Futures Unchanged, Stock-Trading Algos Anemic Ahead Of U.S. Payrolls Report

US futures were largely unchanged overnight, with a modest bounce after the European close driven by a feeble attempt to push oil higher, faded quickly and as of this moment the E-mini was hugging the flatline ahead of today’s main event – the January payrolls, expected to print at 190K and 5.0% unemployment, however the whisper number – that required to push stocks higher – is well lower, at 150K (according to DB), as only a bad (in fact very bad) jobs number today will cement the Fed’s relent and assure no more rate hikes in 2016 as the market now largely expects.

The two main drivers of risk, crude and the USD, were both also unchanged as if the server farms housing the trading algos were resting ahead of what may be a turbulent session.

The Dollar Index was little changed after slumping 3.1% this week, the most since 2009, as traders realized the Fed is about to admit it was wrong once again. Fixed-income securities across the world have rallied in the past five days as policy makers painted a gloomy picture of the world economy. Gold climbed, extending a third weekly gain.

European stocks rose, led by automakers. Energy stocks set for third daily gain as crude advances. Spanish, Italian bourses outperformed. Pound extends drop as traders push back timing of BOE rate boost. Spanish and Italian government bonds led an advance among euro-area sovereign securities.

Explaining the cautious tone, William Hobbs, head of investment strategy at Barclays Plc’s wealth- management unit in London, told Bloomberg that “people are seeing the negative effects of the lower prices and still waiting to see the positive. Until we see evidence of better consumption it’s likely equity markets will be correlated with the oil price and that suggests volatility. Earnings aren’t confirming people’s worst fears, but they are a bit choppy.”

Asian stocks fell, with the regional benchmark index heading for a weekly loss, after Japanese shares declined as the strengthening yen pressured major exporters: indeed, the biggest moves have again come in Japan where the Nikkei has tumbled for a fourth consecutive day and is now down -1.3% from this time last week when the BoJ announced negative rates. “The Bank of Japan has done what they should, but what they could do had its limits,” Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo, said by phone. “Until now, the view on the U.S. economy was that it was recovering, but the pace wasn’t as fast as hoped. Now there’s some concern in the market that it may actually be contracting.”

In advance of today’s most important event due out in less than 2 hours, this is where key risk levels stand:

  • S&P 500 futures up 0.1% to 1909
  • Stoxx 600 unchanged at 329
  • FTSE 100 up 0.6% to 5931
  • DAX up 0.4% to 9427
  • German 10Yr yield down less than 1bp to 0.3%
  • Italian 10Yr yield down 2bps to 1.51%
  • Spanish 10Yr yield down 3bps to 1.61%
  • MSCI Asia Pacific down 0.2% to 121
  • Nikkei 225 down 1.3% to 16820
  • Hang Seng up 0.5% to 19288
  • Shanghai Composite down 0.6% to 2763
  • US 10-yr yield up 1bp to 1.85%
  • Dollar Index up 0.18% to 96.65
  • WTI Crude futures up 0.8% to $3.01
  • Brent Futures up 0.5% to $34.63
  • Gold spot up 0.2% to $1,158
  • Silver spot up 0.2% to $14.88

Here are the global top news this morning via BBG:

