The highlight of the overnight newsflow may have been the BOJ’s preannounced statement that it is keeping its QE unchanged (which comes as no surprise after a few weeks ago the BOJ admitted it would be unable to keep inflation “stable” at the 2% in the required timeframe), but the highlight of overnight markets was certainly China, where the Banzai Buyers have reemerged, leading to another whopping +2.8% session for the Shanghai Composite which has now risen to a fresh 7 years high.
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The catalyst? In addition to the PBOC’s desire to reflate the biggest equity bubble ever, was follow through from the US zero volume levitation to its 4th record high close in 6 sessions. As a result expect US stocks to rise next to recorder highs because China surged because the US surged, and so on. That, and of course the slow motion economic collapse which is the best news a stock buyer can have: after all it means that more easing – if only for stocks – is all but assured.
A broader look at Asian equities in general shows Hang Seng (+1.7%) and Shanghai Comp (+2.8%) leading the way, with the latter touching another consecutive fresh 7yr high, as easing expectations continued to underpin sentiment. This also follows excess funds from yesterday’s conclusion of this week’s 20 IPO offerings, being channelled back to underperforming stocks.
European stocks (Eurostoxx50: -0.40%) started the session on a relatively tentative footing and trade lower amid light newsflow. Of relevance for Liberty Global, the FTSE 100 modestly outperforms due to Vodafone (+4.8%) who were lifted by comments from Goldman Sachs saying they were more likely to be sellers of assets rather than buyers. To the downside, luxury names have been weighed on by Richemont’s (-1.78%) pre-market update which revealed an unexpected 8% decline in April sales. Today’s only large cap earnings from the US is Deere & Co. who are scheduled to report at 1200BST/0700EDT.
USTs (+5 ticks) have moved higher in tandem with Bunds (+44 ticks) during the European morning, which have ebbed higher to retrace some of the downside seen yesterday and making a technical break above yesterday’s high at 153.99. Of note, analysts at BNP Paribas have stated they expect European bonds to trade in a tight range today and in the coming week.
In commodities, the metals complex has benefited from weakness in the USD while after market yesterday CME lowered COMEX 100 gold futures initial margins for specs by 6.3% to USD 4,125/contract from USD 4,400/contract and lowered COMEX 5000 silver futures initial margins for specs by 9.1% to USD 7,700/contract from USD 8,470/contract. WTI and Brent both reside in negative territory amid light newsflow. However WTI remains on track to finish higher for the 10th consecutive week, the longest streak since trading began in 1983.
USD (-0.5%) weakened throughout the European morning, with the greenback initially impacted by JPY strength in the wake of the BoJ policy decision to see USD/JPY pull away from the 121.00 handle. USD was further weakened on the back of better than expected German IFO Business Climate (108.5 vs. Exp. 108.3, Prev. 108.6), which bolstered EUR/USD (+78 pips) as market participants await comments regarding Greece from the Eurogroup meeting. Not surprisingly, the “good” German data (unlike the PMI or the ZEW earlier this week), has pushed not only the EUR higher, but the DAX lower which correlates inversely to the strength of the European currency with about 0.9 R-squared.
German Chancellor Merkel and French President Hollande have told Greek PM Tsipras that they would personally contribute toward the direction of a viable, long-term solution for Greece and accelerate the procedure, according to a senior Greek government official. Nonetheless, talks between Greece and its creditors failed to reach an agreement overnight, with a Greek government spokesman suggesting a deal could be finalised within the next 10 days and aims to meet all of its debt obligations in June.
