Futures Flat Ahead Of Payrolls As Gold Continues Surge After Entering Bull Market

There is an odd feeling of Deja QEu this morning, when with two hours to go until the February payrolls, global stocks are modestly higher, US equity futures are likewise slightly higher on the back of a weaker dollar (or perhaps stronger Euro following a Market News report according to which the ECB may disappoint, more on that shortly), but it is gold that is breaking out, and after entering a bull market yesterday when it rallied 20% from its December lows…

 

…  gold has continued to surge, rising as high as @1,274 in early trading a price last seen in January 2015, suggesting two things: i) someone believes wholesale currency debasement is about to be unleashed once again, and ii) faith in central banks is shaking as Goldman noted when it said two weeks ago to short gold because the “only thing we have to fear is fear itself.” It was wrong about the former, and may prove all too right about the latter.

 

Jens Pedersen, a Danske Bank A/S analyst in Copenhagen, told Bloomberg that “the rally has mainly been on the repricing and changing expectations regarding central bank policy.” The European Central Bank and Bank of Japan may ease policy further, while the U.S. Federal Reserve could postpone any further interest rate increases, he said. Looser policy and the lower rates on securities that tend to follow add to the appeal of gold, which yields nothing. The metal is also a haven in times of crisis and slow growth. Investors are awaiting data on U.S. non-farm payrolls that will offer further insight into the health of the world’s biggest economy and the trajectory of interest rates.

“Although gold is very much driven by Fed policy, the impact of ECB policy decisions may become increasingly relevant for gold price action, as concerns about negative interest rates gain traction,” Joni Teves, a strategist at UBS Group AG, said in a note on Friday. “We think negative interest rates should be positive for gold.”

Another reason why there is a sense of QE-ness to the world, is because Bloomberg reports that the only reason Chinese equities rose this week, is due to central bank intervention with state-backed funds said to have intervened in the market ahead of the National People’s Congress on Sunday. Similar to what the Fed has done for a far longer time in the US.

Emerging markets extended their best week since October and copper advanced, supporting mining stocks, on speculation China will boost stimulus at an annual gathering of the nation’s legislature. Treasuries and developed-nation shares were little changed before U.S. jobs data.

Elsewhere, it has been a relatively quiet start, with Euro Stoxx 600 up 0.2%, US equity futures up 0.1%, while global equities have recouped more than half of this year’s losses since sinking to a 2 1/2-year low on Feb. 11. “The mood is quite positive this morning, but now everyone is waiting for payroll data,” said Benno Galliker, a trader at Luzerner Kantonalbank AG. “Two weeks ago we were accepting the fall back into a recession, and now the fears seemed to have been overblown and we have a kind of positive bias.”

That may all change shortly when the US reports February nonfarm payrolls, forecast to show 195,000 jobs were added and an unemployment rate of 4.9 percent: as we will explain shortly, a “too strong” number will be the worst case scenario for bulls, and may lead to another repeat of the February (and January) selloffs.

Finally, over the weekend China may announce its plans to revive growth when an annual meeting of the National People’s Congress gets under way on Saturday.

Global Market Wrap

• S&P 500 futures up less than 0.1% to 1991
• Stoxx 600 up less than 0.1% to 340
• FTSE 100 up 0.4% to 6158
• DAX up 0.4% to 9787
• German 10Yr yield up 2bps to 0.19%
• Italian 10Yr yield up 1bp to 1.44%
• MSCI Asia Pacific up 0.6% to 126
• Nikkei 225 up 0.3% to 17015
• Hang Seng up 1.2% to 20177
• Shanghai Composite up 0.5% to 2874
• S&P/ASX 200 up 0.2% to 5090
• US 10-yr yield down less than 1bp to 1.83%
• Dollar Index down 0.04% to 97.55
• WTI Crude futures up less than 0.1% to $34.58
• Brent Futures down less than 0.1% to $37.04
• Gold spot up 0.6% to $1,272
• Silver spot up 1.4% to $15.43