  • LinkedIn Shares Plummet After Sales Outlook Trails Estimates: Sees 1Q rev. $820m, est. $867.1m; sees 2016 rev. $3.60b-$3.65b, est. $3.9b; fell as much as 30% in extended trading
  • ArcelorMittal Asks Investors for $3 Billion Amid Steel Rout: CEO Lakshmi Mittal, who owns ~37%, committed to maintain stake and his family will take up ~$1.1b; co. to sell a $1b stake in Spanish auto-parts maker Gestamp; 2015 Ebitda fell 28% to $5.2b
  • Toyota Stays on Track to Report 3 Trillion Yen in Annual Profit: Stayed on track to become first Japanese co. to top 3t yen ($25.7b) in annual oper. profit; raises full-yr net income target 0.9% to 2.27t yen; analyst est. 2.39t yen
  • Platt’s BlueCrest Said to Be Probed by SEC Over Employee Fund: Being investigated by over possible conflicts posed by an internal fund that manages money for the firm’s partners, according to people with knowledge of the matter
  • Linn Exploring Options During Worst Oil Downturn in 30 Years: Using all of $3.6b credit facility loan; Lazard and Kirkland & Ellis hired for advice during review
  • News Corp. Profit Trails Estimates as Ad Revenue Declines: 2Q adj. EPS 20c, est. 21c; rev. $2.16b, est. $2.13b.
  • Genworth Halts Life, Annuity Sales After Loss; Shares Fall: Suspended sales of traditional life insurance and fixed annuity products to focus on stabilizing unit that provides L-T care coverage; reports $292m loss for 4Q
  • State Street Said Near Deal to Buy GE Asset Management, Reuters Says: State Street prevailed over other bidders incl. Goldman; Goldman declined to comment to Reuters
  • Obama $10-Per-Barrel Oil Tax Lands With Thud in Congress: President says he will propose tax in 2017 budget plan
  • Mattel, Hasbro Would Face Rising Antitrust Worry Over Mega Deals: Hasbro, Mattel Said to Have Held Talks on Possible Merger
  • Bond Rally Defies Bear Pack as Record Low Yields Keep On Coming: U.S. 10-yr yield will end 2016 at 2.68%: Bloomberg survey
  • Dollar Peaking for Principal Even Seeing Two Fed Rate Increases: Dollar probably peaking against euro, yen as 18- month rally tempers U.S. economic growth, means Fed will be slower to raise rates, according to Principal Global Investors
  • Elliott Management Said to Take Large Stake in Symantec: WSJ
  • Yahoo Loses Mobile Entrepreneur Arjun Sethi to Venture Firm: WSJ

Taking a closer look at regional markets we find Asian equities traded mixed, shrugging off the positive lead on Wall Street (S&P 500 +0.15 %). The Shanghai Comp (-0.6%) oscillated between gains and losses in what was a rather subdued session with trading volumes 26% below the 30-day average, while the PBoC conducted further OMO injections ahead of the Lunar New Year. ASX 200 (-0.1 %) fell amid weakness in consumer discretionary, while the Nikkei 225 (-1.3%) continues to flounder with JPY weighing on exports, with the currency set to post its best week of gains in 6-years. JGBs rose amid spill over buying in USTs with once again yields in the 10-yr dropping to record lows having fallen to 0.035%.

Top Asian News

  • China Foreign Reserves Head for Record Drop on Yuan Defense: $513b plunge in 2015 was first annual slide since 1992
  • Foxconn’s Gou Pressures Sharp to Accept $5.6 Billion Bailout: Sharp says it will continue talking with Foxconn, INCJ
  • BOJ Roils Money Market Industry as Nomura Halts Fund Orders: Daiwa, Mitsubishi UFJ among providers with similar plans
  • Sumitomo Warns on Commodity Prices as Writedowns Mount: Swung to a net loss in 3Q and cut its full-year profit target by more than half due to mounting impairments
  • Noble Group Bank Debt Prices Signal Concern Worst Isn’t Over: Credit facility parcel said to have traded at ~75 cents
  • Frozen Bank Accounts Sow Doubts on Malaysia Transparency Bid: Swiss, Singapore investigations continue into govt fund

A relatively quiet session in European markets today, with volatility quelled by the looming spectre of the US non-farms payrolls report, later on in the session. Furthermore, oil prices have been subdued in today’s session helping calm markets. In terms of stock specifics, BNP is the latest of the major European banks to report, and the story looked familiar at first with a large miss on headline net income. However, the saving grace for the French bank was a boost in dividend, culminating in BNP trading nearly 5% in the green.

