Futures took off earlier today, driven by a round of risk on exhuberance starting in Asia, where bourses were up around a third of a percent this morning. Gains are being led by the Shanghai Composite (+1%), Nikkei (+0.9%), HSCEI (+0.5%) and KOSPI (+0.3%). The Indonesian rupiah is down 0.6% today after the country’s central bank said that the current account deficit widened to around 4% in Q2, compared with around 2% in the prior quarter. The Singaporean dollar is also slightly weaker (-0.1%) after Singapore reported a weaker than expected Q2 GDP number (-0.8% QoQ saar vs +2.4% expected).
This helped Europe forget all about last week’s Banco Espirito Santo worries, which earlier todayannounced a new CEO and executive team, concurrently with the announcement by the Espirito Santo family of a sale of 4.99% of the company to an unknown party, withe the proceeds used to repay a margin loan, issued during the bank’s capital increase in May. This initially sent the stock of BES surging only to see it tumble promptly thereafter even despite the continuation of a short selling bank in BES shares this morning. Far more importantly to macro risk, it was that 2013 staple, the European open surge in the USDJPY that has reset risk levels higher, while pushing gold lower by over 1% following the usual dump through the entire bid stack in overnight low volume trading. Clearly nothing has been fixed in Portugal, although at least for now, the investing community appears to have convinced itself that the slow motion wreck of Portugal’s largest bank even after on Sunday, Portugal’s prime minister said taxpayers would not be called on to bail out failing banks, making clear there would be no state support for BES.
As a result European shares rise, with the Eurostoxx 600 up 0.6%, FTSE 100 +0.7%, CAC 40 +0.6%, DAX +0.8%, IBEX +0.2%, FTSEMIB -0%, SMI +1.1%, though are off intraday highs, with the basic resources and construction sectors outperforming and utilities, travel & leisure underperforming. The Swiss and Swedish markets are the best- performing larger bourses, Italian the worst. The euro is stronger against the dollar. Portuguese 10yr bond yields fall; Japanese yields increase. Commodities little changed, with silver, gold underperforming and zinc outperforming.
There is little on the US docket today when Mario Draghi will be speaking at the European Parliament’s Economic and Monetary Affairs committee at 1:30pm Eastern. Tuesday will be largely dictated by Yellen’s appearance before the Senate but we should also highlight speeches from Juncker (before the European parliament ahead of a vote on his nomination to be EC president) and Carney (at the House of Commons Treasury Committee on the BoE’s June financial stability report). The BoJ meets on Tuesday as well. Datawise, the highlights on Tuesday are the US Empire manufacturing and German ZEW surveys.
Yellen’s semi annual congressional testimony continues on Wednesday at the House Financial Services Committee, but the comments should be largely the same as her Senate comments on Tuesday. Of more focus perhaps will be the Chinese Q2 GDP data (Bloomberg consensus is 7.4%) and US industrial production for June. China also reports June retail sales and industrial production numbers with its Q2 GDP. In terms of central bank actions, the Fed releases its latest Beige Book, the Bank of Canada meets (no policy change expected) and Brazil’s BCB is expected to keep rates unchanged.
Market Wrap
- S&P 500 futures up 0.3% to 1969.2
- Stoxx 600 up 0.7% to 339.2
- US 10Yr yield up 1bps to 2.53%
- German 10Yr yield up 1bps to 1.21%
- MSCI Asia Pacific up 0.4% to 146.6
- Gold spot down 1.3% to $1321.9/oz
Bulletin Headline Summary
- Treasury yields slightly higher in overnight trading; last week saw 10Y yield take biggest weekly drop since March, back below its 50-DMA, driven by decline in U.S. equity benchmarks from record highs.
- Mario Draghi’s newest stimulus tool will hand banks more than EU700b ($950b) of cheap funding, economists say; Draghi may address the topic today when he testifies at the European Parliament in Strasbourg
- European banks and asset managers plan to sell or restructure EU584b ($795b) of riskier real estate as they try to clean up their balance sheets, Cushman & Wakefield Inc. said
- Peripheral bond yield spreads traded tighter and Bunds lower in Europe this morning, as market participants welcomed the latest developments over in Portugal where the central bank continued to push for the overhaul of the troubled Banco Espirito Santo.
- Gold prices came under significant selling pressure this morning, falling over USD 15 as stops were tripped, as further reduction in risks relating to the stability of the Portuguese banking system and GS reiterating its bearish stance on gold weighed on safe-haven assets.
- Banco Espirito Santo SA’s parent sold a 4.99% stake to meet loan repayments and the bank appointed Vitor Bento CEO after financial troubles at the group roiled global markets
- Israel targeted more than 40 “terror sites†in the Hamas-controlled Palestinian enclave overnight while at least 20 rockets were fired into Israel today, the army said in an e-mailed statement
- Russia and Germany called for a resumption of Ukraine crisis talks as President Vladimir Putin’s government condemned the shelling of its territory that left one person dead
- Germany beat Argentina 1-0 to win its fourth World Cup, taking soccer’s biggest prize for the first time in 24 years
- Sovereign yields mixed with Ireland, Greece and Portugal 10Y spreads all tighter. Euro Stoxx Banks index fell 7.8% last week to 141.2; Thursday hit lowest level (140.89) since January. Asian stocks mostly higher; Japan rises, China rises. European equities, U.S. stock futures higher. WTI crude lower, copper rises; gold drops
