Today’s even highlight is the monthly ECB meeting day. Given we’re only a few weeks into a new policy that’s scheduled to last 18 months, expect a lot of questions on whether they can see out the term given the distortions its creating in European bond markets. Greece will also be a focus.
If yesterday stocks surged on the worst 4-month stretch of missing retail sales since Lehman, one which BofA with all seriousness spun by saying “it seems not unreasonable to suspect that the March 2015 reading on retail sales gets revised up next month”, then the reason why futures are now solidly in the green across the board even as German Bunds have just 14 bps to go until they hit negative yields and before the ECB is fresh out of luck on future debt monetization, is that overnight China reported its worst GDP since 2009 together with economic data misses across the board confirming China’s economy continues its hard landing approach despite a stock market that has doubled in the past year.
Unexpectedly the Shanghai Composite was down overnight despite what is “clearly” evidence of more PBOC easing, and even the bubbly Hang Seng could barely eek out a 0.2% increase. Elsewhere in Asia, stocks trade mostly lower led by Chinese bourses amid poor data, with the Shanghai Comp (-1.2%) on course to for its biggest drop in 6-weeks. Q1 GDP (7.0% vs. Exp. 7.0% (Prev. 7.3%) and March industrial production (Y/Y 5.6% vs. Exp. 7.0%) came in at their 6yr lows, while retail sales (Y/Y 10.2% vs. Exp. 10.9%) also tumbled to multi-year lows. ASX 200 (-0.6%) was weighed on by the Chinese data while the Nikkei 225 (-0.2%) was weighed on by a strong JPY.
European equities bounce back from yesterday’s negative close with the energy sector leading gains after API crude inventories printed a much smaller build than its previous reading, which had reported its largest build since February 18th. In stock specific news, the latest merger deal including Nokia and Alcatel Lucent was confirmed premarket, with the deal valued at EUR 15.6bln. However, Alcatel Lucent (-12.3%) underperform in Europe as the French telecommunications company are to receive 0.55 Nokia shares for one Alcatel Lucent share, which equates to 8% less than Alcatel’s closing price yesterday.
Fixed income markets have been relatively tentative ahead of todays’ ECB rate decision with Bunds ebbing higher and consequently printed fresh contract highs as the market seeks further clues on whether the central bank could alter the purchase programme in the future, while UST’s have tracked German paper amid little fundamental news in the session.
The USD-index has partially recovered some of yesterdays’ US retail sales inspired losses causing broad based EUR weakness which saw EUR/GBP make a technical break below 0.7200. Elsewhere, GBP/USD has also been subject to selling pressure with political uncertainty still lingering as the latest YouGov and Sun poll showed; Lab 35% vs. Con 33% compared to yesterdays’ poll which indicated Lab 34% vs. Con 33%. Separately, lacklustre data releases from China, in the form of Q1 GDP (7.0% vs. Exp. 7.0% (Prev. 7.3%) and March industrial production (Y/Y 5.6% vs. Exp. 7.0%) came in at 6yr lows, while retail sales (Y/Y 10.2% vs. Exp. 10.9%) also tumbled to multi-year lows which weighed on AUD/USD as the pair subsequently broke 0.7600 handle to the downside.
In terms of commodities, WTI and Brent crude futures have held onto yesterday’s gains following the release of the API crude inventories data, however upside was capped on the release of the IEA monthly oil report as it forecasted that Saudi Arabia are to increase oil production which would lead to OPEC supply rising to its highest level since 2011. Additionally, today’s DoE crude inventories data is expected to show a build of 3.6mln bbl compared to last weeks’ mammoth build of 10.949mln bbl. In precious metal markets, spot gold has traded in a tight range, albeit in minor negative territory alongside modest strength observed in the USD.
In summary: European shares rise ahead of ECB rate decision with the basic resources and energy sectors outperforming and media, tech underperforming. The Italian and Dutch markets are the best-performing larger bourses, U.K. the worst. The euro is weaker against the dollar. German 10yr bond yields fall; French yields decline. Shares in Shanghai declined for the first time in four days after China GDP; Aussie drops. Commodities gain, with corn, silver underperforming and Brent crude outperforming. ECB to probably leave benchmark rate unchanged at today’s meeting, according to economists. U.S. mortgage applications, Empire manufacturing, net TIC flows, NAHB housing market index, industrial production, capacity utilization due later.