Top European News

  • BNP Paribas Surges as Lender Targets Investment-Bank Cost Cuts: Targets EU1b in savings at investment bank by 2019; 4Q net income EU665m, est. EU864.2m
  • Blackstone, Onex Said to Advance With Philips Lighting Bids: Philips has selected buyout firms including Blackstone, Onex and Apollo Global and U.K. investment company Melrose Industries to advance to the second round of bidding for its lighting division, according to people familiar with the matter
  • German Factory Orders Fall as Export Slowdown Cools Confidence: Dec. orders drop 0.7% on month vs estimate for 0.5% decrease; orders dropped 2.7% from a year earlier
  • Volvo AB to Cut Production on Lower North American Truck Demand: Sees N. America h/d truck mkt 260k units; prior 280k; 4Q net income (Gaap) SEK2.59b vs est. SEK3.17b; sees SEK10b cost cuts complete by year-end
  • U.K. Poll Shows ‘Out’ Campaign Leads by 9 Points After Deal: 45% of respondents were in favor of leaving the EU and 36% wanted to remain inside, with 19% undecided, YouGov said

Ahead of the week’s key US jobs report, FX markets have calmed down, though the key USD rates remain well placed to extend levels against the greenback. Standout is USD/JPY, which has held below 117.00 through the early European session, having found support at 116.50 in NY yesterday. Asia retested this, but unsuccessfully. Large exotic triggers noted in 115.50-115.00 area. GBP sellers were back in after the latest YouGov poll on EU showed the ‘leave’ camp up to 45% vs 36% choosing to stay in. Cable found support ahead of 1.4500 though, but EUR/GBP made a clean break through .7700. Oil prices slipped again to pull CAD off better levels, with a tight correlation now seen here. EUR/USD settles around 1.1200 for now — over 2 yards rolling off here today.

As we head into the North American session, WTI and Brent have seen an uptick with WTI Mar’16 futures retaking the USD 32.00 handle, although there is no new fundamental news to drive price action. With nothing new on the OPEC front, prices continue to be dictated to by the USD, and the key risk event come in the form of NFP report later today.

Gold traded has seen a bid n recent trade, extending upon the October 29th highs reached in yesterday’s session, following the weakening of the USD. Of note we are entering a level of key resistance territory, with the late August high of 1166.57 coming into focus.

Looking ahead to today’s calendar, the main event this afternoon in the US will be the January employment report where along with payrolls we’ll also get the latest payrolls report (exp. +190,000), unemployment rate (no change expected at 5%), average hourly earnings (expected at +0.3% mom and +2.2% yoy) and labour force participation rate (expected to nudge up one-tenth to 62.7%). Away from the employment data, we’ll also get the December trade balance data where a slight widening in the deficit is expected, along with the December consumer credit print. There’s little in the way of Central Bank speak and it’s a lot quieter on the earnings front too with just 7 S&P 500 companies set to report.

 

Bulletin Headline Summary from RanSquawk and Bloomberg

  • A relatively quiet session in European markets today, with volatility quelled by the looming spectre of the US non-farms payrolls report later on in the session
  • FX markets have calmed right down, though the key USD rates remain well placed to extend levels against the greenback
  • Looking ahead, highlights include US Nonfarm Payrolls Report, Canadian Unemployment, comments from ECB’s Mersch
  • Treasuries slightly lower ahead of today’s U.S. non-farm payroll report (est. +190k) while the USD index rises overnight after closing lower each day this week.
  • Hints of investor optimism in Europe were snuffed out this week and sent stocks and credit markets sliding as companies reported dismal earnings, and policy makers and institutions lined up to cut economic forecasts and warn of further risks
  • BNP Paribas jumped as the French lender raised its dividend to the highest in eight years and pledged to cut costs at the investment bank to help free up capital
  • Nomura Asset Management stopped accepting investments into some money-market funds, joining 10 other managers in suspending such accounts as the $14.1 billion industry grapples with the negative interest rates introduced by the BOJ
  • China’s foreign-exchange reserves, already at a three-year low, are poised to post a second consecutive record monthly drop as policy makers intervene to support the yuan. The central bank will say Sunday that the currency hoard fell by $118 billion to $3.2 trillion in January, according to economists’ estimates in a Bloomberg survey
  • Economists are deviating even more from the Federal Reserve in forecasting how high interest rates will rise, joining bond and futures traders in doubting the central bank’s projected policy-tightening path
  • The dollar is headed for its biggest weekly decline since 2009 amid signs traders are starting to pull back from a policy divergence trade that proved a winner for much of the past year and a half
  • After a year of low oil prices, only 0.1% of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. that highlights the industry’s resilience
  • When Bill Gross left Pacific Investment Management Co. in 2014, it wasn’t surprising that investors bolted. But now customers are deserting another Pimco star manager who’s still in his seat
  • Sovereign 10Y bond yields mostly steady, though Greece +9bp. European stocks higher, Asian stocks mixed; U.S. equity- index futures rise. Crude oil mixed, copper drops, gold rises

