should know that they would face severe consequences,” Rouhani told a cheering crowd of thousands gathered in the city of Tabriz. “Iran is prepared for all possible situations,” he added.

During a nuclear non-proliferation conference in Geneva earlier this year, Russia and China submitted a statement voicing “unwavering” support for the Joint Comprehensive Plan of Action (the Iran deal’s official name) which was signed in 2015 by Iran along with the US, France, the UK, Russia, China and Germany.

French President Emmanuel Macron is preparing one last desperate plea to convince Trump to stay in the Iran nuclear deal during a lavish state dinner at the White House Tuesday – but experts quoted by CNN believe Macron would “have to pull a rabbit out of his hat” to persuade President Trump – who has surrounded himself with Iran hawks like Defense Secretary James Mattis, National Security Advisor John Bolton and CIA Director and Secretary of State nominee Mike Pompeo – to stay in the deal after the US’s self-imposed May 12 deadline.

Already, Iran is bracing for further deterioration in relations with the US by announcing earlier this month that it would stop reporting foreign trade in dollars, and would use euros instead. Of course, scrapping the Iran deal would also have implications for commodity markets: Iran’s oil export and output increased by approximately one million barrels per day after sanctions were dropped, with the bulk of Iran’s output now going to those countries who are most vocal about keeping the Iranian deal in place.

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If the big story yesterday was the surge in 10Y TSY yields to just shy of 3.00% (2.996% to be precise), then it is only reasonable that the failure of the 10Y yield to rise above 3.00% overnight is today’s “big story”, and indeed as shown in the chart below, US benchmark treasuries edged higher, leading most European government bonds, as traders hit pause on the rates selloff amid extremely oversold conditions.

Recall that just as investors are curious what happens once yields breach 3.00%, so they want to know how low they could drop if the 10Y fails to penetrate the key level for the 2nd time in 2 months, a question which Morgan Stanley yesterday answered, saying the next stop could be a reversal back to 2.70%. And while we wait to see what happens next, the Treasury curve flattened slightly as the 2-year sector underperformed ahead of today’s supply.

Traders have been weighing the implications of climbing bond yields that were in part spurred by higher commodity prices and concern surrounding their inflationary impact on the wider economy. But, as noted yesterday, so far the volatility in interest-rate markets remains low and equity price swings are well off the highs seen earlier this year, indicating investors believe rising borrowing costs may not be enough to cause outsized pain to equities, for now.

“For us it’s more the reasons why we’re seeing the move: better growth outlook, a little bit more inflation and faster rate hikes being priced in by the market,” Kerry Craig, a JPM Asset Mgmt strategist told Bloomberg TV. “It should be reaffirming the fact that we see a global economy that’s looking relatively healthy.”

The bid for bonds, together with strong earnings from Google overnight, helped restore risk sentiment, and global equity markets steadied overnight, with European stocks climbing following gains for most Asian markets as the earnings season picked up steam while Chinese equities soared (Shanghai Comp +2%) following overnight reports and speculation of further easing from Beijing, with subsequent similar reports of RRR cuts follow in European morning.

After hugging the flatline, US equity futures enjoyed a burst of buying as Europe came online, sending the E-Mini to session highs, up 0.6%, or 16.00 points, to 2,687, and above yesterday’s highs.

Meanwhile, WTI oil, which according to many has been a key driver behind the move in both bonds and FX, continued grinding higher, rising above $69 overnight, the highest price since late 2014. Still, keep in mind that just as the oil surge propelled risk, and inflation sentiment, so a sharp spike in oil from here could lead to renewed market volatility according to Deutsche Bank.

Meanwhile, after yesterday’s furious short squeeze which sent the dollar soaring the most since the election, the USD steadied in the last few hours as traders focused on whether take-profit interest will emerge after the latest gains or macro bids are enough to support the rally. As a result, the dollar was little changed at about its highest level since January.

Meanwhile, the yen decline continued, helping spur Japan’s Topix index to the highest in almost two months; similarly in Europe, the EUR dropped below the 1.22 handle as positioning ahead of the ECB meeting favors downside exposure, while the pound briefly slipped to a fresh one-month low.  Australia’s dollar was sold in a knee-jerk reaction to a headline inflation miss before erasing declines as investors were encouraged by the improvement in the core measure, while the New Zealand dollar fell against all Group-of-10 peers after leveraged funds liquidated long positions. Still, don’t read too much into today’s moves as volumes are below Monday already depressed levels in the FX market.

Looking at equity markets, European stocks opened broadly higher with blue-chip stock markets in London and Frankfurt 0.3 percent higher. Markets brushed off further signs that Europe’s biggest economy Germany is losing some of its momentum, with the Ifo business climate index falling in April to 102.1 from 114.7, missing estimates of 102.6.

