Futures Flat On Russia Sanctions Round 3 Day

While today’s key news event will be the preannounced latest, third, round of anti-Russian sanctions and the Russian retaliation, the reality as DB notes, is that the market seems to be seeing “some fatigue” in this story with the ECB, Scotland and next week’s Fed meeting taking center stage. As a result, and ahead of expectations of change in Fed language which should carry a more hawkish tone, the dollar has been bid up some more overnight, leading to fresh multi-year highs in the USDJPY, and the now-paired TSY trade, with 10Y yields up to 2.57%, although this may now be in short-term oversold territory. The latest Scottish poll appears to have dented some of the “Yes” momentum, with 52% of the polled saying they would vote No in the referendum, although right now neither side has a clear majority when factoring in the undecideds: which means it will come down to the wire next week, with clear implications for Europe’s secessionist movements if the Yes vote still manages to prevail, not to mention massive ramifications for the UK.

Overnight in Asia, China’s latest lending data was released. China’s credit growth rebounded sharply in August following a weak July. New loans in August came in at RMB702.5bn up from RMB385.2bn in July and was around market consensus. M2 was up 12.8pct yoy, lower than the 13.5yoy growth in July (and consensus) but this was previewed by Premier Li’s speech earlier this week. Markets are range bound in the Asia with the Nikkei up +0.4% and the Shanghai Composite up +0.2% although the Hang Seng is down -0.3%. MSCI Asia Pacific down 0.2% to 146. Nikkei 225 up 0.2%, Hang Seng down 0.3%, Kospi up 0.4%, Shanghai Composite up 0.9%, ASX down 0.3%, Sensex up 0%

European equities trade mixed, with minor outperformance in both the FTSE-100 and the IBEX-35 as recent independence campaigns from Scotland and Catalonia lose some steam. Yesterday’s YouGov poll showed Salmond’s Independence bid only briefly holding the lead over the ‘No’ vote, as unionists reclaimed the top spot just six days away from referendum polling. Nonetheless, Spain’s IBEX-35 has suffered throughout the week on Catalonia’s break-up bid, with today’s upside only trimming the weekly losses to 2.2%. 14 out of 19 Stoxx 600 sectors rise. 55.7% of Stoxx 600 members gain, 41.2% decline. Eurostoxx 50 -0.1%, FTSE 100 +0.2%, CAC 40 -0.2%, DAX -0.3%, IBEX +0.3%, FTSEMIB +0%, SMI -0.3%.

Looking to the day ahead, in Europe we have the Spanish August inflation read (expected in at +0.1% MoM), Italian and euro area July Industrial Production (expected in at -0.2% and +0.7% MoM). In the US we have August Retail Sales reads with the advanced MoM expected in at +0.6%, the September UoM Confidence read (expected at 83.3) and July Business Inventories data (expected in at 0.4%). In geopolitics, today sees the strengthened EU sanctions on Russia take effect. Implementation had been delayed in light of the ceasefire announcements last week but yesterday leaders and diplomats agreed to now bring them in. The US looks set to follow suit and President Obama yesterday said he would provide more details today. We seem to be seeing some fatigue in this story with the ECB, Scotland and next week’s Fed meeting taking center stage. However the regions problems are clearly yet to be resolved and the aim of bringing in the new sanctions today is to keep up pressure on Russia (BBC). Russia has said it is preparing its own sanctions in response.

Market Wrap

S&P 500 futures up 0% to 1988.3
Stoxx 600 up 0.1% to 344.6
US 10Yr yield up 1bps to 2.56%
German 10Yr yield up 3bps to 1.07%
MSCI Asia Pacific down 0.2% to 146
Gold spot down 0.3% to $1237.7/oz

Bulletin Headline Summary from RanSquawk and Bloomberg

T-Notes and Bund futures remain close to weekly lows, as traders look ahead to next week’s FOMC meeting, where consensus is growing that the Fed could revise their statement
AUD and JPY remain the week’s two poorest performing currencies, as carry trade unwind continues to benefit the USD over most others
Treasuries lower, head for second consecutive weekly loss, amid speculation Fed may next week amend statement language and signal rate increase next year.
BofAML now sees first rate hike in June 2015, previously expected September; economist Ethan Harris cites stronger than forecast growth data, inflation in line with Fed forecast
China’s broadest measure of new credit trailed analyst estimates in August, adding to the government’s challenge to meet its economic-growth target amid a slumping property market and a pullback in manufacturing
U.S. House and Senate leaders are backing Obama’s call to train and equip Syrian rebels even as Republicans’ demand for a broader offensive to defeat Islamic State extremists may delay congressional action
Scotland’s nationalists suffered a second straight setback in the polls after YouGov Plc showed them trailing less than a week after overtaking the anti-independence campaign for the first time
GBP/USD has the potential to tumble 10% should the Scots vote for independence from the U.K., according to economists surveyed by Bloomberg
Russia threatened retaliation against a U.S./EU decision to stiffen sanctions against Moscow because of Ukraine and may ban some imports including clothing and used cars
Abe will need a JPY5t ($47b) fiscal stimulus package to cushion the impact of a further increase in Japan’s sales tax, a survey by Bloomberg News show
Sovereign yields higher. Asian stocks mostly lower, European stocks mostly higher, U.S. equity-index futures gain. WTI crude higher, gold higher, copper little changed
Attention turns to a slew of tier 1 US data, with August Retail Sales due at 1330BST/0730CDT and prelim University of Michigan Confidence due to follow at 1455BST/0855CDT

