If there was one thing that the market was demanding after last night’s disappointing March HSBC manufacturing PMI, which has now fallen so low, local market participants are convinced a stimulus is imminent (despite China’s own warnings not to expect this), and sent both the SHCOMP and the CNY surging, it would have been further weak data out of Europe, where the other possible, if not probable, “QE-stimulus” bank is located now that the Fed is in full taper mode. It didn’t get precisely that however there was a step in the right direction when overnight the Euro area Composite Flash PMI eased marginally from 53.3 to 53.2 in March, largely as expected. The country breakdown showed a narrowing of the Germany/France Composite PMI gap owing to a notable (3.7pt) increase in the French PMI while the German PMI eased somewhat (1.4pt). On the basis of past correlations, a Euro area Composite PMI of 53.2 is consistent with GDP growth of around +0.4%qoq, slightly stronger than our Current Activity Indicator (+0.35%qoq).
The breakdown for Eurozone manufacturing is shown in the charts below:
So for those wondering why futures are no up and set to fill the gap from Friday’s surprising late day tumble, now you know – more bad news masked with hopes that central banks will come in and fix things and this time it may actually work.
Other weekend headlines were relatively few and far between but there was some focus on French local elections, the ECB, geopolitical tensions in various pockets of the globe and ongoing corporate distress in China. Starting with France the far-right National Front party made significant gains in local elections in what is being spun as a backlash against Francois Hollande’s policies. The National Front party is reportedly ahead in some towns including the northern town of Henin-Beaumont which has historically voted for the left. All in all, the National Front is predicted to win half a dozen towns after next Sunday’s round two run-offs (Reuters). In terms of the ECB, Vice President Vitor Constancio, speaking on Saturday at a Fed-sponsored conference, said that the ECB will not adopt threshold-based rate guidance. Constancio also remarked that markets had mostly missed that the ECB actually strengthened its forward guidance at the March meeting, tying its accommodative stance to the closure of slack in the economy. In Ukraine, NATO’s commander in Europe warned on Sunday that Russian forces just to the east of Ukraine were “very, very sizeable and very, very ready”. This came after pro-Russian forces seized a couple more of the remaining military bases in Crimea held by Ukrainian troops on the weekend. In Asia, there were reports that more Chinese onshorebonds will be suspended from trading after the Chinese corporate reporting season concludes in March-April. Indeed there is talk that some 24 bonds from 19 Chinese domestic issuers are in danger of having their bonds suspended in the near future (IFR).
Headline bulletin from RanSquawk and Bloomberg
- Treasuries decline, 10Y yield holding just above 100-DMA; 5Y at highest since Jan. 9 before U.S. sells $109b in 2Y fixed/FRN, 5Y and 7Y notes beginning tomorrow.
- China’s manufacturing weakened for a fifth straight month, with the HSBC/Markit PMI dropping to 48.1 from 48.5, est 48.7
- Chinese stocks rebounded from initial losses on speculation that weakening growth will prompt policy makers to reconsider their aversion to broad stimulus measures
- Ukraine’s foreign minister said the risk of war with Russia was growing as world leaders gather in The Hague to discuss the situation amid growing concern over a Russian buildup on its neighbor’s border as pro-Kremlin troops seized a Ukrainian base in Crimea
- Growth in euro-area manufacturing and services stayed close to the fastest since 2011 in March as France improved
- Fang Fang, JPMorgan’s CEO of investment banking for China, is leaving after more than 12 years at the firm
- Sovereign yields mostly higher. Asian equities rise, Nikkei +1.8%, Shanghai +0.9%. European equity markets decline U.S. stock-index futures gain. WTI crude and copper steady, gold lower
US Economic Calendar
- 8:30am: Chicago Fed National Activity Index, Feb., est. 0.10 (prior -0.39)
- 9:45am: Markit U.S. PMI Preliminary, March, est. 56.5 (prior 57.1
- 9:00am: Fed’s Stein speaks in Washington Supply
- 11:00am: Fed to purchase $500m-$750m notes in 2024-2031 sector
The complete overnight recap from DB’s Jim Reid
Overnight the preliminary HSBC Chinese manufacturing PMI for March was released which disappointed relative to market expectations (48.1 vs 48.7 expected). The PMI is down 0.4 pts MoM and down 3.5 pts YoY which is disappointing to those who expected the PMI to bounce back after potential Lunar New Year seasonal distortions in January and February’s data. Asian stocks and credit edged lower following the data but overall the market reaction has been limited, potentially because the weak PMI has renewed calls for the Chinese authorities to expand fiscal spending this year. We note though hat the Chinese Finance Minister Lou Jiwei ruled out large fiscal stimulus in a speech at a development forum in Beijing yesterday, instead stressing Beijing’s commitment to carrying out reforms. The Nikkei (+1.9%) is leading gains in Asia after reopening from its long weekend, and Chinese banking stocks are underpinning the Shanghai Composite (+0.5%). Chinese bank stocks have been buoyed by news that the government may allow banks to issue preference shares to open up an additional source of funding. The underperformers post-PMI are copper futures (-0.3%) and the AUDUSD (- 0.05%) but initial losses have been pared.
