Futures Flat, Global Stocks Rise As Treasury Yields See Biggest Monthly Jump In Over A Year

The August market doldrums were on display on the last day of the month, where just two days ahead of the August payrolls report which the Fed is allegedly watching closely to decide whether to hike rates, S&P futures were fractionally lower on non-existent volume, while both Europe and Asia were modestly in the green; ten-year Treasury yields headed for the biggest monthly jump in more than a year while the dhe dollar gained for a sixth day against the yen in the longest winning streak since March. European stocks advanced for a second day, adding to a monthly gain as oil trimmed its advance in the best month since April.

In terms of notable movers, Deutsche Bank (+3%) and Commerzbank (+4%) stole the early session the headlines after Manager Magazin reported that that Deutsche Bank were mulling a merger (adding that s considerations were “only of a theoretical nature” and at a very early stage), and while the CEO stated that he does not believe this is an option, shares shrugged this off and continued to lead the way higher in Europe.

CEO John Cryan said Germany’s largest lender is looking to shrink in size, when asked about a media report that it considered merging with rival Commerzbank AG.“Part of the work we’re doing is to make our bank a bit smaller, to make it a bit simpler,” Cryan said at a conference in Frankfurt on Wednesday, when asked whether the German lender is looking for a merger partner.  Deutsche Bank, which runs Europe’s largest investment bank, has lost about 42 percent in market value this year as Cryan struggles to shore up capital and reverse losses. As part of his restructuring plan introduced last year, the CEO announced thousands of jobs cuts, sold risky assets and suspended dividend payments.  “A merger between the two is unlikely,” said Chris Wheeler, a London-based analyst at Atlantic Equities. “There would be major competitive concerns. It would be looked upon by many people as negative news.”

The Asian session was uneventful with the most significant moves once again reserved for Japan where the Nikkei closed up 1%. Those gains have come after industrial production in Japan (0.0% mom vs. +0.8% expected) printed well below expectations and so keeping the pressure on the BoJ. The Yen was trading just shy 103.3 at last check following recent speculation that the BOJ may monetize foreign debt. The rest of Asia was more mixed. The Hang closed down 0.2%, the Shanghai Comp +0.4% and the ASX (-0.8%) was in the red.

The Bloomberg Dollar Spot Index is poised for its first monthly gain since May as prospects for higher U.S. borrowing costs widened the policy divergence with Europe and Japan, where central banks stand ready to add to unprecedented stimulus. A private report on jobs growth on Wednesday, ahead of Friday’s monthly payrolls, may provide insight on whether the economy is strong enough to withstand a rate increase as early as next month after Fed Vice Chairman Stanley Fischer said on Tuesday that any rate hike in September will be data dependent. “The dollar has been “supported by the recent, more hawkish comments from the Fed which have signaled that the Fed is moving closer to resuming rate hikes,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The key will be the incoming economic data.”

Due to the hawkish Fed, in addition to the big move in the USD, US treasuries extended their steepest monthly loss since June 2015 as traders almost doubled bets of a September Fed rate increase to 34 percent.

The yield on 10-year Treasuries rose one basis point to 1.58 percent at 10:52 a.m. in London, up 15 basis points in August. The rate on two-year notes, the most sensitive to the monetary policy outlook, climbed 16 basis points this month to 0.81 percent, with the  spread versus 30-year rates at the narrowest since January 2008 on Tuesday. Treasuries on average have handed investors a 0.6 percent loss for August, Bloomberg data show. “A December hike remains very likely, although a bumper payrolls on Friday would make September more live,” said  Peter Jolly, the global head of markets research at National Australia Bank Ltd. in Sydney. “The yield curve almost always flattens when the Fed raises rates. Curve flattening has not finished.” The World Bank is in the process of selling a bond denominated in the International Monetary Fund’s Special Drawing Rights, the world’s first such offering in three decades. The issuance is taking place in Shanghai before China’s currency is included in SDRs from Oct. 1.

