The positive sentiment stemming from a positive close on Wall Street and saw Shanghai Comp (+0.33%), Hang Seng (+1.09%) trade higher, failed to support the Nikkei 225 (-2.10%), which underperformed its peers and finished in the red amid JPY strength as BoJ’s Kuroda failed to hint on more easing. Stocks in Europe (Eurostoxx50 +0.32%) traded higher since the open, with Bunds also under pressure amid the reversal in sentiment.
Alcoa kicked off earnings season yesterday, with shares up 3% in after-market hours. Focus now turns to the release of the FOMC meeting minutes.
Taking a look at Asian markets this morning, firm technicals in cash credit markets and reports of continued inflows into hard currency EM assets is allowing a number of new deals to be priced in Asia today. Equity markets are trading firmer, with the sole exception of the Nikkei (-1.9%) which hasn’t been able to catch up in the last few sessions. Japanese equities are down for the fourth straight session, losing almost 5% in the process as a stronger yen weighs on sentiment. Japanese department store operator Takashimaya said that revenue in the first week of April fell 25% compared to the same period last year after the introduction of the country’s sales tax hike on April 1st. The result appears to have come from the pull forward of demand ahead of the tax hike, given that March sales were up 32% yoy. Nonetheless, one gets the feeling that investors are waiting for the next catalyst from the BoJ. They seem to be content to wait for now. It’s a different picture in Chinese equities where the HSCEI is up 13% from the March lows, consistent its EM peers elsewhere, as talk of government stimulus packages percolates. The People’s Daily reported that the government has incrementally expanded its railway building program for 2014 (7000km of new lines this year from previous target of 6600kms). Assets linked to Chinese growth such as iron ore, copper and AUDUSD have all been surging of late. On a less positive note, in yet another sign of tightening domestic credit conditions in China, another small $10m bond issuer (a small polyester manufacturing firm in the Zhejiang province) has called for bankruptcy protection. A month or so ago, the news would have to prompted a small wobble in AUDUSD, but the Australian dollar has appreciated another 0.15% against the Greenback this morning. Elsewhere in Asian FX, EM currencies such as the IDR (+0.15%) and MYR (+0.3%) are continuing their run higher against the USD.
Taking a look at some of the headlines over the last 24 hours, the Fed announced that a number of regulatory bodies including itself, the FDIC and Office of the Comptroller of the Currency have adopted a final leverage ratio rule, applying to the eight largest US bank holding companies. The rule mandates a minimum leverage ratio of 5% (defined roughly as equity capital to assets) which is more stringent than a 3% ratio targeted by the Basel Committee. The 5% ratio is broadly in line with expectations prior to yesterday’s announcement. Regulators said that approximately $68bn of additional capital would be needed in total across the eight banking groups which could be met largely through retained earnings and some asset selldowns. This news is a timely reminder that the newsflow in the sector is still very relevant for wider markets.
Turning to the day ahead, markets will be focused on the release of minutes from the March 18-19th FOMC which will be released towards the end of US trading. We’ll be looking for more colour around the Fed’s shift to qualitative guidance and further information on the recent changes in the Fed’s rate expectations. The IMF’s Global Financial Stability Report is released in advance of the spring meetings this week. On a related note, the Fed’s Tarullo speaks today on financial stability, where we may hear more about the recently announced leverage rule. The major data releases today are US wholesale inventories and German/UK trade. Brazil’s March inflation report is worth watching, and the US retail reporting season gets underway with Bed Bath & Beyond’s quarterly filing.
Bulletin Headline Summary from Bloomberg and RanSquawk
- Treasuries fall with JPY, first decline in five days for longer maturities; 3Y-10Y yields yesterday closed at lowest levels since March 18, extending moves spurred Friday by March jobs report.
- Auctions continue with $21b 10Y reopening. Notes to be sold today yield 2.704% in WI trading; drew 2.729% in March
- ECB’s focus on ABS for monetary easing risks guiding it toward a policy that might be slow to evolve and far smaller than the EU1t in bond purchases it has already simulated
- Pro-Russian activists released most of their hostages in Ukraine’s eastern city of Luhansk today; U.S. Secretary of State Kerry accused Russia of using “special forces and agents” to fuel unrest
- Defense Secretary Chuck Hagel meets Chinese President Xi Jinping today after being told the U.S. refocus to Asia won’t contain China or affect its claims to territory and resources disputed with American allies
- Greece plans to announce syndicated 5Y note sale today; may pay 5.3%-5.4% for that maturity, analysts estimate, about double Greece’s record-low auction rate of 2.71%
- China is investigating some companies’ use of bond proceeds, people familiar with the matter said, as concerns mount defaults may increase in the nation’s $4.2t onshore debt market
- Global regulators’ failure to align efforts to reform the $693t derivatives market threatens to undermine economic growth, according to the International Swaps & Derivatives Association
- Toyota Motor Corp. called back more than 6 million vehicles to fix a range of safety defects in one of the biggest recalls in automotive history.
