It has been a relatively subdued session, with not much action in either stocks or bonds – European stocks rise for the second day on US market momentum from yesterday; Asian stocks are mixed advance while metals decline with Brent, WTI crude, U.S. equity index futures. The biggest highlight in overnight action, however, was once again the Dollar whick climbed to a fresh 4-year high, on pace to strengthen for 2 straight months for first time since March. The reason: ongoing sentiment that there will be a major dispersion between central banks, with the USD tightening just as other central banks join the liquidity fray. To wit, ECB data showed that lending decline in Europe slowed to -1.5% y/y in Aug. vs -1.6% in July and the latest statement from Draghi who said in Lithuania that economic reform possible without devaluing currency.
We are seeing a slightly more mixed performance in the Asian session overnight. The Nikkei is over 1% higher helped by further weakness in JPY. Chinese equities are just barely firmer too with the Shanghai Composite up about one-tenths of a percent despite news reports of potential change of Governor at the PBOC. The WSJ first reported the story during yesterday’s US session saying that Chinese leaders are discussing replacing the current Governor Zhou Xiaochuan amid disagreements over the direction of financial policy and as part of a wider personnel shuffle that comes after internal battles over economic overhauls. The WSJ said that these changes are expected around a major party meeting in October although no final decision about Zhou has been made. Zhou has been leading the move to liberalising interest rates and market reforms so any changes there would be followed closely by the market. Away from China, equity markets in Korea, Taiwan and Hong Kong are all weaker. In brief: Asian stocks mixed the TOPIX outperforming and Taiwan’s TAIEX underperforming. MSCI Asia Pacific up 0.1% to 143.3. Nikkei 225 up 1.3%, Hang Seng down 0.6%, Kospi down 0.1%, Shanghai Composite up 0.1%, ASX up 0.1%, Sensex down 0.7%. 5 out of 10 sectors rise with consumer, industrials outperforming and energy, financials underperforming.
European equity markets have gained further today after the strong close on Wall Street, however the benchmark DAX remains lower by approx. 0.6% on the week. Gains today have been further cemented by the market’s underlying belief that the ECB will be backed into a corner by the market and conduct sovereign bond purchases in order to lift credit to southern Europe. Airbus Group perform strongly today, as their 20yr jet demand forecast was raised, lifting shares by as much as 2.8%. Nonetheless, retailer H&M temper the gains in Scandinavia as poor a sales update knocked shares lower by close to 4%. 16 out of 19 Stoxx Europe 600 sectors rise; travel & leisure outperform, basic resources, retail underperform. 70% of Stoxx 600 members gain, 26.5% decline. Eurostoxx 50 +0.3%, FTSE 100 +0%, CAC 40 +0.3%, DAX +0.4%, IBEX +0.7%, FTSEMIB +0.4%, SMI +0.4%
Looking at the day ahead, durable goods orders, initial jobless claims, flash Markit services PMI and the Kansas Fed manufacturing survey are the key releases in the US. We also have a 7yr UST auction. In Europe we expect a relatively quiet day for data watchers with the Eurozone money aggregates for August perhaps noteworthy. Draghi will speak this morning on ‘Single Market, Single Currency, Common Future’ at a ECB conference in Lithuania.
Market Wrap
- S&P 500 futures little changed 1990.6
- Stoxx 600 up 0.4% to 345.8
- US 10Yr yield down 1bps to 2.55%
- German 10Yr yield down 1bps to 0.99%
- MSCI Asia Pacific up 0.1% to 143.2
- Gold spot down 0.7% to $1209/oz
Bulletin Headline Summary from RanSquawk and Bloomberg
- Central bank policy divergence remains the theme of the week, as the USD marches to four-year highs for the third time in four days
- RBNZ joins the slew of central banks talking down their currency, as the RBNZ Governor Wheeler deems the NZD’s high value as ‘unsustainable’
- Looking ahead, attention turns to US Durable Goods Orders, Weekly Jobs data and the USD 29bln 7yr auction – particularly after yesterday’s 5yr sale drew the lowest bid/cover since December
- Treasuries steady before week’s auctions conclude with $29b 7Y notes; WI yield 2.255%, highest since April. Weekly IG issuance volume near $30b, with September poised to be busiest month of the year.
- The SEC’s probe into Bill Gross’s Pimco Total Return ETF is investigating whether the firm bought smaller lots of bonds at discounts, then marked them up, according to the person, who asked not to be identified because the probe isn’t public
- The U.K. government plans to criminalize the manipulation of seven more benchmarks in markets from foreign exchange to gold and oil as it tries to revive confidence in the integrity of London as a financial center
- Speculation about the retirement of China central bank Governor Zhou Xiaochuan, a champion of shifting the world’s second-largest economy to greater reliance on markets, is resurfacing, focusing attention on potential successors
- China uncovered almost $10b in fraudulent trade nationwide as part of an investigation begun in April last year, including many irregularities in the port of Qingdao, the country’s currency regulator said today
- The buffer zone being carved out to bring peace to eastern Ukraine may also cement the conflict’s front lines and preserve Vladimir Putin’s influence over the region for years to come
- Obama’s blunt words on Islamic terrorism marked a striking shift for his annual address to United Nations, as he moved away from the language of accommodation to rhetoric reminiscent of predecessor President George W. Bush
- U.S. and Arab warplanes attacked small oil refineries in eastern Syria controlled by Islamic State to undercut the extremist Sunni group’s revenue and impede its mobility, the Pentagon said
- A group of Syrian women activists delivered a jarring message to top American officials: Syrians aren’t grateful for the U.S.-led airstrikes, which they say have killed innocents and worsened the suffering
- An Algerian militant group beheaded a Frenchman it kidnapped three days earlier, in retaliation for French airstrikes in Iraq, President Francois Hollande confirmed
- Sovereign yields lower. USD strengthens to four-year high. Nikkei +1.3, Shanghai Composite little changed. European stocks higher, U.S. equity-index futures mixed. WTI crude, gold and copper lower