Market Wrap

• S&P 500 futures unchanged at 2175
• Stoxx 600 up 0.2% to 346
• FTSE 100 down less than 0.1% to 6816
• DAX down 0.2% to 10632
• German 10Yr yield down less than 1bp to -0.09%
• Italian 10Yr yield down less than 1bp to 1.1%
• Spanish 10Yr yield down less than 1bp to 0.95%
• S&P GSCI Index down 0.3% to 354.5
• MSCI Asia Pacific up 0.2% to 138
• Nikkei 225 up 1% to 16887
• Hang Seng down 0.2% to 22977
• Shanghai Composite up 0.4% to 3085
• S&P/ASX 200 down 0.8% to 5433
• US 10-yr yield up less than 1bp to 1.57%
• Dollar Index down 0.07% to 95.99
• WTI Crude futures down 0.3% to $46.20
• Brent Futures down 0.5% to $48.14
• Gold spot up 0.2% to $1,314
• Silver spot up 0.9% to $18.77

Top Global News

• Blackstone Said to Weigh Buying $3.6b German Landlord: IVG Immobilien, which owns OfficeFirst, may agree to sale, scrapping a planned IPO.
• Tribune Media Sells Chicago Tower to CIM Group for $240m: Co. to get $205m at closing, with another $35m contingent on meeting conditions it didn’t disclose.
• Google Said to Tie Up With MUFG on Android Pay Mobile Payments: Starting as early as Japan’s autumn, users of certain Android-based mobile phones will be able to use MUFG’s debit cards for Android Pay transactions.
• Aeropostale Auction to Go on Amid Bid to Save 229 Stores: WSJ: Landlords, liquidators teamed up in joint bid to save stores.
• Mondelez Shifts From Hunter to Hunted After Hershey Deal Dies: With Hershey discussions dead, Mondelez facing very different outcome: becoming a target itself.
• Departing Viacom CEO Reaps $59.4m in 8-Day Sale of Stock: Former CEO Philippe Dauman has sold almost all of his stock in media co. since resigning earlier this month.
• Schlumberger’s Dimmer View Clouded by Deepwater Woes: 3Q Drilling segment results expected to be “slightly lower” as West Africa, Brazil, Asia see further declines in deepwater drilling.
• New Clinton E-Mails to Be Reviewed for Link to Benghazi Attack: Judge issued order Tues. in 2015 FoIA lawsuit brought by conservative group Judicial Watch Inc.
• Trump Heads to Mexico Looking to Shake Up Presidential Race: “I have accepted the invitation of President Enrique Pena Nieto, of Mexico, and look very much forward to meeting him tomorrow,” Trump wrote.
• U.S. Raises Farm Income Estimate to $71b on Cost Drop: U.S. farm net income will be $71.5b in 2016, USDA said Tuesday in a report on its website.
• U.S. Auto Sales Seen Sliding for August on Dialed-Down Discounts: Aug. data may show seasonally adjusted annual sales pace of ~17.2m cars, light trucks, according to Bloomberg survey.

Looking at regional markets, Asian stocks traded mixed following a negative lead from Wall Street where commodity weakness and losses in Apple weighed on sentiment. ASX 200 (-0.8%) underperformed as the slump in commodities pressured miners and energy names, while reports the government is considering curbs on the banking sector dampened financials. Nikkei 225 (+1.0%) bucked the trend as a weaker JPY underpinned exporters and risk-appetite, while Chinese markets were mixed with Hang Seng (-0.1%) negative & Shanghai Comp (+0.3%) resilient amid better than expected earnings from big 4 banks ICBC and Bank of China. However, other earnings releases were less inspiring and the PBoC halved the amount of today’s liquidity injection. 10yr JGBs traded lower to track the weakness seen in T-notes, with the heightened risk-appetite in Japan dampening demand for government paper. The PBoC injected another CNY 40bIn via 7-day reverse repos and CNY 10bIn in 14-day reverse repos. PBoC set CNY mid-point at 6.6908 (Prey. 6.6812). BoJ’s Funo said the central bank will utilise all tools to reach 2% target and will review how to get inflation to goal ASAP. Funo also added he expects to hit the 2% inflation goal during 2017, but added uncertainty on the outlook is high.

