Asian shares traded mixed, European shares slid while US equity futures posted a modest rebound after Friday’s surprising political news that the FBI reopened its probe into Hillary Clinton, after OPEC failed to agree supply cuts at a meeting in Vienna.
Energy shares on the MSCI All Country World Index and crude both slipped to one-month lows after OPEC ended two days of talks on Saturday without agreeing any individual quotas. The ruble led declines among the currencies of oil-exporting nations, while South Africa’s rand strengthened versus all of its major peers after the South African state prosecutor dropped fraud charges against finance minister Pravin Gordhan. Aluminum and zinc rallied to multi-year highs in Shanghai on optismism Chinese demand will hold up. Gold maintained the bulk of Friday’s gains, and traded at 4 week highs after a survey pointed to cooling support for Clinton before next week’s U.S. presidential election.
“Talks over the weekend make it seem less likely there will be an agreement on production cuts,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The market has probably made a fair bit of the adjustment, but I wouldn’t be surprised to see oil fall further into the $47 range.” In a note Spooner also said that “there seems little doubt that a Trump victory would trigger selling in stock markets from current levels. This has traders nervous as they start the week assimilating fresh news on Hillary Clinton’s email problems.”
The Bloomberg Dollar Spot Index rose 0.1 percent, after retreating 0.3 percent from a seven-month high in the last session. It’s climbed more than 2 percent this month, set for the biggest gain since May. While the Fed is seen leaving rates unchanged in its November 2 meeting, futures prices indicate a 69% chance of an interest-rate hike at its December meeting, up from 59% at the end of September.
Most Asian stocks struggled higher on Monday but investors were rattled by news that the FBI is planning to review more emails related to Democratic presidential candidate Hillary Clinton’s private server, just a week before the election. European markets also looked set for a shaky start, with the Stoxx 600 index down 0.4% in early trading.
As Bloomberg notes, global equities lost ground in October as mixed corporate earnings meld with investor anxiety ahead of the Nov. 8 vote in the U.S. and expectations the Federal Reserve will hike interest rates before the year is out. The S&P 500 Index slid 20 points in about 40 minutes on Friday amid news the Federal Bureau of Investigation was again looking into Clinton’s use of private e-mail while secretary of state, an issue that has dogged her campaign. The OPEC talks yielded little more than a promise that the world’s top oil producers would keep discussing ways to stabilize the market.
“Until the election, the general theme will be uncertainty, which will have implications not just on the stock market, but on the dollar and Treasuries,” said Chad Morganlander, a money manager in Florham Park, New Jersey at Stifel, Nicolaus & Co., which oversees about $180 billion. “The probability that was factored into the market and the global financial system was a Hillary Clinton victory – investors now need to square their books going into the election based on whatever new odds come out.”
MSCI’s broadest index of Asia-Pacific shares outside Japan hit a six-week low on Monday before recovering 0.3 percent. It is set to end the month down 1.6 percent. Japan’s Nikkei, which touched a six-month high on Friday, closed 0.1 percent lower on Monday, but is up 5.9 percent in October.
The Stoxx Europe 600 Index was down 0.2 percent as of 8:12 a.m. London time, with a gauge of energy stocks sliding the most among 19 industry groups. A measure of energy shares on the MSCI Asia Pacific Index slid 0.5 percent, also the worst performance.
AIA Group Ltd. shares slumped as much as 7.2 percent after China UnionPay Co. halted credit and debt card payments for most insurance policies in Hong Kong, making it harder to conduct transactions with Chinese visitors that accounted for about half of the company’s sales in the city. Nippon Yusen KK and Mitsui O.S.K. Lines Ltd. — Japan’s two largest shipping companies — surged more than 5 percent in Tokyo after they agreed to merge their container operations with those of third-ranked Kawasaki Kisen Kaisha Ltd., which added less than 1 percent.
Futures on the S&P 500 Index rose 0.1 percent, after earlier retreating as much as 0.4 percent. An ABC/Washington Post tracking survey released Sunday gave Clinton 46 percent support from likely voters, to Trump’s 45 percent. Clinton was ahead by 12 points a week earlier.
Cited by Bloomberg, Matthew Sherwood, head of investment strategy in Sydney at Perpetual, said that “the race remains very tight and markets are far too complacent about the end result. If the polls tighten more, or the FBI investigation dominates the headlines, there could be a recalibration in market prices this week.”
American data on Monday are forecast to show personal spending and income both increased in September, based on Bloomberg surveys of economists.