Top Global News

• Microsoft, Google Back Apple in FBI Fight Over Unlocking IPhone: Tech companies argue privacy, security threatened in case. San Bernardino shooting victim among those supporting Apple
• AMC Entertainment Buys Carmike as Wang Consolidates Cinemas: $30-a-share deal, a 19% premium over closing price, values No. 4 U.S. exhibitor at $1.1b
• Goldman, BofA Dismiss Traders After Getting Taste of 2016 Markets: Goldman said to plan cutting more than 5% of fixed- income jobs. BofA said to eliminate 150 trading, investment- banking workers
• Samsonite to Buy Tumi for About $1.8 Billion in Biggest Deal: Tumi investors will get $26.75/share in cash, ~33% more than Wednesday’s closing price
• China Said to Intervene in Stocks Before Annual Policy Meeting: state-backed funds intervened in the stock market on Friday, buying primarily bank shares before the start of the National People’s Congress on Saturday
• HP Enterprise’s Meg Whitman Shows Early Success After Split: Company pledges to buy back $2b in shares after deal. Enterprise Group first-quarter sales gain 1% to $7.1b
• Fed Plans Second Effort at Limiting Banks’ Ties to One Another: Dodd-Frank Act measure would restrict firms’ credit exposure
• Facebook to Pay Millions of Pounds More in U.K. Tax: Company to quit routing its largest ad clients through Ireland
• Snapchat Raises $175m From Fidelity at $16b Valuation, WSJ Says: Co. still at same valuation of $16b from 1 yr ago

Looking at regional markets, Asian equities saw choppy trade throughout the session with price-action indecisive amid caution ahead of key US NFP jobs data later today. Nikkei 225 (+0.3%) was mainly driven by JPY movements, while ASX 200 (+0.17%) was underpinned by materials following gains in metal prices in which gold advanced to bull-market territory, with prices over 20% higher from December 2015 lows. Shanghai Comp (+0.5%) traded in choppy fashion to ultimately close higher on touted intervention, while the PBoC conducted its largest net weekly drain in 3 years of CNY 840b1n. 10yr JGBs traded higher amid the cautious tone with the BoJ also in the market under its large asset purchase program for JPY 1.26tr1 across all maturities.

Top Asian News

• BHP Downgraded by Moody’s as Commodity Rout Weighs on Profit: World’s biggest miner cut to A3 from A1, with negative outlook. Sees credit metrics “substantially” weaker in 12 to 24 months.
• ANZ Bank Taken to Court by ASIC Over Alleged Rate Rigging: Australia’s securities regulator accuses bank of trying to set artificial bank bills price
• Nomura, UOB Said to Weigh Offers for Barclays’s Asia Wealth Unit: Second-round bids for the British lender’s unit are due by middle of this month
• Foxconn Said Near Finalizing Deal Approved by Sharp’s Board: Companies are aiming to reach a final agreement by March 7
• Kuroda Says BOJ Not Currently Considering Lowering Rates Further: Comments by BOJ Governor come less than 2 weeks before next BOJ meeting

In Europe, equities have had a more subdued morning and trade with minor gains, with sentiment tentative ahead of the key US nonfarm payroll release later today. Financials are once again one of the worst performing sectors in the EuroStoxx 600 (+0.24%), while materials have seen a continuation of their recent reprieve and remain among the best performers. In tandem with equities, fixed income markets also remain subdued, with Bunds taking a dip below the 165.50 level and shrugging off the latest geopolitical concerns after North Korea threatened physical reactions against US and others.