- With an anti-EU, anti-immigration message, Great Britain’s UKIP is vying with Cameron’s Conservatives and the opposition Labour Party to place first in next month’s elections to the European Parliament
- Sovereign yields mixed; bund and gilt yields slightly higher. Asian stocks mixed, Nikkei falls 2.1%, Shanghai +0.3%. European equity markets, U.S. stock futures higher. WTI crude and copper lower, gold higher
US Event Calendar
- 7:00am: MBA Mortgage Applications drop -1.6%, prior -1.2%
- 10:00am: Wholesale Inventories m/m, Feb., est. 0.5% (prior 0.6%, revised 0.7%)
- 10:00am: Wholesale Sales m/m, Feb., est. 1% (prior -1.9%, revised -1.8%)
- 1:00pm: U.S. to sell $21b 10Y notes in reopening
- 2:00pm: Fed issues March 18-19 FOMC minutes
- 11:00am POMO: Fed to purchase $900m-$1.15b notes in 2036-2044 sector
EU & UK Headlines
Combination of supply from Germany and the upcoming Greek 5y syndication, together with higher stocks weighed on Bunds since the open. As a result, peripheral bond yield spreads tightened, particularly the short-end of the curve, as spec of QE, prospects of which were reminded by ECB’s Provopoulos, buoyed demand for higher yielding paper. According to sources, Greece is expected to raise EUR 2.5bln in 5y bond syndication on Thursday and today, Greek 10y bond traded near its lowest level since March 2010. This morning also saw the release of worse than expected German Trade Balance and Current Account Balance data, which German Economy Minister linked to a strong EUR.
US Headlines
Alcoa kicked off earnings season with a beat on EPS which saw shares trade higher by 3% after-market. Elsewhere, USTs traded lower this morning, weighed on by Bunds amid pick up in risk sentiment and ahead of the 10y note auction by the Treasury later in the session. Shortly after will see the release of the FOMC meeting minutes.
Equities
Stocks in Europe (Eurostoxx50 +0.32%) traded higher since the open, benefiting from a positive close on Wall Street, after S&P 500 snapped 3 days of negative closes (S&P 500 +0.4%) and after Alcoa kicked off earnings season with a beat on EPS which saw shares trade higher by 3% after-market.
FX
EUR/USD and GBP/USD failed to benefit from the risk on sentiment which also resulted in USD/JPY recovering overnight
losses supported the USD index.
Commodities
WTI and Brent Crude futures trended lower, as reports of easing tensions between Ukraine and Russia, together with a large build in API crude oil inventories released yesterday weighed on prices. However heading into the North American open, prices have since reversed and both WTI and Brent crude futures are seen little changed.
US API Crude Oil Inventories (Apr 05) W/W 7080k vs. Prev. -5800k; this build comes ahead of today’s DoE crude inventories which are expected to show a build of 750k.
– Cushing Crude Inventories (Apr 05) W/W 204k vs. Prev. -1520k
– Gasoline Inventories (Apr 05) W/W -3650k vs. Prev. 18k
– Distillate Inventories (Apr 05) W/W 293k vs. Prev. -17k
* * *
In conclusion, here is Jim Reid’s overnight recap:
After a volatile first two months of the year, US equities seem to be in a bit of a holding pattern as we hold out for the next big theme. Indeed, yesterday saw the S&P 500 (+0.38%) cross back above the flat line (+0.19% YTD) for the ninth time this year. Of those nine times, two thirds of those have occurred in the last five weeks or so, giving us the impression that we’ve been stuck in a fairly directionless range of late, at least compared to what has happened with other asset classes in EM and periphery Europe. The recent shakeout in tech stocks appears to have stabilised for the time being, but a number of events are looming on the horizon which could shake us out of the lull. These events include today’s March FOMC minutes, tomorrow’s Chinese export numbers and Friday’s World Bank/IMF spring meeting.
Perhaps the next big catalyst will come in the form of the US earnings season, which unofficially started with Alcoa’s Q1 result after the closing bell yesterday. We’ll only start to get a firmer picture of earnings growth around this time next week, after the first of the US major banking groups have reported. But as one of the industrial bellwethers, Alcoa’s earnings are always interesting in one form or another and there were a couple of positive signals for the broader market from the company’s Q1 filing. Looking through the multitude of restructuring charges that the company booked, adjusted earnings were 9c a share which was a solid beat against expectations of 5c. Perhaps more indicative of underlying performance, EBITDA jumped around 20% sequentially on better margins in its Engineered Products and Rolled Products divisions. Management commentary was fairly upbeat and they talked up the prospects from the auto and aerospace industries. Of interest to macro players, the company said that the Aluminium market is now expected to be in supply deficit in 2014 versus a previous expectation of surplus when they announced their FY13 results. According to Bloomberg, the aluminium market has been in surplus for almost a decade. Alcoa said that global end market demand remains solid and that it still sees demand growth at 7% in 2014. The shares traded about 1% higher in the after-market, but S&P 500 futures were unchanged on the announcement.
