It has been a very quiet session so far, and despite the slow-mo levitation in the USDJPY, its impact on US equity futures has been minimal if not negative. In fact, following yesterday’s latest late day tumble, which Goldman summarized as follows, “Equities tried and failed again to break 1885, it continues to be the level that we can’t escape”… it would appear we are increasingly changing the trading regime, and as Guy Haselmann explained simply, markets are slowly but surely coming to the realization that the Fed’s crutches are being taken away (that they may well return following a 20%, 30%, or more drop in the S&P is a different matter entirely) and that the economy will not grow fast enough to make up for this. Perhaps the most notable “event” is the sheer avalanche of banks pushing up their forecasts for an ECB rate cut (and or QE start) to June following Draghi’s yesterday comments. And so the 1 month countdown begins until the end of forward guidance, or until the ECB “shatters” its credibility as expained yesteday.
Taking a quick look at overnight markets, it’s a bit more of mixed tone this morning in Asia with the Nikkei (+0.4%) leading the way on the back of some strong earnings results. Meanwhile the Hang Seng (-0.2%) and HSCEI (-0.6%) are lagging. China’s April inflation numbers printed below consensus with CPI at +1.8% YoY (vs 2.1% expected and 2.4% previous) and PPI at -2.0% (vs – 1.9% expected and -2.3% previous). The CPI print was an 18-month low, prompting renewed calls for the government to loosen policy particularly amid the downward pressure on Chinese property prices. The AUD has pared recent gains following a downward revision of the RBA’s underlying inflation forecasts for Dec14 to 2.5% from a range of 2.25% to 3.25% a few months ago. Asian EM sovereigns remain very well supported, especially following yesterday’s upgrade of the Philippines sovereign to BBB. There is also some focus on the Indonesia today ahead of the publishing of results from last month’s parliamentary vote.
In M&A news, Apple tipped its desperation at coming up with organic growth ideas when it announced it would acquire Beats (by Dre) for over $3 billion, meaning it will have to issue another $3 billion in debt as its domestic cash pile suddenly dropped to $27 billion when adding the proceeds from the recent bond offering and it will also have $3 billion less in cash buybacks, or as dry powder for the long-rumored purchase of a company such as Yelp. More importantly, the previously slated $35 billion merger between Omincom and Publicis has been called off, foundering on issues ranging from its complex tax structure to the firms’ divergent cultures.
Later today, the Dallas Fed’ Richard Fisher speaks at the Louisiana Bankers Association on the topic of the limitations of US monetary policy. As we go to print Moody’s are due to announce their reviews of the Portuguese sovereign rating. Over the weekend, China will release its latest lending and money supply data for April.
Bulletin headline summary from Bloomberg and RanSquawk
- Treasuries steady overnight, intermediates headed for weekly gain while 10Y and 30Y yields trade below auction stops; Yellen said Fed’s intention is to continue policies that support recovery and Draghi said ECB could act against deflation risk in June.
- Tanks rumbled across Red Square to mark the Soviet victory over Nazi Germany as Putin put on a show of Russian power in the Ukraine standoff; the EU is ready to expand sanctions to some Russian companies, two officials said
- Consumer inflation in China rose 1.8% in April, less than forecast, while producer prices fell 2%, the 26th straight monthly decline
- U.K. manufacturing production rose 0.5% in March, more than 0.3% median forecast in Bloomberg survey. Industrial production fell 0.1%, less than estimated, as oil and gas extraction fell
- An advance in euro-area government bonds that pushed the 10Y yields of Ireland, Italy and Spain to all-time lows is reaching its peak, according to investors at BlueBay Asset Management LLP and BlackRock Inc
- Obama chose a Wal-Mart Stores Inc. location for his attempt to gain public support for an energy and environment initiative that’s been met with skepticism from business groups and Republicans, who say it will kill jobs
- Former Treasury Secretary Timothy F. Geithner said in his new book that members of the Obama administration “talked openly†about nationalizing banks such as Citigroup Inc. in the aftermath of the financial crisis, according to an article in the New York Times Magazine
- Sovereign yields mostly lower. Nikkei +0.5%, Shanghai -0.2%. European equity markets, U.S. stock futures fall. WTI crude higher, gold and copper little changed