US Event Calendar

  • 8:30am: Trade Balance, Dec., est. -$43.2b (prior – $42.37b)
  • 8:30am: Change in Non-farm Payrolls, Jan., est. 190k (prior 292k)
    • Change in Private Payrolls, Jan., est. 180k (prior 275k)
    • Change in Manufacturing Payrolls, Jan., est. -2k (prior 8k)
    • Unemployment Rate, Jan., est. 5% (prior 5%)
    • Average Hourly Earnings m/m, Jan., est. 0.3% (prior 0%)
    • Average Hourly Earnings y/y, Jan., est. 2.2% (prior 2.5%)
    • Average Weekly Hours All Employees, Jan., est. 34.5 (prior 34.5)
    • Change in Household Employment, Jan. (prior 485)
    • Labor Force Participation Rate, Jan., est. 62.7% (prior 62.6%)
    • Underemployment Rate, Jan. (prior 9.9%)
  • 3:00pm: Consumer Credit, Dec., est. $16b (prior $13.951b)

DB’s Jim Reid concludes the overnight wrap

All things considered it’s felt like markets have taken a bit of a pause for breath over the last 24 hours or so, something we’ve rarely said in 2016. A lull in newsflow combined with a relatively calm day for Oil yesterday (WTI closing down ‘just’ -1.73% at $31.72/bbl and hovering around those levels this morning) resulted in US equities in particular trading with fairly little conviction. In fact it took for the S&P 500 to swing between gains and losses an impressive 21 times to finally close with a fairly modest +0.15% gain. Moves in currency markets have been a bit more eye-catching as the US Dollar continued its downward march yesterday with the Dollar index eventually finishing with a -0.84% loss. That means the index is now down -3.1% in the four days this week which as it stands makes it the worst weekly performance since 2009.

This of course coming before the main event of the week today in the January US employment report, including the all-important nonfarm payrolls data. After the robust 292k print we got in December, market expectations are currently for a 190k gain, while our US economists are slightly more cautious and are forecasting a 175k gain (along with no change to the unemployment rate at 5%). Post the soft employment components from ISM readings we got earlier this week, it seems like the whisper number is probably closer to 150k however. As is standard practice at this time of year we’ll also get the revisions for five years of payrolls data today. Futures markets continue to price a less than 50% chance of a hike this year and given the relatively low expectations ahead of today’s data it would have to take a bumper number for that to change materially. Remember that before the FOMC meeting in March we will also get the February employment report along with a number of other important releases, while Fed Chair Yellen’s semi-annual testimony next week will be a huge focus for markets.

Ahead of the data then, equity markets in Asia are demonstrating a similar lack of direction in early trading. The Hang Seng (+0.57%) and Kospi (+0.14%) are holding in with gains, while bourses in China are a smidgen lower at the break (Shanghai Comp -0.11%) along with the ASX is -0.11%. The main moves have again come in Japan where the Nikkei (-1.76%) has tumbled for a fourth consecutive day and is now down -1.3% from this time last week when the BoJ announced negative rates. The same goes for the Yen which is slightly firmer this morning and has in fact now appreciated 1.7% post BoJ. Credit indices are underperforming this morning with iTraxx indices for Asia, Japan and Australia +2bps, +4.5bps and +6bps wider respectively.

Back to yesterday. European risk assets put in a bit of a mixed performance with corporate earnings dictating a lot of the moves. The Stoxx 600 (-0.20%) and DAX (-0.44%) ebbed and flowed before finishing with modest losses, although there was a decent rally for peripheral bourses with the likes of the IBEX and FTSE MIB up +1.85% and +1.23% respectively. While miners staged a notable rebound, Credit Suisse saw its share price fall by double figures after announcing its biggest quarterly loss since 2009. Sub-financials spreads were hit hard as a result with the sub-financials index now underperforming Crossover both this week and YTD now.