Top Asian News

• China H Shares Set for World’s Best Monthly Gain as Profits Beat: Hang Seng China Enterprises has advanced 6.9% in August.
• China’s Hottest Property Market Imposes Curbs to Cool Prices: Halts selling residences to buyers depending on home ownership.
• Fosun Signals IPO of Health Assets to Be Announced This Year: Net income rose 21% in 1H led by gains in investment.
• Rajan Leaving on a Bond High With Best Rally Since Start of 2015: 10-year yield slides in August for a third straight month.
• Chinese Airlines Plan Stricter Cost Control on Yuan, Competition: Yields fall on international routes even as fuel prices drop.
• Korea’s Hanjin Shipping Becomes Symbol of Industry in Pain: Container line’s board votes to file for court receivership.
• Mystery of Oil Held on Chinese Islands Puzzles Crude Markets: Analyst opinion divided over level of China strategic reserves.
• China Stock Traders Bet $305m on Military Tensions: Three funds to launch ETFs tracking defense companies.

European equities have kicked off the session in the tentative fashion that has become a regular occurrence of late, with most indices in modest positive territory (Euro Stoxx 50: +0.3%). In terms of notable movers, Deutsche Bank (+3%) and Commerzbank (+4%) have stolen the headlines after Manager Magazin reported that that Deutsche Bank were mulling a merger, and while the CEO stated that he does not believe this is an option, shares shrugged this off and continued to lead the way higher in Europe. Elsewhere, Bouygues (+3.4%) are also among the best performers in the wake of their pre-market earnings. In terms of underperformers, materials remain the session laggard, as was the case for much of yesterday.

Top European News

• ECB Says Stimulus Justified as Financial Stability Under Control: Framework incorporates “important safeguards to prevent an overly narrow and zealous interpretation of price stability from becoming a source of financial instability,” Executive Board member Peter Praet said in speech.
• Europe Bankers See $2.5b Melt From Bonuses in Stock Rout: Drop in financial stocks this year has wiped >$2.5b from value of deferred shares that were paid as bonuses.
• Cryan Denies Merger Report as Deutsche Bank Seeks to Shrink: “Part of the work we’re doing is to make our bank a bit smaller, to make it a bit simpler,” CEO John Cryan said at Frankfurt conference.
• EU Show of Might With Apple Tax Demand May Be Brexit Boon: By ordering AAPL to pay Ireland EU13b in back taxes, EU gives U.K. chance to reinvent itself as fiscal paradise.
• U.K. Banks Eyeing EU Market May Find Equivalence Cold Comfort: Between passporting and equivalence, passporting might get City of London closer to its goal of maintaining full access to single market.
• End Near for Brexit Indecision as May Convenes Her Cabinet: PM, ministers such as chief Brexit negotiator David Davis haven’t publicly disclosed details on bargaining tactics.
• VW Hopes to Agree With U.S. on 3-Liter Diesel Engine by Oct.: Reuters: Co. in “really good discussions” with U.S. authorities on larger diesel engines.
• Norway Wealth Fund Buys Stake in S.F. Office Properties: To buy 44% common equity interest in 2 Kilroy Realty companies that own 2 office properties

In FX, the dollar gained 0.2 percent to 103.18 yen, extending this month’s advance to 1.1 percent. The Bloomberg Dollar Spot Index was little changed, leaving it 0.5 percent higher in August after closing at the highest since July 28 on Tuesday. Prices for Fed funds futures imply a 59 percent chance of an interest-rate increase this year, up from 36 percent at the start of the month. New Zealand’s dollar strengthened 0.5 percent on Wednesday, extending this month’s gain, as a report showed business confidence in the nation was at a 20-month high.  A gauge of emerging-market currencies was little changed in August. South Africa’s rand slid 3.9 percent after a police summons for Finance Minister Pravin Gordhan heightened political risk in the country, while Russia’s ruble gained 1.2 percent amid a rebound in oil.

In commodities, crude oil traded at $46.11 a barrel before government data due Wednesday that’s forecast to show U.S. stockpiles increased by 1.3 million barrels last week. The price surged 11 percent for this month amid speculation informal talks among OPEC members in Algeria next month will result in an output freeze, speculation which has largely dissipated following comments from both Iran and Iraq that they support a freeze as long as they are not part of it. Gold was headed for a monthly loss of almost 3 percent as the prospect of a Fed rate hike dulls the allure of assets that don’t bear interest. This is the metal’s first drop in August since 2009. Prices normally rise in this month onIndian buying. Holdings in gold exchange-trade funds rose about 25 metric tons this month, the smallest gain in 2016. Copper slid 6 percent in London since July on concern a glut is worsening. It rose 0.5 percent on Wednesday after Chilean miner Codelco halted one mine and faced the possibility of a strike at another, threatening disruptions from the world’s top supplier of the mined metal. Corn was headed for a third monthly drop with prices touching $3.155 a bushel on Tuesday in Chicago, the lowest since 2009. The U.S. crop was rated 75 percent good-to-excellent as of Aug. 28, the highest since 1994, official figures show.