Earlier, Chinese stocks lead Asian indexes higher after Monday’s Politburo meeting and state-backed newspaper commentary signaled liquidity conditions will improve; Shanghai Composite rose 2%, with H shares 1.9% higher. MSCI Asia Pacific index advances 0.4%. Still, there remained pressure on technology shares in Asia after a slew of companies reported disappointing earnings. The Philadelphia Semiconductor Index is down more than 7 percent over the past four days.

In commodities, aluminum extended its biggest slump since 2005 after the U.S. Treasury Department signaled it may lift United Co. Rusal sanctions if Oleg Deripaska divests control of the company. Rusal shares in Hong Kong posted their biggest-ever gain. AS noted above, West Texas oil rose above $69 a barrel amid flaring geopolitical tensions in the Middle East and expectations for a decline in U.S. crude stockpiles.

On today’s calendar, we have data on new home sales, Case Shiller home prices, and Conference Board consumer confidence index. Amgen, Biogen, Caterpillar, Coca-Cola, Eli Lilly, Lockheed Martin, NextEra Energy, and Verizon are reporting earnings

Bulletin Headline Summary from RanSquawk

• European equities opened on the backfoot, but have seen more choppy trade since (Eurostoxx 50 flat) amid relatively light newsflow thus far
• DXY has cleared another key upside technical level amidst more widespread Dollar gains and has also eclipsed 91.000.
• Looking ahead, highlights include, US consumer confidence, housing data, APIs, and a slew of speakers

Market Snapshot

• S&P 500 futures up 0.6% to 2,687.00
• STOXX Europe 600 up 0.2% to 383.94
• MSCI Asia up 0.4% to 173.37
• MSCI Asia ex Japan up 0.2% to 563.99
• Nikkei up 0.9% to 22,278.12
• Topix up 1.1% to 1,769.75
• Hang Seng Index up 1.3% to 30,636.24
• Shanghai Composite up 2% to 3,128.93
• Sensex up 0.4% to 34,591.49
• Australia S&P/ASX 200 up 0.6% to 5,921.55
• Kospi down 0.4% to 2,464.14
• German 10Y yield fell 2.1 bps to 0.615%
• Euro down 0.1% to $1.2197
• Italian 10Y yield rose 1.6 bps to 1.54%
• Spanish 10Y yield fell 0.9 bps to 1.304%
• Brent futures up 0.2% to $74.87/bbl
• Gold spot up 0.2% to $1,327.60
• U.S. Dollar Index little changed at 90.95

Top Overnight News

• German Chancellor Angela Merkel is traveling to the U.S. this week to meet President Donald Trump in an effort to prevent trade war
• German business confidence continued to slide in April as companies’ qualms over a potential trade war coincided with economic data signaling the country’s growth momentum may have peaked
• U.S. Treasury threw a potential lifeline to United Company Rusal by making clear it’s not pushing for the company’s collapse. Treasury Secretary Mnuchin said it was considering a request to lift the sanctions against the company
• Australia’s consumer prices rose less than forecast in the first quarter, suggesting the central bank will keep rates on hold
• Oil extended gains toward $69 a barrel as tensions in the Middle East flared up and U.S. crude stockpiles were seen falling a second week. Saudi Arabia intercepted ballistic missiles fired by Iran-backed Houthis in Yemen
• Germany wants to help U.K. banks get access to the European market after Brexit, but would need Britain to make concessions, according to a person familiar with the German government’s position
• Pound’s resurgence in recent months may affect the Bank of England’s outlook for price gains in next month’s Inflation Report, complicating the case for an immediate rate hike
• Britain was in surplus on its day-to-day budget for the first full fiscal year since the early 2000s, a milestone that is almost certain to revive calls for an end to austerity
• An unprecedented downgrade of Poland’s investment growth is forcing a reassessment of the European Union’s largest eastern economy, with the amended data showing last year actually ended on a slight slowdown
• Takeda Pharmaceutical Co. is nearing a preliminary agreement to acquire Shire Plc after the Japanese drugmaker sweetened its roughly $60 billion bid for the biotechnology behemoth, according to people with knowledge of the matter