US credit was a bit of an underperformer too yesterday with CDX IG eventually closing a couple of basis points wider as consumer names in particular came under pressure on the back of some weaker than expected earnings reports. In fact, yesterday also saw a couple of big US energy names report with ConocoPhillips and Occidental failing to meet analyst expectations for both earnings and revenues. The former in fact also announced a 66% cut in the quarterly dividend and decent slash to capex. All told yesterday we had 33 S&P companies report their latest quarterly numbers with 21 beating earnings expectations (64%) but just 12 (36%) beating revenue forecasts. That’s a fair bit weaker than the overall trend so far at 78% and 46% respectively.

From the micro to the macro where yesterday comments from the Dallas Fed’s Kaplan echoed a similar tone to Brainard and Dudley in recent days. Kaplan emphasized the need for being ‘very patient’ in assessing the outlook for US growth while also acknowledging that ‘global financial conditions have tightened’ and that ‘non-US conditions have weakened’. Post the market close we also heard from Cleveland Fed President Mester who, while acknowledging the recent market turbulence and ‘soft patch’ for the US economy, continued to emphasise the belief that the US economy will work through this and ‘regain its footing for moderate growth’.

Earlier in the day we had also heard from ECB President Draghi although there wasn’t a whole lot of new information in his comments. Draghi insisted once again that ‘the risks of acting too late outweigh the risks of acting too early’ before pledging not to give in to low inflation. Meanwhile fellow ECB official, Mersch, reiterated that the ECB’s toolbox is not yet exhausted and that the ECB will make a decision once data is available in March.

Also of note yesterday was the Bank of England MPC meeting. While there was no change to current policy as widely expected, it was interesting to see a now unanimous vote with Ian McCafferty having retracted his previous call for tightening. Medium term inflation forecasts were little changed but we did see the Bank downgrade its growth forecasts with 2016 growth now expected to be 2.2% (cut from 2.5%) and 2017 growth downgraded to 2.4% from 2.7% previously. The minutes showed that the MPC judges the risks to the central projection to be skewed a little to the downside in the near term and it was noted that ‘low realized inflation will continue to moderate the increase in wage pressure in the near term’. In the post statement conference, Governor Carney didn’t sound too overly-bearish and made mention to the fact that the down-ward pull on inflation from overseas will be countered by more sustainable cost pressures at home.

Before we take a look at the day ahead, yesterday’s economic data in the US was generally a little softer than expected. Q4 nonfarm productivity was weak at -3.0% qoq (vs. -2.0% expected). Unit labour costs rose a little bit more than expected at +4.5% qoq (vs. +4.3%) while initial jobless claims rose 8k last week to 285k (vs. 278k expected) which resulted in the four-week average nudging up to 285k and continuing the upward trend. Factory orders were down -2.9% mom in December (vs. -2.8% expected), while the already soft durable goods orders were revised down further in December at the final revision by five-tenths to -5.0% mom.

Looking ahead to today’s calendar, it’s a pretty quiet start to proceedings this morning in Europe with just German factory orders data for December due out. The main event this afternoon in the US will of course be the aforementioned January employment report where along with payrolls we’ll also get the latest unemployment rate (no change expected at 5%), average hourly earnings (expected at +0.3% mom and +2.2% yoy) and labour force participation rate (expected to nudge up one-tenth to 62.7%). Away from the employment data, we’ll also get the December trade balance data where a slight widening in the deficit is expected, along with the December consumer credit print. There’s little in the way of Central Bank speak and it’s a lot quieter on the earnings front too with just 7 S&P 500 companies set to report.

Meanwhile it’s worth highlighting that over the weekend we’ll get the latest China FX reserves data for January which we’ll be keeping a close eye on ahead of the Asia open on Monday.


via Zero Hedge http://ift.tt/1SOxsW0 Tyler Durden

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