The weekend commentary devoted substantial ink to discussing the exact meaning of Yellen’s “six months” remark at last Wednesday’s FOMC press conference. This was spurred by the St Louis Fed’s Bullard’s comments on Friday where he suggested that Yellen’s “six month” estimate of the interval between QE ending and the first rate hikes was an assessment that was in line with private sector surveys. Bullard’s comments on Friday precipitated a brief wobble in the S&P500 (-0.29%) late in the session. The weekend commentary suggested that perhaps Yellen had made a “gaffe” in her first press conference as Fed Chair (CNBC). Despite Bullards’ comments, Reuters said on Sunday that its survey of economists shows that Yellen’s comments have not altered their views. Ten dealers of 17 polled see rate hikes in the second half of 2015, with another four saying increases would not start until 2016.
Previewing what’s in store for the rest of the week, we have the release of the flash global manufacturing PMIs today in the Euroarea and US. Further out on the data docket, the release of US new homes sales and consumer confidence comes tomorrow, durable goods orders on Wednesday, initial jobless claims and Q4 GDP (3rd estimate) on Thursday, followed by personal income/spending data on Friday. In the Euroarea, German IFO will be released on Tuesday, followed by the ECB’s February money supply report and UK retail data on Thursday. Japan reports CPI on Friday. In China, the focus will be on Chinese bank earnings announcements throughout the week.
On the diplomatic front,. President Obama attends a G7 meeting in The Hague this week, called in response to the crisis in Ukraine. Obama will also meet with leaders from 20 nations to discuss nuclear security. In terms of the Fed, DB’s Joe Lavorgna notes that we have an eventful week of Fedspeak lined up.
This week’s lineup includes Atlanta Fed President Lockhart (non-voter) and the Philadelphia Fed’s Plosser (voter), who will both be speaking on the economyand monetary policy tomorrow. Bullard speaks on Wednesday afternoon where we may get some clarification of his comments from Friday. Sandra Pianalto’s speech on Thursday will not be less relevant, despite her impending retirement from the Cleveland Fed, because she is a useful bellwether of the moderates on the Committee. Chicago Fed President Evans (non-voter), one of the more dovish of the regional Presidents, also speaks on Thursday. Kansas City’s Esther George (non-voter), a well- known hawk, is the last scheduled Fed speaker on Friday afternoon. Elsewhere the Fed releases its Comprehensive Capital Analysis and Review on Wednesday which provides its assessment on bank’s ability to keep making dividend payments and funding share buy backs.
In the EM space, our strategists highlight two bellwether trade reports this week which will shed more light on regional Asian trade. Thailand and Hong Kong are expected to see a boost in exports after earlier reports were affected by poor weather and seasonal one-offs. In EMEA, there are rate meetings in Israel (Mon), Hungary (Tue), South Africa (Thu), Czech Republic (Thu) and Romania (Fri). There will also be landmark local elections held in Turkey (Sun) which are being viewed as a referendum on the future of PM Erdogan’s
government.
via Zero Hedge http://ift.tt/1juW2Yk Tyler Durden