Bulletin headline summary from RanSquawk
- European equities trade lower this morning, following on from US and Asian counterparts, with concerns regarding Clinton’s emails back in the spotlight and soft energy prices
- FX markets remain relatively subdued this morning, with ZAR the notable mover after reports suggest charges will be removed against the finance minister
- Highlights include US Core PCE and Chicago PM! and a host of US earnings
Market Wrap
- S&P 500 futures up 0.1% to 2127
- Stoxx 600 down 0.5% to 339
- FTSE 100 down 0.5% to 6964
- DAX down 0.5% to 10642
- German 10Yr yield down 1bp to 0.15%
- Italian 10Yr yield up 8bps to 1.67%
- Spanish 10Yr yield down 1bp to 1.22%
- S&P GSCI Index down 0.2% to 369.4
- MSCI Asia Pacific up 0.3% to 139
- Nikkei 225 down 0.1% to 17425
- Hang Seng down less than 0.1% to 22935
- Shanghai Composite down 0.1% to 3100
- S&P/ASX 200 up 0.6% to 5318
- US 10-yr yield down less than 1bp to 1.84%
- Dollar Index up 0.18% to 98.52
- WTI Crude futures down 0.3% to $48.55
- Brent Futures down 0.4% to $49.50
- Gold spot down 0.2% to $1,273
- Silver spot up 0.4% to $17.83
Global Headline News
- Clinton Allies Target Comey as Probe Scrambles Election Campaign: Escalated attacks on FBI Director James Comey in a bid to stem political damage from his disclosure the agency is reviewing a new batch of files that may be related to an investigation of the former secretary of state’s e-mail practices
- China’s COMAC Chases Xi’s Dream to Challenge Airbus, Boeing: Jet plan part of goal to boost China’s manufacturing ranking
- GE Nears $30 Billion Energy Deal With Baker Hughes, WSJ Reports: Plans to combine oil, gas business with oilfield services co.
- Banks Amass $2.4 Trillion Hoard of Bonds as BofA Leads Rush: Government debt holdings soar as deposits outpace loan demand
- Greenlight Fund Takes Jab at Tesla’s Musk, Axes Vodafone Stake: Carmaker’s charismatic CEO is ‘blinding’ investors, firm says
- American Airlines Jet Fire on Runway Forces Passenger Evacuation: Reported an engine malfunction just before catching fire while taxiing for takeoff from Chicago’s O’Hare airport
Looking at regional markets, we start in Asia where stocks were poised for the worst monthly drop since May as declines in oil prices dragged energy shares lower and investor anxiety grew over next week’s U.S. presidential election. Asian equity markets traded mixed amid indecisiveness ahead of this week’s multiple key risk events, with stocks pressured early on as political jitters resurfaced alongside a new probe into Clinton emails. Nikkei 225 (-0.2%) was also hampered by poor Industrial Production and Retail Sales figures, while the Shanghai Comp (-0.1%) and Hang Seng (-0.1%) were indecisive as earnings took centre stage with Big-4 banks ICBC and AgBank disappointing on their results. Elsewhere, the ASX 200 (+0.6%) outperformed having been lifted by the materials sector — a consequence of the softer USD. Finally,10yr JGBs saw mild gains as the risk averse sentiment spurred safe-haven flows, while the BoJ were also in the market during the session.
Top Asia News
- Goldman Sachs Alumni Said to Start Macro Hedge Fund in Asia: Their Vanhau hedge fund will make half of investments in Asia
- DBS to Buy ANZ’s Wealth, Retail Units in Five Asian Markets: ANZ Bank says it will take A$265 million loss on deal
- Japan’s Shippers to Merge Container Business as Industry Shrinks: Combination will create world’s sixth-largest operator
- Sony Cuts Annual Forecast on Battery Impairment, Components Loss: Company to transfer 8,500 workers to Murata Manufacturing
- Japan Tobacco Raises Profit Forecast on Better Overseas Growth: Raises FY operating profit forecast by 1.4% to 580b yen vs est. 586.2b yen
- Honda Boosts Profit Forecast as SUVs Lead China Sales Surge: China’s tax cut on smaller-engine models spurring demand
- Xi’s Power a Double-Edged Sword as Pressure Grows to Deliver: Investors looking for balance of reform, growth and stability
European markets looked set for a shaky start, with equities opening on the softer side as European participants respond to the jitters surrounding the US election after reports late Friday stated that the FBI were to review newly obtained emails linked to Hilary Clinton. Alongside this, weakening oil prices have added to the dampened sentiment amid soured hopes that an agreement among OPEC nations on a supply agreement will be finalised after objections from Iran and Iraq to even freeze output. In turn, this has led to energy being among the worst performers this morning. Across fixed income, the softer tone has seen global bonds supported with bunds moderately higher, while the 10- yr is outperforming in the curve supported by month-end extensions which are expected to the largest since 2011. Elsewhere, Italian BTPs have been underperforming this morning after the nation was yet again hit by another earthquake.