Looking at the day ahead, the main focus will be the August ADP employment change reading where current market expectations are for a 175k print following a 179k reading in July. Also due out is the Chicago PMI for August which is expected to decline nearly 2pts to 54.0, while July pending home sales data is also scheduled for release.

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Bulletin Headline Summary from RanSquawk and Bloomberg

• Another tentative session for European equities, however Deutsche Bank and Commerzbank take focus amid German press reports speculating of a merger.
• GBP sees notable strength coming largely through a EUFt/GBP rate which took out the lows from last week.
• Looking ahead, participants will see the release of US ADP Employment Change and the DoE Crude Oil Inventory report.
• Treasuries trade with downside bias overnight, though within ranges, while global equities rise, USD steady; there’s been “little in the way of market moving headlines to inspire market flows in either direction,” independent strategist Marty Mitchell said in note.
• “There’s no second referendum; no attempts to sort of stay in the EU by the back door; that we’re actually going to deliver on this,” Prime Minister Theresa May tells ministers after their summer break at a meeting near London
• Two Federal Reserve officials laid out sharply different takes on whether continued low interest rates might raise the risks of financial instability, highlighting divisions on the FOMC ahead of its September policy meeting
• One of Shinzo Abe’s advisers cast a shadow over the prime minister’s revival program for Japan, warning that he’s starting to see a chance that Abenomics may not do well
• German unemployment continued its decline in August, signaling that consumption driven by a strong labor market may cushion the blow to Europe’s largest economy from Britain’s decision to leave the EU
• Euro-area inflation failed to accelerate in August, adding to signs that the euro area’s economic outlook deteriorated ahead of a ECB meeting next week
• The ECB is monitoring the impact of its monetary stimulus on financial stability, though governments and regulators must also play their part in preventing imbalances, two of the institution’s policy makers said
• A rout in financial stocks this year has wiped more than $2.5 billion from the value of deferred shares that were paid as bonuses in the past few years at Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG and UBS Group AG, data compiled by Bloomberg show

US Event Calendar

• 7am: MBA Mortgage Applications, Aug. 26 (prior -2.1%)
• 8am: Fed’s Kashkari to speak in St. Paul, Minn.
• 8:15am: ADP Employment Report, Aug., est. 175k (prior 179k)
• 9:45am: Chicago Purchasing Manager, Aug., est. 54 (prior 55.8)
• 10:00am: Pending Home Sales m/m, July, est. 0.7% (prior 0.2%); Pending Home Sales y/y, July, est. 2.2% (prior 0.3%)
• 10:30am: DOE Energy Inventories

DB’s Jim Reid concludes the overnight wrap

The most interesting story over the last 24 hours has been the one regarding the EC’s decision to order Apple to pay €13bn in back taxes in Ireland. While the decision may be appealed by both Ireland and Apple, and spend years in court, it is an interesting long-term macro development. Globalisation has allowed multinational companies to base a large part of their operations in lower tax regimes. Indeed many countries have openly courted big companies in the hope that investment and jobs would be higher as a result. However in the era of globalisation, while corporate tax rates around the world have generally fallen, budget deficits have generally increased. Although there are other reasons, lower corporate tax rates have not helped government finances. It does seem that in a world of low growth, high deficits, generally high corporate cash balances and low corporate tax rates, companies have been vulnerable to a change in the political wind. Although having said this, it’ll be interesting to see if the UK tries to encourage investment (to offset Brexit risks) by lowering its corporate tax rates over the coming months. So while countries may increasingly be trying to find ways of taxing multinationals in the years ahead, there will always be someone trying to entice the same companies into their lower tax world.