Taking a look at Asian markets this morning, firm technicals in cash credit markets and reports of continued inflows into hard currency EM assets is allowing a number of new deals to be priced in Asia today. Equity markets are trading firmer, with the sole exception of the Nikkei (-1.9%) which hasn’t been able to catch up in the last few sessions. Japanese equities are down for the fourth straight session, losing almost 5% in the process as a stronger yen weighs on sentiment. Japanese department store operator Takashimaya said that revenue in the first week of April fell 25% compared to the same period last year after the introduction of the country’s sales tax hike on April 1st. The result appears to have come from the pull forward of demand ahead of the tax hike, given that March sales were up 32% yoy. Nonetheless, one gets the feeling that investors are waiting for the next catalyst from the BoJ. They seem to be content to wait for now. It’s a different picture in Chinese equities where the HSCEI is up 13% from the March lows, consistent its EM peers elsewhere, as talk of government stimulus packages percolates. The People’s Daily reported that the government has incrementally expanded its railway building program for 2014 (7000km of new lines this year from previous target of 6600kms). Assets linked to Chinese growth such as iron ore, copper and AUDUSD have all been surging of late. On a less positive note, in yet another sign of tightening domestic credit conditions in China, another small $10m bond issuer (a small polyester manufacturing firm in the Zhejiang province) has called for bankruptcy protection. A month or so ago, the news would have to prompted a small wobble in AUDUSD, but the Australian dollar has appreciated another 0.15% against the Greenback this morning. Elsewhere in Asian FX, EM currencies such as the IDR (+0.15%) and MYR (+0.3%) are continuing their run higher against the USD.
Taking a look at some of the headlines over the last 24 hours, the Fed announced that a number of regulatory bodies including itself, the FDIC and Office of the Comptroller of the Currency have adopted a final leverage ratio rule, applying to the eight largest US bank holding companies. The rule mandates a minimum leverage ratio of 5% (defined roughly as equity capital to assets) which is more stringent than a 3% ratio targeted by the Basel Committee. The 5% ratio is broadly in line with expectations prior to yesterday’s announcement. Regulators said that approximately $68bn of additional capital would be needed in total across the eight banking groups which could be met largely through retained earnings and some asset selldowns. This news is a timely reminder that the newsflow in the sector is still very relevant for wider markets.
In other news, the IMF’s latest World Economic Outlook, released ahead of its spring meeting this week, now estimates only a 0.1% probability of global recession in 2014, compared with a 6% chance last October (Financial Times). Are the risks really only 1 in a 1000? The risk of a 2015 global downturn are also considered to be low. Most of the IMF’s forecasts were little changed, with expectations of stronger growth in the US, the UK and Germany boosting the outlook offset by weakened growth expectations in EM. Elsewhere markets continue to watch the rhetoric from the Bundesbank’s Weidmann and it seems that he continues to back away from comments suggesting that QE was on the horizon. He clarified that the risk of a deflationary spiral in Europe is low and that the ECB is ready to act to counter low inflation – but this didn’t sound like his base case. He also questioned the effectiveness of any new measures relative to the associated risks. Across the Atlantic, the Fed’s Kocherlakota (a dovish dissenter at the FOMC) signaled that the Fed would continue its taper as long as there are no big changes in outlook but also remarked that the Fed should do more to meet its dual mandate (e.g. cutting IOER). Kocherlakota believes that a return to 2% inflation could take as long as four years which was in contrast to the Fed’s Plosser who indicated yesterday that it would take only about 18 months. There wasn’t much data to report though we noted that US JOLTS job openings rose more than forecast to a six year high. The quits rate, which was 2% when the recession started at the end of 2007, held at 1.7% in February (Bloomberg).
Turning to the day ahead, markets will be focused on the release of minutes from the March 18-19th FOMC which will be released towards the end of US trading. We’ll be looking for more colour around the Fed’s shift to qualitative guidance and further information on the recent changes in the Fed’s rate expectations. The IMF’s Global Financial Stability Report is released in advance of the spring meetings this week. On a related note, the Fed’s Tarullo speaks today on financial stability, where we may hear more about the recently announced leverage rule. The major data releases today are US wholesale inventories and German/UK trade. Brazil’s March inflation report is worth watching, and the US retail reporting season gets underway with Bed Bath & Beyond’s quarterly filing.
via Zero Hedge http://ift.tt/1g73f1s Tyler Durden