Asia-Pac stock markets were mostly in the green with an improvement in tone seen in comparison to the lacklustre performance on Wall St where rising yields and declines in basic materials dampened sentiment. ASX 200 (+0.6%) and Nikkei 225 (+0.9%) traded positive with Australia supported by gains in financials and energy names, while Japanese exporters benefited from a weaker JPY. Elsewhere, Shanghai Comp. (+0.9%) and Hang Seng (+1.3%) outperformed after a mild net liquidity injection by the PBoC, as well as press reports that China has further room to cut RRR and is likely to ease liquidity tension this week. Furthermore, Rusal shares rose by around 30% in Hong Kong on hopes of sanction relief, while the blue-chip energy and property names led the upside in the Hang Seng. Finally, 10yr JGBs were relatively uneventful with demand subdued amid the improvement in risk appetite, although downside was also limited as USTs nursed losses and following a relatively uneventful 2yr auction. China has additional room to reduce RRR and repay maturing Medium-term Lending Facility loans, while it is also likely to ease liquidity tension during the week, according to reports. (China Securities Journal)

Top Asian News

• Singapore’s Shelved IPOs Pile Up as Summit, Qualitas Struggle
• China Concerned Trade and Debt Risk May Curb Economic Growth
• Saudis Said to Delay Bourse IPO on Hope MSCI Will Lift Valuation
• Hong Kong Approves Dual-Class Shares, Paving Way for Tech Titans

European equities opened on the backfoot, but have seen rebounded in the green amid relatively light newsflow thus far. Looking at the sectors, energy names are outperforming amid the rise in oil prices. Telecom names lag behind with Telenor (-2.5%) weighing on the sector following weak earnings. In terms of stock specifics, William Hill (-14.0%) are at the foot of the Stoxx 600 after reports that UK Chancellor Hammond has accepted the proposal for GBP 2 fixed-odd betting terminals limit. Semi-conductor names took a hit following earnings from AMS (-9.0%) with Dialog Semiconductors (-6.0%) and STMicroelectronics (-1.6%) lower in sympathy. On the flip side SAP (+3.2%) shares are higher post-earnings while BP (+1.4%) shares are fuelled by an upgrade at Goldman Sachs.

Top European News

• Stronger Pound May Give BOE Hawks Further Pause for Thought
• German Business Confidence Extends Drop as Economic Data Weakens
• U.K. Balances Day-to-Day Budget for First Time Since 2001-02
• Mercedes Tests Billionaires’ Appetite for Maybach With Crossover

In FX, the DXY index cleared another key upside technical level amidst more widespread Dollar gains and has also eclipsed 91.000 to expose fair resistance around 91.526 ahead of a stronger chart hurdle circa 91.751. NZD/AUD: The Kiwi has really taken fright amidst the latest Usd leg-up, but also as cross flows vs its antipodean neighbour weigh heavily. Nzd/Usd is hovering precariously just above 0.7100, while Aud/Nzd is only a few pips below 1.0700 after accelerated buying (stops and orders) on a break of 1.0660. However, Aud/Usd has breached a major downside equality level at 0.7611 after mixed/soft Aussie inflation overnight. EUR/JPY/CHF:  All pivoting or skirting key/psychological/big figure levels vs the Greenback, with Eur/Usd currently bang on 1.2200 after a slip below on soft German Ifo indices, but finding some underlying support around Monday’s low and just ahead of a 1.2173 Fib. Note, 1.1 bn option expiries at the figure and the 100 DMA at 1.2210 may also cap the upside. Usd/Jpy is edging closer towards 109.00 and its 100 DMA just a pip above, while Usd/Chf is not far from 0.9800. CAD/GBP: Relative ‘outperformers’ among the G10 community, but still weak overall vs the Usd and well off recent peaks, as Usd/Cad  dips back below 1.2850 and Cable holds above the top of a support band extending from 1.3920-1.3890.

In commodities, Oil has maintained the climb seen on Monday with the Brent front month contract hitting USD  75.27, its highest level since late 2014, following suggestions that the US may still entertain the possibility of exiting the Iran nuclear deal. Gold is uneventful, with the yellow metal remaining around the USD 1326.50/oz level, as safe-haven demand fades. In the metals complex, aluminium saw a fall following an announcement from the US of deadline extensions for Rusal, whilst Dalian iron ore prices recovered from early pressure overnight triggered by a slump in Shanghai aluminium at the open.

US Event Calendar

• 9am: FHFA House Price Index MoM, est. 0.6%, prior 0.8%
• 9am: S&P Case Shiller 20-City MoM SA, est. 0.68%, prior 0.75%; YoY NSA, est. 6.35%, prior 6.4%
• 10am: Conf. Board Expectations, prior 106.2
• 10am: New Home Sales MoM, est. 1.94%, prior -0.6%; New Home Sales, est. 630,000, prior 618,000
• 10am: Richmond Fed Manufact. Index, est. 16, prior 15
• 10am: Conf. Board Consumer Confidence, est. 126, prior 127.7; Present Situation, prior 159.9

 

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