Top European News

• Carige Plunges as ECB Demands New Funding Plan on Deposit Drop: Italian bank restates loss for 2015 on bigger writedowns. Carige raised capital a year ago after ECB stress test failure
• Seadrill Surges as Fredriksen Piles Up Cash, Short Bets Covered: Main owner frees up $510m in cash, fueling speculation of a bailout off offshore driller
• VW to Report Earnings April 28 After Scandal Triggered Delay: Reschedules shareholders meeting for June 22
• HSBC Alters Debt-Issuance Strategy on Fed Bank-Failure Plan: HSBC Holdings Plc alone will issue TLAC-eligible debt in 2016
• Austria Suffers Heta Blow as Deutsche Bank Rejects Bond Offer: German bank sees no reason to write off state guarantees
• Edmond de Rothschild Swiss Unit Subject of French Criminal Probe: Investigation is about former business relationship managed by a former employee

In FX, the dollar fell this week against all 31 major peers, including a 3.3 percent slide against Australia’s currency. The pound fell against the dollar and euro, paring the biggest weekly gains in at least four months.

There has been some early buying in USD/JPY, but ahead of US payrolls, a fresh push through 114.00 was going to be a struggle. We have since drifted back into the mid 113.00’s as the market calms into the key data release. Yesterday’s ISM services showed the employment index contracting, so some early signs that a softer number may well materialise. The USD index is under pressure as a result, but this is also down to a EUR/USD upturn on fears the ECB meeting will again disappoint. EUR/GBP gains have followed through also, and this has pressured Cable a little. Fresh from testing 1.4200 yesterday, the spot rate has had the wind take out of its
sales, getting pressured into 1.4120+ bids. EUR/GBP is now back in the mid .7700’s, and eyeing .7800. AUD/USD still trying to push through .7480-85 resistance, with projections through here cited closer to circa .7700. NZD/USD following higher. CAD hit on a slip in Oil price, but spot holding off the highs seen Thursday. The euro added 0.2 percent to $1.0976, and the yen was at 113.70 per dollar.

In commodities, copper rose as much as 1.6 percent to the highest level in almost four months on bets for more stimulus in China, the largest consumer of metals. Used in everything from property construction to high-voltage cables and mobile phones, copper is a key indicator for global inflation, helping drive movements in bonds and currency markets.

Gold advanced 0.6 percent to $1,272.05 an ounce, extending its rally in the first bull market since 2013. Investors have sought the metal as a haven this year from turmoil in equity markets. Silver gained 1.3 percent and platinum added 0.9 percent. Oil traded near an eight-week high in New York, poised for a third weekly gain as the Organization of Petroleum Exporting Countries prepared for a meeting with other major producers on March 20 to renew talks on an output freeze. West Texas Intermediate was at $34.60 a barrel.

Looking at the day ahead, with little in the way of notable data out of Europe this morning it’s all eyes on the February payrolls and employment indicators in the US this afternoon, while the January trade balance will also be released alongside where a modest widening in the deficit is expected. Away from the data the Fed’s Kaplan is scheduled to speak again this evening at an event in Dallas. It might be also worth keeping an eye on any interesting comments from Germany’s Merkel this afternoon speaking at a State Party Convention which of course comes before the state elections on the 13th March.

Bulletin Headline Summary from RanSquawk and Bloomberg

• European equities trade in somewhat tentative fashion, albeit in minor positive territory with participants awaiting the latest NFP report.
• In a relatively quiet session, gold has been the most notable mover, reaching its highest level for over a year
• Looking ahead, the main highlights will entail the latest US jobs report, while there will also be comments from Fed’s Kaplan
• Treasuries mostly steady in overnight trading as global equity markets rise as hopes of further central bank stimulus buoy sentiment; today’s economic calendar brings nonfarm payrolls (est. 195k) and unemployment rate unchanged at 4.9%.
• China intervened to support its stock market, helping the benchmark index cap its best weekly gain of 2016 before policy makers meet to approve a five-year road map for the economy
• Emerging markets extended their best week since October and copper advanced, supporting mining stocks, on speculation China will boost stimulus at an annual gathering of the nation’s legislature
• Greece is grappling with an escalating influx of refugees, another deadlock over financing and more political unrest. While the market is high risk and illiquid, its bonds paint a slightly different picture: they’re the best-performers in the euro region over the past week, returning almost 6%
• Goldman Sachs will eliminate more than 5% of traders and salespeople in its fixed-income business, Bank of America will dismiss about 150 trading and investment-banking employees next week
• The Federal Reserve is set to re-propose long-delayed rules for limiting Wall Street firms’ credit exposure to any other financial firms to 10% of capital, aiming to ensure megabanks won’t take others with them if they fail
• $10.7b IG corporates priced yesterday, 13th straight session with at least 1 deal pricing; 10 of those priced >$5b.; week $58.875b, March $41.475b, YTD $335.725b; No HY priced, $1.5b MTD, $16.355b YTD
• Sovereign 10Y bond yields mixed with Greece 15bp higher; European, Asian markets higher; U.S. equity- index futures rise. WTI crude oil, copper and gold rally

