Overnight Levitation Is Back Courtesy of Yen Carry

If one needed a flurry of “worse than expected” macro data to “explain” why European bourses and US futures are up, one got them: first with UK Q1 GDP printing at 0.8%, below the expected 0.9%, then German consumer prices falling 0.1% in April, and finally with Spanish unemployment actually rising from a revised 25.73% to 25.93%, above the 25.85% expected. All of this was “good enough” to allow Italy to price its latest batch of 10 Year paper at a yield of 3.22%, the lowest yield on record! Either way, something else had to catalyze what is shaping up as another 0.5% move higher in US stocks and that something is the old standby, the USDJPY, which ramped higher just before the European open and then ramped some more when European stocks opened for trading. Look for at least one or two more USDJPY momentum ignition moments at specific intervals before US stocks open for trading.

There was more negative newsflow, most notably from Mario Draghi, who told German lawmakers that QE is still “a way off” and relatively unlikely, which in normal days would have been enough to drain some euphoria and enthusiasm to buy anything that is not nailed down, but not today.

But all of that is moot. Remember – the biggest catalyst of what promises to be the latest buying panic rampathon is simple: it’s Tuesday.

Looking at Asian markets today, it’s been a fairly mixed session with Chinese domestic equities (+0.1%) and the Hang Seng (+0.25%) outpacing other markets today. There have been reports that two Chinese cities have begun relaxing home purchasing restrictions amid growing anecdotal evidence that housing prices are falling in the new and secondary real estate markets. Chinese iron ore futures prices have recovered 0.4% this morning, after falling by 3.5% yesterday on news that Chinese banks were being required to clamp down on iron ore inventory financing by the country’s banking regulator. On the fixed income side, the flood of new EM issuance remains a dominant theme. According to the FT, who cite Dealogic data, issuance has reached $27bn for April, beating the previous record for a single month set in January.

Finally, the only key variable that even algos can’t ignore, tensions and escalations in Ukraine, showed yet another round of signs of de-escalation, at least diplomatically, and especially following reports that Russian troops near the Ukraine border had pulled back to their military bases also buoyed sentiment, although this is something we have seen time and again, especially since NATO subsequently reported it had seen no pullback of any Russian troops.

Looking ahead to today, there’s a fair bit on the calendar before we head into the business end of the week. About 30 Stoxx600 companies will be reporting earnings today including a couple of the major banks in continental Europe. It’s a similar story stateside with about 40 S&P500 companies reporting before and after the closing bell, including some high profile tech/retail names like Twitter and eBay. UK Q1 GDP and German CPI are the major data releases in Europe. Across the pond, US Case-Shiller home prices for February will be released and the US conference board reports its April consumer confidence reading.

Bulletin headline summary from Bloomberg and RanSquawk

  • Better than expected corporate earnings in Europe offset source comments late yesterday which indicated that ECB’s Draghi sees QE still being ‘a way off’ and ensured that stocks traded broadly higher.
  • Spot RUB seen sharply lower as “war premium” relating to the stand-off between Russia/Ukraine is reduced after Russian Deputy Minister said that Moscow has no intent to replay ‘Crimea scenario’ in East Ukraine.
  • Attention now turns to the release of the latest US Consumer Confidence Index, weekly API data and also earnings by Merck, eBay and Bristol-Myers.

Asian Headlines

Despite the focus remaining on regulators in China probing iron ore financing deals which also resulted in China’s import iron ore benchmark grade hitting monthly lows, the sentiment was offset by better than expected domestic based earnings, with both Shanghai Comp and Hang Seng settling higher.

EU & UK Headlines

The release of lacklustre money supply data and seasonality skewed German states CPIs, German Bunds remained on a downward trend since the open and instead remained a by-product of firmer stocks and also source comments by Draghi late yesterday who downplayed the likelihood of QE. On the topic of ECB, today’s higher than exp. usage of the regular 7-day MRO by banks should offset the latest 3y LTRO repayment and in turn result in excess liquidity rising back above EUR 100bln, which currently stands at EUR 86.3bln. Analysts at Goldman Sachs expect the ECB to keep policy unchanged next week and do not expect any announcement on unconventional policy.