Top European News
- Carney’s Decision on BOE Future Overshadows U.K. Rate Decision: Governor could decide this week on term as BOE governor
- EU to Match U.S. Capital Demands on Local Units of Foreign Banks: TLAC rules are part of sweeping changes to EU bank laws
- European Banks Stuck With $1.3 Trillion of Bad Loans, KPMG Say
In FX, the Bloomberg Dollar Spot Index rose 0.1 percent, after retreating 0.3 percent from a seven-month high in the last session. It’s climbed more than 2 percent this month, set for the biggest gain since May. While the Fed is seen leaving policy unchanged at a review this week, futures prices indicate a 69 percent chance of an interest-rate hike at its December meeting, up from 59 percent at the end of September. American data on Monday are forecast to show personal spending and income both increased in September, based on Bloomberg surveys of economists. The rand strengthened 0.9 percent after the City Press newspaper reported that South African prosecutors may drop fraud charges against Finance Minister Pravin Gordhan, who has been a key driver of a campaign to maintain the nation’s investment-grade credit rating. The National Prosecuting Authority said Sunday there were no such plans. China’s yuan strengthened 0.2 percent, paring its biggest monthly loss since May. It advanced from near a six-year low following Friday’s retreat in the dollar and as China’s clampdown on UnionPay payments for insurance products in Hong Kong provided support. The transactions have been used as a means of skirting capital controls to take funds out of the mainland.
In commodities, crude oil fell 0.3 percent to $48.57 a barrel in New York. OPEC members ended talks on Friday without reaching a deal on country quotas, and discussions with major producers from outside the group on Saturday also concluded without any commitments. Oil has fluctuated near $50 amid uncertainty about whether OPEC can implement the first supply cuts in eight years at an official meeting in November. “Talks over the weekend make it seem less likely there will be an agreement on production cuts,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The market has probably made a fair bit of the adjustment, but I wouldn’t be surprised to see oil fall further into the $47 range.” Gold was little changed at about $1,275 an ounce after rallying 0.6 percent on Friday. The metal’s gains reflect “safe-haven buying after the FBI reopened its inquiry into Hillary Clinton’s use of a private e-mail server,” Australia & New Zealand Banking Group Ltd. analysts wrote in a note on Monday. Aluminum and zinc extended gains in Shanghai as investors bet that strong domestic demand, surging coal prices and logistical issues will underpin prices. Aluminum rose to its highest since September 2014, having jumped by about 10 percent last week, and zinc climbed to levels last seen in March 2011.
Today’s main events include the September personal income and spending reports, along with the PCE core and deflator readings. We’ll also get the Chicago PMI and Dallas Fed manufacturing survey
US Event Calendar
- 8:30am: Personal Income, Sept., 0.4% (prior 0.2%)
- 9:45am: Chicago Purchasing Manager, Oct., est. 54 (prior 54.2)
- 10:30am: Dallas Fed Manufacturing Activity, Oct., est. 2% (prior -3.7%)
DB’s Jim Reid concludes the overnight wrap
Friday’s late damage to markets was from the fresh FBI decision to re-open the investigation into Hillary Clinton’s private email use. Indeed I’ve never known a US election campaign like this with lurid accusations one minute and FBI investigations the next. Clinton’s campaign team have been fairly robust in response and have effectively told the FBI to immediately put the details of the allegations out in the open. The fact that there has not been much additional news over the weekend has taken some of the sting out of what was an explosive development just before Friday’s close.
The wires have been busy reporting some of the latest polls but we’d caution on their findings given that they all have sampling periods which span both before and after the headlines broke. The ABC/Washington Post poll has got a fair bit of airtime and shows Clinton as holding a small 1 point lead over Trump. However, that’s not much change from the 2point lead in the previous poll so the implied gain for Trump is pretty small. Other polls conducted by IBD/TIPP and USC/LA Times have shown no change. Again though these cover only a small period post the headlines (2 out of 6 days for the former and 2 of 7 days the latter). State-only polls are also evidently suggesting that it’s too early to really assess the impact.
Bloomberg is also highlighting the latest CBS/YouGov survey. That survey showed that only 5% of Democrat supporters would be less likely to support Clinton following the latest FBI announcement. The survey also suggested that 13% are now more likely to vote for her. 50% said it doesn’t matter. Taken together, it’s hard to really take much away from these polls right now.