US Event Calendar

• 8:30am: Trade Balance, Jan., est. -$44b (prior -$43.36b)
• 8:30am: Change in Non-farm Payrolls, Feb., est. 195k (prior 151k)
  • Change in Private Payrolls, Feb., est. 190k (prior 158k)
  • Change in Mfg Payrolls, Feb., est. -1k (prior 29k)
  • Unemployment Rate, Feb., est. 4.9% (prior 4.9%)
  • Average Hourly Earnings m/m, Feb., est. 0.2% (prior 0.5%)
  • Average Hourly Earnings y/y, Feb., est. 2.5% (prior 2.5%)
  • Average Weekly Hours All Employees, Feb., est. 34.6 (prior 34.6)
  • Change in Household Employment, Feb., est. 175k (prior 615k)
  • Labor Force Participation Rate, Feb., est. 62.8% (prior 62.7%)
  • Underemployment Rate, Feb. (prior 9.9%)
• 1:00pm: Fed’s Kaplan speaks in Dallas

DB’s Jim Reid concludes the overnight wrap

On the recession watch the all important ISM non-manufacturing was ok yesterday at the headline level (53.4 vs. 53.1 expected, 53.5 last month) and maintaining a 3.9 point gap with the manufacturing number. However a fair amount of attention was drawn to the employment component (49.7 vs. 52.1 last month) which came on the back of a sub-50 reading for the same component in the manufacturing print (48.5). This ahead of this afternoon’s payrolls number then where current market expectations are sitting at 195k (which is also the forecast of our US economists). Post yesterday’s data however it feels like the whisper number is sitting somewhere between today’s consensus and the January’s 151k low print. As always it’s worth keeping an eye on the rest of the data in the employment report. The unemployment rate is expected to hold steady at 4.9%, average hourly earnings are expected to have risen +0.2% mom (on the back of that bumper +0.5% gain in January) and the labour force participation rate is expected to nudge up one-tenth to 62.8%. All eyes on 1.30pm GMT.

Leading into the data, overall risk sentiment is as strong as it’s been all year at the moment, despite a bit of caution attempting to prevail in last night’s session. Despite a fairly benign day for the most part in the energy market (WTI -0.26%, Brent +0.38%, Gasoline -0.91%) it was yet another strong performance for energy stocks which helped the S&P 500 bounce off an early – 0.5% low to close +0.35% and in positive territory for the third consecutive session. Interestingly it’s not only US HY which is back in positive territory YTD but also energy stocks with the S&P 500 energy index now up to a near 1% gain for the year. The VIX dipped below 17 and to its lowest level for the year while US credit was the outperformer again with CDX IG 3bps tighter and stronger for the seventh straight day. There’s no stopping the primary market too with over $10bn of US IG issuance pricing, including a $3bn deal out of the energy sector in the form of ConocoPhillips.

Taking a look at the latest in Asia this morning, gains are relatively subdued in the region as we close out the week. The Nikkei (+0.10%), Shanghai Comp (+0.41%), Hang Seng (+0.59%) and ASX (+0.18%) in particular are all in positive territory although it’s been a bit choppy. Oil is generally holding in just below $35/bbl while the only data out this morning was in Japan where labour cash earnings nudged up three-tenths as expected to +0.4% yoy.