The release of worse than expected UK Q1 GDP report resulted in an immediate pressure on GBP but failed to support Gilts which remain lower on the session. Interestingly, ahead of the release BoE Governor Carney stated that he sees the UK economy back to pre-crisis levels in 2008 – excluding oil & gas he is correct.

Barclays preliminary pan-Euro agg month-end extensions for April: +0.10y (March +0.07y)

Barclays preliminary Sterling month-end extensions for April: +0.02y (March -0.02y)

US Headlines

Touted pre-hedging of the eagerly anticipated Apple debt deal, together with lower trading Bunds and Gilts in Europe this morning also filtered through into USTs. According to senior Democratic aide, there is a real risk that three Fed nominees will not be confirmed before June. The US Senate Banking Committee are to vote tomorrow on nominations of Fischer, Brainard and Powell to the Fed board.

Barclays preliminary US Tsys month-end extensions for April:+0.08y (March +0.07y)

Equities

Heading into the North American open, stocks (Eurostoxx50, +0.88%) are seen broadly higher following an encouraging set of earning pre-market by Nokia, Infineon and Deutsche Bank. As a result, tech and financials outperformed on the sector breakdown.

FX

GBP/USD slid well away from five-year highs of 1.6858 as UK GDP slumped below expectations. The 1.68 handle nonetheless was held as participants took confidence in the UK economy ex-oil & gas still being larger than pre-crisis levels. Early EUR strength following Draghi’s cautious comments on QE yesterday resulted in EUR/JPY and GBP/JPY firming, allowing USD/JPY to rise toward the 100DMA at 102.95 – the next level that may be tested should USD-strength arise from today’s consumer confidence figures

Commodities

Brent and WTI has seen a rebound from yesterday’s sharp USD 2.00 sell-off after Libya’s Zueitina port exited force majeure. Further support comes from a slightly softer USD -0.06%. In terms of the latest developments surrounding Russia/Ukraine, Russian Deputy Minister said that Moscow has no intent to replay ‘Crimea scenario’ in East Ukraine and won’t rush to retaliate against Western sanctions. In other news, US Gulf refinery maintenance is set to increase in May, rising to 750,000 bpd, almost twice as much as previously expected, and above the 454,00 bpd capacity that was lost in April, according to a revised IIR report.

Jim Reid concludes the overnight summary

Equity markets have been flipping in and out of the black/red this year and Monday’s price action seemed to be a microcosm of this theme. The S&P500 (+0.32%) started the day at around 1870 before dropping 20points only to return to its starting level at the close. At one stage the index appeared to be headed for its YTD starting level of 1848.36, but the combination of solid earnings, some easing of Ukraine/Russian fears and a flurry of M&A activity on both sides of the Atlantic saw sentiment improve as the US session wore on.

By our count, there were at least six large M&A transactions reported or announced yesterday in the US and Europe with the pharmaceutical sector taking the lion’s share of the transaction headlines yesterday. More broadly, we seem to reaching a number of M&A milestones with signs that the volume of large cap M&A deals is now reaching pre-financial crisis levels. Indeed, so far this year there have been 14 deals or bids worth at least $10 billion which have been announced, the most since 2007 and this does not include the transactions announced on Monday (WSJ, Dealogic). Contrary to what one would expect with the conducive credit markets, cash-only deals by dollar volume fell to 48% year to date, the lowest percentage since 2001. By contrast, 18% of announced M&A YTD as measured by dollar volume, were stock-only deals, which is double the rate of the same period last year – as companies take advantage of record high stock prices (Wall Street Journal).

