Another day where the taken for granted overnight futures levitation is missing (despite a rather rampy USDJPY), indicates that algos are likely waiting for guidance from today’s NFP data (buy if beat, buy more if miss) before committing monopoly money. The consensus for today’s NFP is 218K, (up from 192K), although as Goldman notes the whisper number is as high as 240K. As DB says, “the honest truth is that markets are in one giant holding pattern at the moment with volatility and conviction low.” One evidence of this is the AAII weekly sentiment indicator which shows the % bullish, bearish or neutral on the US stock market for the next six months. This week the neutral indicator (40.78) is at its highest level for 9 years. No wonder volumes and volatility are low if investors are lacking a directional bias. Yesterday’s reaction to the ISM manufacturing was interesting. Though the headline number came in firmer than expected (54.9 vs 54.3 expected) and more than 1pt higher than last month’s reading of 53.7, the UST and equity reaction suggested that the data had actually surprised to the downside.
In Europe muted price action observed across various asset classes today as market participants come back from May Day holiday and wait for US algos to take charge. In terms of macroeconomic releases, this morning’s release of lower than expected UK Construction PMI failed to result in a meaningful uptick by Gilts, which were weighed on by the unwind of Thursday’s pricing of Wellcome Trust’s GBP 400mln 45-year deal. Limited reaction to EU based PMIs (Italian Manufacturing PMI 54.0 vs. Exp. 52.9, French Manufacturing PMI 51.2 vs. Exp. 50.9, German Manufacturing PMI 54.1 vs. Exp. 54.2 and Eurozone Manufacturing PMI 53.4 vs. Exp. 53.3).
Looking at how Asia is trading this morning, the tone has been generally cautious, with volumes lower across the regions as many participants remain out of the office due to the May Day holidays yesterday, and looming golden week holidays in Japan. The Nikkei (-0.4%), KOSPI (-0.1%) are both lower, as is copper futures (-0.1%). Policy easing appears to be a more remote possibility in both China and Japan based on the latest comments from both country’s state leaders. In an article published late yesterday, Chinese Premier Li again voiced his opposition to short term stimulus policies to boost growth, instead preferring to pursue deeper economic reforms (South China Morning Post). In Japan, Prime Minister Abe said that the recent sales tax hike hasn’t hurt consumption as much as feared (Reuters), perhaps lessening hopes of incremental BoJ easing in the short term. A number of Japanese chain stores said that the sales drop was smaller in April than the one that followed the sales tax hike in 1997 (Japan Times). More than 80% of the Japan’s key retailers believe that the drop in demand following the April 1st tax hike will fade away by June, according to a Nikkei survey. More than seven out of 10 respondents said sales for April met or beat expectations (Nikkei).
Bulletin headline summary from Bloomberg and RanSquawk
- Muted price action and light volumes observed in Europe this morning across various asset classes, with stocks seen mixed (Eurostoxx 50, -0.22%), as market participants await the release of the latest jobs report by the BLS.
- GBP underperformed after UK Construction PMI data failed to meet expectations and AstraZeneca’s board rejected Pfizer’s revised bid.
- Treasuries decline, yields 5Y and longer higher by ~1bps before report forecast to show U.S.
economy added 218k jobs in April while unemployment rate declined to 6.6% from 6.7%. - Consensus of forecasts revised/made after better than forecast ADP has risen to 225k, RBC’s Adam Cole wrote, signaling downside surprise to have bigger market impact than upside surprise
- The Yellen Fed has resigned itself to diminished growth expectations, stressing the importance of preventing expansion from faltering rather than saying growth must accelerate from 2%-2.5% pace it has averaged since the recession ended
- Ukraine sent armored vehicles and artillery to retake Slovyansk, a pro-separatist stronghold, defying Putin’s demand to pull back troops with Russia’s army massed across the border
- The euro-area unemployment rate held near a record, even as manufacturing grew at the fastest pace in three months, adding to mixed signals about the 18-nation currency bloc’s recovery
- Sovereign yields mostly lower. Nikkei -0.2%; Shanghai closed for holiday. European equity markets mixed, U.S. stock futures rise. WTI crude, gold and copper gain
