Unlike most trading sessions in the past month, when the overnight session saw a convenient algo assisted USDJPY/AUDJPY levitation, tonight there has been no such luck for the permabullish E-Trade babies who are conditioned that no matter what the news, the next morning the S&P 500 will open green regardless. Whether this is due to ever louder fears that what is happening in China can not be swept under the rug this time will be revealed soon, but as of this moment both the USDJPY, and its derivative, US equity futures, are looking at a sharp lower open, as gold continues to press higher, while the traditional tension points such as Russia-Ukraine, and ongoing capital flight from some of the more “fringe” emerging markets, continues. Expect more of the same today as people finally peek below the Chinese surface to realize just how profoundly bad the situation on the mainland truly is. And while we realize macro news are meaningless, especially in Europe where the ECB is now the sole supervisor of all asset classes, the fact that Cyprus, Greece, Slovakia and Portugal, are all in deflation, and many more countries lining up to join the club, probably means that absent a massive global credit impulse, we have certainly reached the upward inflection point from the most recent $1+ trillion injection of liquidity by the Fed, not to mention the ongoing QE by the BOJ.
So looking at markets, we see that risk averse sentiment which dominated the price action during the Asian session swiftly carried over into the European session, prompting flight to quality since the get-go as concerns over credit markets in China remained at the forefront. As a result, basic materials related stocks were among the worst performing in Europe, with consumer goods leading the move lower. At the same time, flight to quality supported JPY and Swiss rates, with credit spreads also widening. Looking elsewhere, even though gold managed to hold onto gains made overnight, base metals and energy products suffered as concerns over the future growth prospects in China escalated. There was little in terms of tier 1 macroeconomic releases this morning and going forward market participants will get to digest the release of the latest weekly DoE report, while the US Treasury will auction off USD 21bln in 10y notes.
Bulletin news summary from Bloomberg and RanSquawk:
- Risk averse sentiment which dominated the price action during the Asian session carried over into the European session, prompting flight to quality as concerns over credit markets in China remained at the forefront.
- WTI-Brent spread the widest since 6th of February at USD 9.35 as Chinese fears and larger API build weigh on WTI.
- ECB’s Linde says may have to take new measures in coming months ahead of LTRO expirations in 2015
- Treasuries gain amid slide in global stock markets, copper trades near lowest level in 44 months amid concern over China’s credit outlook.
- Shanghai Chaori Solar, the first company to default in China’s onshore bond market, said its notes may be delisted as a second solar-equipment maker had its securities halted
- More defaults may follow Shanghai Chaori Solar’s, including by makers of nonferrous metals, said Qiu Xinhong, a bond-fund manager in Guangzhou at Golden Eagle Asset Management Co.
- Closely-held steel mills in China are struggling to get funding at the moment and that’s led to panic selling of iron ore, according to Morgan Stanley
- Ukraine warned Russia is amassing troops near its borders as Prime Minister Arseniy Yatsenyuk visits Washington to step up the search for financial aid; Russia calls U.S. aid to Ukraine illegal
- Bill Gross cut holdings of Treasuries and U.S. government- related debt in Pimco’s Total Return Fund in February; DoubleLine’s Jeffrey Gundlach said 10Y yields will fall to 2.5% this year
- Japanese Prime Minister Shinzo Abe looks set to drive an indicator of economic hardship to a 33-year high by increasing taxes and prices amid stagnant wages
- Republican David Jolly won a special election in Florida’s 13th Congressional District, upsetting a Democratic rival in a swing district that Obama won in 2012
- Week’s auctions continue with $21b 10Y notes, yield 2.75% in WI trading; drew 2.795% in Feb.
- Sovereign yields mostly lower. EU peripheral spreads widen. Asian equities fall, with Nikkei -2.6%, Shanghai -0.2%. European equity markets, U.S. stock-index futures decline. WTI crude and copper lower, gold gains
