Futures Surprise Nobody With Now Mundane Overnight Levitation

Being that markets are unrigged and all, at least according to every single proponent of HFT that is, futures have done their overnight levitation as they have every day for the past month driven by the one staple – the Yen carry trade – even if in recent days the broader market slump during the actual daytrading session mostly impacted biotechs yesterday. And since any news is good news, we don’t expect today’s main event, the ECB’s rate announcement and Draghi press conference, both of which are expected to announce nothing new despite Europe’s outright inflationary collapse which most recently dropped to 0.5%, the lowest since 2009.

Incidentally this is the new trend in central bank watching: yesterday JPM pushed back its “imminent” forecast for a BOJ QE boost to July, however adding that Kuroda may just as easily boost QE in May or June. In other words, the new forward guidance paradigm, now that quantiative forward guidance is dead, is don’t do anything rash or stupid, like shorting, because central banks can announce QE any moment. They won’t…. But they could. And because deflation is a “temporary” phenomenon when it comes to the actual announcement of QE, like with the ECB today, which has jawboned about QE five ways from Sunday meaning it certainly won’t do it, but two to three months down the road, nobody knows, just buy into the manipulated, centrally-planned market like an obedient little Pavlovian dog.

Nikkei 225 (+0.84%) outperformed again, buoyed by another record close in the S&P 500, although reports of a mini-stimulus in China were offset by continued property curbs in Beijing which saw Shanghai Comp settle lower (-0.7%). Also of note, Chinese Non-Manufacturing PMI fell to 54.5 from 55.0 and HSBC Services PMI rose to 51.9 from 51.0. Stocks in Europe gradually edged lower as focus remained firmly on the looming ECB policy announcement, with Bunds also lower following the absorption of supply from Spain and France, both enjoying drop in funding costs.

In overnight markets, Asian equities are poised to close higher for the 7th straight session, and the 11th time in 14 days, led by the Nikkei (+1.3%). China’s authorities fleshed out detail of their mini-stimulus plan following yesterday’s State Council’s weekly meeting. The State Council said that the government will ease criteria for small micro firms to apply for tax concessions and that they will issue US$24bn worth of bonds to fund high speed rail development in the country’s western and central regions. A total of 6,600km or rail lines will be built this year. The government also announced measures to fund the construction of social housing and urban regeneration projects. Chinese rail and construction material stocks are up today but the overall Shanghai index is underperforming (-0.11%) the rest of Asia. It’s safe to say the news has been largely priced in over the last few weeks in equity and commodity markets. Staying in China, the latest service PMIs were contradictory in some respects, with the official release falling 0.5pts to 54.5 while the HSBC services PMI rose to 51.9 (from 51.0).

Looking ahead to today, the key focus will be the ECB meeting and Draghi’s press conference. All but 3 of 57 economists surveyed by Bloomberg expect the ECB to leave the main refinancing rate unchanged. Similarly, all bar 2 economists expect the ECB to leave deposit rates at zero %. In the European morning the final Euroarea services PMI (preliminary 52.4) will be released together with services PMIs in Italy (consensus: 52.3) and Spain (53.7). After the ECB, the US February trade report, jobless claims and the ISM nonmanufacturing are scheduled. Some economists may revise their estimates for Friday’s NFP depending on the outcome of the employment component of the ISM non-manufacturing.

Bulletin headline summary from Bloomberg and RanSquawk

Treasuries steady, 5Y yields holding year YTD highs, 10Y highest since Jan., amid expectations tomorrow’s payrolls report will add to evidence weakness in 1Q eco data was due to abnormally bad weather.
ECB announces rate decision today at 7:45am ET, Draghi press conference at 8:30am; analysts are split on any unconventional policy measures, with most expecting the central bank to keep rates on hold and keep a dovish tone
China outlined a package of measures including railway spending and tax relief to support the economy and create jobs after a slowdown endangered Premier Li Keqiang’s target of 7.5% growth this year
With Russian forces massed near the country’s border with Ukraine in a high state of readiness, NATO leaders warned that any incursion across the frontier would be a “historic mistake”
Putin is now defying Obama in Syria by sending more and deadlier arms to help Bashar al-Assad score a string of advances against insurgents, military experts say
U.K. Independence Party leader Nigel Farage won a second debate on EU membership with Deputy Prime Minister Nick Clegg, according to snap polls, raising pressure on the larger parties that are committed to keeping Britain in the bloc.
Sovereign yields higher. Asian stocks mixed, Nikkei +0.8% and Shanghai -0.7%. European equity markets mixed, U.S. stocks futures little changed. WTI crude, copper and gold lower