So we’ll wait to see if anything changes and whether anything substantive gets released from the FBI before Election Day in just 10 days time. Over the last few years we’ve all had to make ourselves better political analysts, but I never thought analysing the FBI would be an important skill. Analysing Mark Carney could also be a good skill this week especially for Sterling assets. Over the weekend conflicting reports suggest that he either may be close to announcing he’ll leave by the end of 2018 (The Times) or be prepared to serve his full 8 year term to 2021 (FT). Both articles suggest he could discuss his intentions at the BoE meeting on Thursday which will give it added dimension.
Other things to look for this week are all the global PMIs between Tuesday and Thursday, the BoJ meeting on Tuesday, the FOMC on Wednesday and aforementioned BoE meeting Thursday and of course US payrolls on Friday. We also have 131 and 76 S&P and Stoxx 600 companies respectively reporting. It’s also possible that we get the UK High Court Brexit case ruling concerning the triggering of Article 50 without parliamentary approval. For those that missed it, on Friday Northern Ireland’s High Court ruled that the law of the province did not restrict Theresa May from triggering an exit in a boost to the UK government. More on the next 5 days at the end in the week ahead.
In terms of the remaining weekend newsflow, we finally got confirmation of an eleventh hour rescue yesterday of the CETA agreement between the EU and Canada. Talks were complicated by the objection from the Francophone region of Wallonia, with the region citing a range of concerns about the deal from the impact on employment to its impact on regional values. Significantly the deal still requires the approval of 38 national parliaments in order to be fully ratified, meaning it may drag on further. There’s also suggestion now that the opposition put up by Wallonia may act as a precedent for further trade deals and so limiting Europe’s future negotiation power. The only other thing to mention from this weekend concerns Iceland where the Independence Party came out on top in the snap election with 21 seats. Notably the populist Pirate Party more than tripled the number of seats it won (10 seats) to leave it in joint second place. An expanded coalition will be needed however the Pirate Party has previously ruled out working with the Independence Party.
Onto markets now where risk is opening up a bit mixed this morning. The Hang Seng (+0.13%) and ASX (+0.77%) are currently running with gains however the Nikkei (-0.23%), Shanghai Comp (-0.45%) and Kospi (-0.56%) look to be ending the month on more of a down note. That’s largely to do with the moves for Oil this morning where WTI (-0.43%) has followed a -2.05% decline on Friday following disappointment from the latest OPEC discussions. Discussions between delegates were said to have ended in a deadlock with disputes over country level quotas. Non-OPEC countries were also said to have met on Saturday with the same outcome. According to the WSJ the talks were said to have run into trouble when Iraq and Iran disputed the data being used to estimate production levels. Credit indices are also trading with a slightly softer tone while Gold and the USD index have edged up +0.10%. The Mexican Peso is holding near a two-week low following three days of losses into Friday.
There’s also been some data out this morning in Japan. It’s made for slightly disappointing reading however. Both industrial production (0.0% mom vs. +0.9% expected) and retail sales (0.0% vs. +0.2% expected) were flat in September and missed relative to expectations for a modest rise. Despite that there’s not been much of a reaction for the Yen.
The moves this morning follow that late tumble into the close on Friday evening post the FBI headlines which put a dampener on things after earlier data showed Q3 GDP in the US had surprised to the upside at +2.9% qoq saar (vs. +2.6% expected). The S&P 500 eventually finished -0.31% with healthcare stocks in particular getting hit hard. It also means that the index has now fallen for four consecutive sessions for the first time since June. In fairness the cumulative four-day loss is only -1.16% so it’s far from being a huge selloff. Earnings continue to be a big factor with 291 S&P 500 companies now ticked off. The overall trend is relatively positive with our US equity strategists reporting that 66% have beat on EPS with a weighted average beat of 5.7% even if just 36% have beat on sales (with 30% missing and the remaining large proportion in line). They note that this earnings season has been better than they expected primarily because of the strong performance for financials and large tech (ex. Apple). They also highlight that the blended (actually for reported and estimate for remaining) bottom up Q3 EPS has climbed to $30.99 or +2.8% yoy. They expect the final Q3 EPS to come in +2 to +3% yoy. As always last minute estimates are helping, albeit less of a factor than that in previous quarters. EPS has been revised down on average by 3% during the calendar quarter versus the five-year average of slightly over 4%. It’s worth noting that analysts are already starting to slash Q4 EPS estimates however. The consensus is for $31.29 now, down from $31.76 at the start of September.