Back with China and looking ahead to this weekend, given the growing concern about China’s slowdown, the National People’s Congress (NPC) starting on March 5th will be closely followed. Our Chief China Economist Zhiwei Zhang will provide further updates as events transpire but has also laid out his broad policy expectations in a new note. He expects the 13th Five Year Plan to be an important focus, but doesn’t expect too many surprises deviating from the framework laid out in the Guiding Principles published following the CPC’s 5th Plenary Session last October. With regard to macroeconomic policies, Zhiwei notes that fiscal and monetary policy will likely remain supportive in 2016. The official fiscal deficit target is expected to be raised from 2.3% to slightly above 3.0% (of GDP) to remain accommodative of growth. PBoC Governor Zhou is also expected to speak in the NPC press conference and his words will help further clarify the current monetary policy stance of ‘prudent with a slight easing bias’. Finally, policy messages should shed new light on the shifting balance of supply-side reforms and demand-side support going forward.

Back to yesterday, away from the ISM number the rest of the data in the US was a bit of a mixed bag. Initial jobless claims (which cover the last week of today’s payrolls period) rose 6k last week to 278k (vs. 270k expected) although the four-week average continues to hover around 270k. Factory orders disappointed with just a +1.6% mom rise in January (vs. +2.1% expected) while the final services PMI was revised down 0.1pts to 49.7 to make the number the weakest since October 2013. Elsewhere, on the back of the GDP revisions last week, Q4 nonfarm productivity was revised up seven-tenths to -2.2% and unit labor costs were revised down a full 1% to 3.3%.
Away from this, the Fed’s Kaplan reiterated his fairly dovish stance by calling for the Fed to remain patient in light of tightening financial conditions and the continued slowing global economic growth. Kaplan highlighted that while he believes that excessive accommodation carries a cost in terms of distortions and imbalances in hiring, asset allocation and investment decisions, the Fed official also believes that the Fed needs to show patience in decisions to remove accommodation and that monetary policy is ‘somewhat’ less accommodative than it was at the beginning of the year.

Prior to the better finish in the US last night, the run of gains (which had stood at five days) for European equities finally came to an end yesterday with the Stoxx 600 closing -0.45%. Oil aside, other commodity markets extended their recent strong run with precious metals in particular the most impressive. Gold (+1.96%) extended its move past $1,260/oz and in the process snapping back into a bull market from the December lows. Meanwhile after a couple of days of rising yields, German 10y yields fell 3.7bps and back down to a shade below 17bps, while 2y Bunds extended their fresh record low in yield to -0.589%. Irish 5y yields joined the chorus of negative yields in that maturity bucket after tumbling nearly 6bps lower to -0.028%, meaning 13 European countries now have negative 5y bond yields.
These moves perhaps reflected the final PMI revisions yesterday which, if anything, keeps the pressure on the ECB this month. The final February composite Euro area PMI was revised up 0.3pts to 53.0 (helped by an equal upward revision to the services number) although as a reminder that’s still the lowest since January 2015. France was the biggest disappointment with the composite revised down 0.5pts to 49.3 (a full 1pt decline on the month), offset slightly by a modest upward revision for Germany to 54.1 (+0.3pts revision). Italy and Spain saw a better than expected performance in the services reading. Our European economists highlighted yesterday that the Euro area composite PMI points to GDP growth of 0.3% to 0.4% qoq, but that the inflation outlook is weakening and therefore keeps the easing pressure on the ECB. Interestingly the UK was a big miss yesterday with the composite PMI down a significant 3.4pts to 52.8 (vs. 55.7 expected), owing to the weakest services reading (52.7) since March 2013.

Looking at the day ahead, with little in the way of notable data out of Europe this morning it’s all eyes on the aforementioned February payrolls and employment indicators in the US this afternoon, while the January trade balance will also be released alongside where a modest widening in the deficit is expected. Away from the data the Fed’s Kaplan is scheduled to speak again this evening (6pm GMT) at an event in Dallas. It might be also worth keeping an eye on any interesting comments from Germany’s Merkel this afternoon speaking at a State Party Convention which of course comes before the state elections on the 13th March.

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