US Event Calendar

7:30am: Challenger Job Cuts, y/y, March (prior -24.4%)
7:30am: RBC Consumer Outlook Index, April (prior 51.8)
8:30am: Trade Balance, Feb., est. -$38.5b (prior -$39.1b)
8:30am: Initial Jobless Claims, March 29, est. 319k (prior 311k); Continuing Claims, March 22, est. 2.843m (prior 2.823m)
9:45am: Bloomberg Consumer Comfort, March 30 (prior -31.5)
9:45am: Markit U.S. Services PMI, March final, est. 55.5; (prior 55.5); Markit U.S. Composite PMI, March final (prior 55.8)
10:00am: ISM Non-Manufacturing Index, March, est. 53.5 (prior 51.6)
12:30pm: Fed’s Lockhart speaks in Miami
4:00pm: Fed’s Bullard meets reporters in St. Louis
11:00am: POMO – Fed to purchase $90m-$1.15b notes in 2036-2044 sector

EU & UK Headlines

Focus remained firmly on the looming ECB policy announcement this morning, with Bunds also failing to benefit from the absorption of supply from Spain and France, both enjoying drop in funding costs, and also somewhat mixed EU PMIs. Elsewhere, in spite of more hawkish comments by BoE’s Carney who said that interest rates could increase ahead of next general election, UK Gilts have outperformed its peers following the release of weaker than expected UK Services PMI which fell to its lowest level since June 2013.

US Headlines

USTs traded steady this morning, with bull steepening in the front-end of the curve underpinning the cautious sentiment ahead of looming risk events. In swaps space, 4y has been particularly active ahead of the expected USD 1bln 4y deal launch by the World Bank later today.

Equities

Heading into the North American open, stocks in Europe are seen mixed, with financials outperforming in spite of the looming risk events (ECB later today and NFP on Friday). In spite of this, US equity futures are still pointing to a minor positive open.

Despite the uncertainty surrounding the upcoming ECB policy announcement, GBP underperformed EUR this morning, underpinned by the release of weaker than expected UK Services PMI which fell to its lowest level since June 2013. Looking elsewhere, despite the cautious sentiment and unfavourable interest rate differential flows, USD/JPY remained better bid, holding onto gains made overnight.

Commodities

Heading into the North American cross over, both WTI and Brent crude futures are seen lower, though the price action this morning has been somewhat muted as attention remains on risk events due out later today and also Friday’s NFP report. In terms of latest commentary, Libyan rebels have agreed to hand over the Zueitina oil port to PM Theni in a ‘few days’ and have told the Libyan parliament ‘ready to open ports in 24-48 hours’. Elsewhere, the Iraqi crude Kirkuk–Ceyhan pipeline, which currently has a 300,000K bpd capacity out of a total potential 1.1mln bpd, has had its repairs delayed by attacks with exports remaining halted and Kurdish crude exports also delayed, according to North Oil.

