As noted several hours ago, the main story overnight is not that Greece once again narrowly averted a Grexit when it was reported it would make its scheduled payment to the IMF today (adding that next month is a “different story”) a development that was met with yet another ultimatum by its “partner”, the Eurozone, but the dot com bubble deja vu-esque move in Hong Kong stocks, where the Chinese, seemingly tired of pushing up their local market into the stratosphere have turned their attention southward and are desperate to buy up every single Hong Kong stock.
As a result, the Hang Seng (+2.7%) jumped to its highest level since 2007, gaining as much as 6.4%, with volume turnover on the Index ~400% above the 30-day average. Gains were led by Chinese regulators allowing mainland Chinese funds to buy shares in HK and as analysts see HK stocks as undervalued relative to their Chinese peers, due to the out performance of the Shanghai Comp. vs. HSI. Despite opening above 4,000 for the first time since 2008, the Shanghai Comp (-0.9%) moved lower given the flows away from Chinese equities into Hong Kong stocks. Nikkei 225 (+0.75%) extended on its 15-year highs and is now in close proximity to the key 20,000 level, further underpinned by JPY weakness. JGBs rose with the curve notably flatter after today’s 30yr auction which despite a lower than prev. b/c, saw the yield in price narrow significantly to 0.19% vs. prev. 0.34%.
European equities started the session on the front foot, taking the lead from the positive Wall Street close and Asia-Pacific session overnight. Furthermore, sentiment has also been bolstered by confirmation that Greece are to make their scheduled repayment to the IMF Later today, which has subsequently seen the GR/GE spread tighter by 21bps. On a sector specific basis, auto-names outperform and have helped support the DAX after bouncing back from yesterday’s declines and also being assisted by lower aluminium prices in the wake of Alcoa’s after-market report yesterday. Elsewhere, fixed income markets trade in a relatively directionless manner with things otherwise quiet from a European perspective. However, heading into the North American crossover, Gilts have moved higher after breaking above yesterday’s highs with volumes otherwise light.
In FX markets, the USD-index trades higher with no stand out news supporting the move higher, with price action instead led by a technical break below 1.4850 in GBP/USD which triggered stops along the way, with EUR/USD extending further losses and the next level of support said to be at 1.0714 – its March 31st low. With regards to GBP, GBP/USD has pared the entire gains from yesterday which were attributed to the large M&A deal between Royal Dutch Shell and BG Group. Elsewhere, Antipodeans remain supported as carry trades continue to come back in favour amongst investors stirred by yield demand, with NZ and AU yields notably higher across the curve, while NZD faded earlier losses, after PM Key said he expects the currency to fall further against USD.
And while the USD has indeed been higher all night without any material catalyst, the snapback is starting as can be seen below, in what has now become a standard market fixture before the US open, i.e., the infamous stop hunt. Case in point: a 30 pip move in the biggest FX pair in seconds and on no news.
In the commodity complex, both WTI and Brent crude futures trade higher in a pullback of yesterday’s heavy losses which were triggered by the latest API and DoE inventory data which revealed a substantial build for the headline figures and an increase in US oil production. The result was the biggest drop in WTI in 2 months.
Elsewhere, precious metals continue to weaken as gold retreats for a third consecutive session as the USD trades higher, subsequently seeing the yellow metal remain below the USD 1,200 level. Furthermore, Aluminium underperforms industrial metals amid revised forecasts from Alcoa that now sees a surplus of aluminium compared to a previous deficit, which consequently weighed on aluminium prices.