The other interesting point on the recent M&A activity is that although healthcare and tech stocks have underperformed of late, they are amongst the top 3 most active sectors for M&A, accounting for 14.8% and 8.6% of volume in the year to April 28th. According to Dealogic, the Global Technology sector M&A volume stands at $93.7bn in 2014 YTD, up 94% from the same time period in 2013 ($48.2bn) and is the highest since 2000 YTD ($207.7bn) or the last days of last dot-com boom. For credit markets, this current M&A cycle is not yet too worrying because of the relatively low level of cash in the transactions and the fact that its mostly taking place in sectors with low credit issuance. However there’s no doubt that credit investors need to be vigilant given recent trends.

For equity markets, positivity from M&A is being countered to some degree by ongoing events in Ukraine with yesterday’s ups and downs being dictated by headline from the region. The day started with some cautiousness with fears that the sanctions could hit a wide section of the Russian economy. But the actual announcement from the US was greeted with a positive market reaction as there was some relief that there were no injunctions against the major Russian banks. After a fairly miserable performance last week, the MICEX managed to clawback 1.5%, led by a 5% spike in the shares of Sberbank of Russia. Reports that Russian troops near the Ukraine border had pulled back to their military bases also buoyed sentiment, but we would caution that similar reports have been made in recent weeks. Despite this backdrop, ironically it was the US banks (-1.5%) which were under more pressure yesterday. The sector was dragged lower by BofA (-6.3%) who announced that it was suspending its stock buyback and dividend increases after uncovering an accounting error in its Fed capital planning submission. Indeed, none of the 17 banks in the S&P500 managed to close in the black.

Looking at Asian markets today, it’s been a fairly mixed session with Chinese domestic equities (+0.1%) and the Hang Seng (+0.25%) outpacing other markets today. There have been reports that two Chinese cities have begun relaxing home purchasing restrictions amid growing anecdotal evidence that housing prices are falling in the new and secondary real estate markets. Chinese iron ore futures prices have recovered 0.4% this morning, after falling by 3.5% yesterday on news that Chinese banks were being required to clamp down on iron ore inventory financing by the country’s banking regulator. On the fixed income side, the flood of new EM issuance remains a dominant theme. According to the FT, who cite Dealogic data, issuance has reached $27bn for April, beating the previous record for a single month set in January.

That brings the total volume for US dollar bond deals in Asia ex-Japan up to $68bn year to date, also a record for the region. Low USD rates, and tight spreads are helping the primary flow, but there has also been talk of EM investors shifting allocations away from Eastern Europe to Asia to avoid geopolitical risks. Japanese markets are closed today for holidays.

With the Fed beginning the first day of its two day FOMC later today, DB’s Peter Hooper has laid out what he expects from the April meeting. Peter’s expectation is that the April FOMC announcement will prove uneventful. With forecast updates and a press conference absent, this is not the time for any innovations in communication, although the Fed will at some point have some more work to do on its forward guidance. For the time being, the Committee is very much in wait-and-see mode. They want to see how the economy bounces back from an inclement winter; they want to see how the labor market is progressing; and they want to see inflation returning toward more normal levels. So far, the picture is more than good enough to allow them to continue the taper on schedule, but not good (or bad) enough to warrant any significant shift in their message. The Committee may spend a bit more time than usual reviewing the housing market. The most recent housing activity indicators have been mixed, with starts and pending home sales up in March, but new and existing home sales down. Nevertheless all remain at relatively soft levels. The housing sector may well be experiencing ongoing drag from declines in affordability as mortgage rates and home prices have moved up significantly  over the past year.

Looking ahead to today, there’s a fair bit on the calendar before we head into the business end of the week. About 30 Stoxx600 companies will be reporting earnings today including a couple of the major banks in continental Europe. It’s a similar story stateside with about 40 S&P500 companies reporting before and after the closing bell, including some high profile tech/retail names like Twitter and eBay. UK Q1 GDP and German CPI are the major data releases in Europe. Across the pond, US Case-Shiller home prices for February will be released and the US conference board reports its April consumer confidence reading. France’s parliament will consider and vote on President Hollande’s Stability Program which lays out fiscal policy over 2014 to 2017.




via Zero Hedge http://ift.tt/1khA7DW Tyler Durden

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