Unsurprisingly Apple shares (-0.78%) were down on the day but perhaps not as much as might have been expected due to the fact that they can offset tax against their US earnings and also due to the fact that appeals will drag this out Nevertheless the story did appear to weigh on other blue-chip tech stocks like Microsoft, Facebook and Alphabet which all ended up declining a similar amount. In fact apart from more gains for financials (S&P 500 financials index +0.80% to extend its 2016 high) losses were reasonably broad-based by sector resulting in the S&P 500 edging down -0.20%. A strong day for the Greenback (Dollar index +0.50%) following a bumper consumer confidence print – more on that shortly – played its part, as did a leg lower for Oil. WTI ended up falling -1.34% yesterday and has continued to retreat this morning (-0.20%) to the lowest level in two weeks. It feels like most days we seem to get conflicting stories on the fundamental demand and supply dynamics, and also expectations of a potential major producers’ production freeze. Case in point yesterday where Bloomberg reported an Iranian deputy minister saying that the country is planning to boost output to 4m barrels a day by the end of 2016. This was then countered with another report suggesting that Iraq would support a production freeze next month.

Meanwhile rates markets were little changed with the 10y Treasury yield continuing to hover in this 1.50% to 1.60% range. We did break the upside of that range temporarily on Friday following Fischer’s comments and there was some hope that yesterday we’d get a bit more clarity around his views however the Vice-Chair’s comments ended up being almost a complete non-event. Fischer confirmed once more that the labour market ‘is very close to full employment’ but refused to comment on timing expectations for the next Fed rate hike, instead saying that ‘we choose the pace on basis of data’.

Yesterday’s headline consumer confidence print in the US did turn a few heads however after printing at 101.1 (vs. 97.0 expected) and up a bumper 4.4pts from July. That is actually the highest reading since September last year while the other components of the report were also encouraging. The present situations component rose 4.2pts to 123.0 and the best print in nine years, while the expectations index (which rose 4.4pts to 86.4) is now at the highest since October. Encouragingly the labour differential also improved with the share of those who said jobs were plentiful rising to most in nine years too.

Glancing at the latest in Asia this morning the most significant moves have once again been reserved for Japan where the Nikkei and Topix are +0.99% and +1.24% respectively. Those gains have come after industrial production in Japan (0.0% mom vs. +0.8% expected) printed well below expectations and so keeping the pressure on the BoJ. The Yen was as much as -0.30% weaker at one stage but is back to flat now. Meanwhile the rest of Asia is a bit more mixed. The Hang Seng is +0.02%, Shanghai Comp +0.29% and the Kospi (-0.25%) and ASX (-1.07%) are in the red. There was also some data released in the UK overnight where the August consumer confidence reading improved 5pts albeit to a still lowly -7.

Moving on. Over in Europe yesterday it was a better session for equity markets relative to their US counterparts as another rally for European Banks helped send the Stoxx 600 up +0.45%. Banks were actually up +1.84% and have quietly gone about rallying over 12% from the intraday lows of this month back on the 2nd. Yesterday’s gains actually came about despite relatively disappointing data in Europe however. The European Commission’s economic sentiment index declined 1pt to 103.5 in August which is the lowest reading since March, while business climate, industrial and services confidence readings were also down. The latest CPI report for Germany in August revealed that headline CPI was 0.0% mom and lower than expected (+0.1% expected). That has seen the YoY rate stay unchanged at +0.4%. The other data came in the UK where mortgage approvals declined to 60.9k in July from 64.2k in the month prior.

Looking at the day ahead, kicking off this morning is Germany where the July retail sales data is due out. We’ll then get the latest house prices data in the UK before the Euro area, France and Italy all release August CPI reports. Germany will also release August unemployment data and France is also due to release consumer spending data for July. In the US this afternoon the main focus will be the August ADP employment change reading where current market expectations are for a 175k print following a 179k reading in July. Also due out is the Chicago PMI for August which is expected to decline nearly 2pts to 54.0, while July pending home sales data is also scheduled for release. Fedspeak should also be a big focus today. Speaking this morning at 8.15am BST at an event in Beijing will be Rosengren and Evans, while this afternoon (1.00pm BST) the Fed’s Kashkari is speaking on the role of the Fed with audience Q&A expected. It’ll also be important to keep an eye on events in Spain where PM Rajoy is attempting to win a confidence vote in Parliament.

via http://ift.tt/2bRJWOw Tyler Durden