Meanwhile markets in Europe were also a little softer on Friday. The Stoxx 600 finished -0.27% with earnings also dictating sentiment after UBS came in better than expected, but offset but slightly weaker numbers for AB-InBev and Novo Nordisk – the latter tumbling nearly 15% alone. Away from that, it was a much quieter day for sovereign bond markets. Core European bond yields ended fairly little changed, although were still some 15-20bps higher in yield for the week, while 10y US Treasury yields closed the week at 1.848%, down close to 1bp on Friday but up 11bps for the week.
Back to that GDP data. In terms of the composition, along with the boost from consumption the primary drivers for growth included exports which increased +10.0% annualized with net exports adding 0.83 percentage points to GDP growth as a result. Inventory building was also positive adding 0.61 percentage points. In terms of other data the final revisions to the University of Michigan consumer sentiment survey were made on Friday. The headline sentiment index reading was revised down to 87.2 from 87.9 as a result of a big downgrade for the current conditions index to 103.2 from 105.5. Expectations (76.8 from 76.6) were actually revised up a touch.
Over in Europe the focus of the data on Friday was on the inflation reports in Germany and France. For the former, CPI rose +0.2% mom in October which matched expectations. That helped to push the YoY rate to +0.8% from +0.7%. In France the data was a little bit more disappointing. CPI was unchanged in October versus expectations for a +0.2% mom. Meanwhile the other data to highlight was the latest economic confidence reading for the Euro area which rose to 106.3 this month from 104.9 in September. That actually puts the reading at the highest level this year. It’s worth noting that our European Economics team SIREN momentum indicator has reached a seven-month high. The SIREN surprise index has also surged to its best reading in 3 years and similarly, the SIREN surprise for Q4 has had its best start to a quarter since Q1 2012. They do however note that technical arguments suggest the improvement is overstated and the upside surprise is strongly tilted towards Germany. Furthermore they see headwinds next year from higher Oil, political uncertainty and the weakening of the fiscal and credit impulse so it might be too early to factor in a stronger recovery trend. Nevertheless, more robust data flow could strengthen the ECB’s conviction on its above-consensus 2016 GDP forecasts and the case of the more hawkish ECB Council members.
Turning over now to the week ahead. It’s a busy start to the week for data today. We’ll be kicking off firstly in the UK where the latest money and credit aggregates data is due for September. Shortly after that we’ll get Q3 GDP for the Euro area along with the October CPI report. Over in the US this afternoon the big focus will be on the September personal income and spending reports, along with the PCE core and deflator readings. We’ll also get the Chicago PMI and Dallas Fed manufacturing survey. Tuesday morning kicks off in China with the official manufacturing and non-manufacturing PMI’s for October. The RBA policy rate decision will also be due along with the BoJ decision. No change in policy for either is expected. In Europe tomorrow the only data due is the manufacturing PMI for the UK. There’s important data in the US however with the ISM manufacturing, while any last revisions to the manufacturing PMI will be made. The IBD/TIPP economic optimism reading will also be released, while vehicle sales data is out in the evening. Wednesday morning kicks off with the remainder of the final manufacturing PMI’s in Europe, along with the latest unemployment rate print for Germany. Over in the US the highlight data wise is the ADP employment change reading which comes before the FOMC meeting later in the evening. As we noted earlier we’re not expecting any surprises at the outcome of that. Turning to Thursday, the non-official services PMI will first of all be released in China. There’s not much data in Europe aside from the Euro area unemployment rate print however the focus will again be on another central bank meeting, this time in the form of the BoE. Again, we’re expecting no change to policy but the inflation report could be interesting. It’s set to be another busy afternoon in the US on Thursday. Q3 nonfarm productivity and unit labour costs kick things off followed by the remaining PMI’s. We’ll also get initial jobless claims, ISM non-manufacturing and finally factory orders. There’s little sign of things quietening down on Friday. We’ll kick off firstly in Japan with the Nikkei PMI’s. In Europe we then get the remaining PMI’s for October along with Euro area PPI before all eyes turn to the October employment report in the US including of course nonfarm payrolls. We’ll also get the September trade balance reading.
Away from the data it’s fairly quiet for central bank speak. The Fed’s Lockhart and Fischer both speak on Friday while the ECB’s Coeure speaks on Thursday following by Constancio on Friday. BoJ Governor Kuroda will also hold his usual post meeting press conference tomorrow morning and BoE Governor Carney speaks post the BoE decision on Thursday. The other big focus this week will be earnings. 131 S&P 500 companies are due to report including Pfizer (Tuesday), Facebook and MetLife (Wednesday) and Kraft Heinz (Thursday). In Europe 76 Stoxx 600 companies are due to report including BP, Shell, Credit Suisse and BMW.
via http://ift.tt/2f027U1 Tyler Durden