In conclusion, here is the traditional event wrap up from DB’s Jim Reid

Will the ECB lead markets closer towards a monetary oasis today? They’ve been unpredictable of late but following their inaction at the February and March meetings, DB expects no hard policy changes today, with rates remaining at 0.25%. They do expect Draghi to push the “de facto loosening” argument in his press conference. This is the view that as the economic recovery comes through it will help raise inflation and so reduce real interest rates, easing policy. Another prong of “verbal loosening” could be the increased potential for QE, following on from Bundesbank President Jens Weidmann’s comments late last month that he could back QE under certain conditions. DB could see this twin track communication strategy of “de facto loosening” arguments and the mention of “other policy option potential” (negative deposit rates, asset purchases) to be the main takeaway from today’s meeting. Whilst market consensus also expects no change in the ECB policy rate there is a feeling that the recent disappointing inflation numbers (CPI inflation fell to 0.5% in March, its lowest rate since the 2009 recession) might increase the debate on further stimulus within the ECB, although here it’s probably useful to highlight that inflation hasn’t come in much lower than the ECB expected last month. Adding to the external debate yesterday was IMF Managing Director Christine Lagarde who said the ECB should do, “more monetary easing, including through unconventional measures,” to combat, “low-flation”.

In terms of markets, one of the main themes yesterday was the rise in UST yields, which was almost enough to stall the fortnight-long rally in emerging markets. The combination of better US data and benign political headlines was enough to send the intermediate part of the treasury curve up to 7 month highs in yield terms. Indeed the whole UST curve was a little weaker yesterday but the five year and seven year part of the UST curve shifted upwards by 6bp and 7bp respectively, bringing them both to within several basis points of the 2013 highs. Most of the move came after the release of the March ADP employment report where the headline came in broadly in line with consensus estimates (+191k vs 195k expected). But the bigger surprise was in the prior revisions where the February ADP number was revised upwards to 178k versus the original 139k print. In the detail of the report, construction, trade and transportation sectors recorded solid gains. Professional and business services (+53k) which captures a broad array of high-end and low-end service sectors, contributed the most to the headline number. Elsewhere US factory orders were better than expectations up +1.6% in February (vs +1.2% expected), rebounding from prior months where the weather made it harder for shippers to fill orders.

Coming back to yesterday, there was a trio of Fed speakers who did little to stem the rise in treasuries. Of the three speakers, the comments from the St Louis Fed’s Bullard were perhaps the most surprising. Bullard, who is viewed as somewhat of a median between the hawks and doves, said he expects a rate hike in Q1 of 2015 and that he sees unemployment falling to 6% by December 2014. He also made some hawkish comments warning of asset bubbles and financial stability. Bullard is not a voter on the FOMC until 2016— at which point he says the fed funds rate will be at 4% or 4.25% which is towards the top end of the Fed’s “dot chart”. The Fed’s Lockhart reiterated that the hurdle for a change in the pace of QE tapering is high and he sees a hike in rates in the second half of 2015. The San Francisco’s John Williams said that rate hikes should start in the second half of 2015 and should stay extraordinarily low into 2017.

Emerging market equities strung together their 9th gain in a row, though yesterday’s 0.42% rise in the MSCI EM index was the smallest rise since the winning streak began. The backdrop of rising US rates and stronger data proved to be a bit of a drag for EM and there was some profit-taking in EMFX with BRL (-0.3%), MXN (-0.3%) and PLN (-0.04%) lower. The Russian complex underperformed (RUB -1%, MICEX -0.2%, 10yr bonds +12bp) after weak demand at a Russia bond auction. At the other end of the spectrum, Brazil’s Bovespa gained 2.85%, before the COPOM announced a 25bp rate hike. In Europe, aside from the ECB talk, there was plenty of focus on Greek bonds which rallied 26bp yesterday amid talk of Greece’s return to international bond markets and with Greek officials saying that the country’s 2015 fiscal gap was below EUR1bn (ekathimerini). Periphery government bonds outside of Greece were a little weaker yesterday though, as they took a breather following an impressive Q1 run. A recent FT article suggested that European banks now hold more sovereign debt than at any time since the eurozone crisis. Government debt accounted for 5.8% of their combined assets in February, up from 4.3% in January 2012. In Italy 10.2% of bank assets were government debt in February, up from 6.8% in January, while in Spain the figure has risen to 9.5% from 6.3%. In Portugal the figure has climbed to 7.4% from 4.6%, said the FT citing ECB data.

via Zero Hedge http://ift.tt/1dUuqha Tyler Durden

Leave a Reply Cancel reply