US Economic Calendar

8:30am: Retail Sales Advance, Aug., est. 0.6% (prior 0%)
Retail Sales Ex Auto, Aug., est. 0.3% (prior 0.1%)
Retail Sales Ex Auto and Gasoline, Aug., est. 0.5% (prior 0.1%)
Retail Sales Control Group, Aug., est. 0.5% (prior 0.1%)
8:30am: Import Price Index, Aug., est. -1.0% (prior -0.2%)
Import Price Index y/y, Aug., est. -0.6% (prior 0.8%)
9:55am: UofMich Confidence, Sept. preliminary, est. 83.3 (prior 82.5)
10:00am: Business Inventories, July, est. 0.4% (prior 0.4%)

FIXED INCOME

Both T-notes and Bund futures fell throughout the morning, as traders hesitantly look ahead to next week’s FOMC meeting, where expectations of a hawkish turn from the Fed continue to grow. As such, peripheral European yield spreads are generally tighter against Germany, however Dec-14 Bund futures have found some support at the weekly lows of 148.02.

EQUITIES

The French utilities sector (GDF Suez, EDF) sharply underperforms after the French state council ruled out any increase in power prices, despite an industry-wide call for the French regulators to do so.

GBP only briefly benefited from yesterday’s YouGov poll as long liquidation and the continued jitters over Edinburgh’s bid for separation keeps traders from committing to longer-term position. 1-week GBP/USD implied vols now at 4yr highs as independence vote and forthcoming polls promote uncertainty for the GBP. AUD and JPY remain the week’s two weakest currencies, with AUD down another 65 pips today (weekly losses now stand at approx. 325 pips) and JPY down 30 pips (weekly losses of approx. 215 pips) as the carry trade unwind continues to benefit the USD.

COMMODITIES

WTI and Brent crude futures trade higher, as the energy complex recovers from recent multi-month and multi-year lows. Nonetheless, the WTI-Brent spread remains close to the tightest levels of the week as Brent’s upside is capped by looming Libyan supply, dwindling Chinese demand and OPEC’s comfort with falling crude prices. Precious metals remains under pressure, with gold touching late January lows at USD 1,232.33 as silver tumbles to June 2013 lows at USD 18.47 on a stronger USD and expectations of a hawkish Fed meeting next week.

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DB’s Jim Reid concludes the overnight recap

Indeed this time next week we’ll know the state of the union in the UK. Virtually every new day now sees a new poll ahead of next week’s big vote. Yesterday was no different with last night’s YouGov poll (which excluded don’t know’s) confirming this week’s bounce in the NO vote with 52% of the vote vs the Yes campaign’s 48%. It marks the first You Gov polling gain by the No campaign since early August although with just a 4% gap the vote still looks set to be close. There was a small +0.2% gain in Sterling vs the Dollar post the release but the damage from the weekend’s YES votes has yet to be corrected.

Next we have an update on the latest HY fund flow data. This week saw outflows across the HY world, especially from North American funds which saw funds lose -0.4% of NAV. It’s fair to say that the past two weeks of outflows have been nowhere near the scale we saw in the weeks leading up to early August and outside of Western Europe the 4 week flows moving average remained in positive territory. This is certainly a story to continue to keep an eye on. If we did get a more hawkish Fed next week it could upset a market that hasn’t regained its pre-summer swagger. In the PDF today we include the chart of North American fund flows as % of NAV.

In terms of other newsflow yesterday, we had the French CPI August inflation read which dropped (as expected) to +0.5% YoY whilst US Initial Jobless Claims came in higher at 315k (vs 300k expected). In terms of market reaction it was a mixed day for markets yesterday with equities notably underperforming fixed income. In Europe the Stoxx 600 was down -0.2% with the UK and periphery markets leading the losses as the FTSE 100 and Ibex 35 fell -0.5%. European credit was generally more positive with a marginal widening in iTraxx Main (+0.5bps) whilst Xover, Fin Sen and Fin Sub tightened -3bps, -0.1bps and -3bps respectively. In the US the S&P 500 closed the day flat whilst CDX IG and HY widened +0.5bps and +3bps respectively.

Another interesting story yesterday was the IEA’s downward revision of its oil demand forecast for 2014 and 2015 on the back of weaker outlook for economic growth in Europe and China. The institution noted that global oil demand growth had slowed to below 500k bbl/day in Q2 which is a first in 2.5 years. We’ve flagged a few times now on how the recent decline in Crude oil is somewhat telling given the various geopolitical uncertainties globally and whilst a stronger Dollar may explain some of these moves, in reality demand weakness is difficult to ignore. Brent Futures fell over 1% yesterday morning before rallying back strongly after Russian sanctions were confirmed (see below). It’s trading around -0.2% lower overnight at around $97.80. Overall we’ve now seen a decline for seven of the last eight weeks. Whilst historically such falls in oil prices might be seen as an economic positive, with the world’s regions, most notably the Eurozone, fighting disinflation these developments will add to the downward pressure. Will this free up the ECB and slow down the Fed?

via Zero Hedge http://ift.tt/X6iOjL Tyler Durden

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