Overnight markets have been a continuation of the relative peace observed yesterday before the onslaught of key data later in the week, with the biggest mover standing out as the USDJPY, which briefly touched 102 before sliding lower then recouping losses. This sent the Nikkei 225 up 0.57% despite absolutely atrocious Japanese household spending data, coupled with a major deterioration in employment: at this rate if Abenomics doesn’t fix the economy it just may destroy it. Aside from that the last 24 hours could be summed as having a lot of noise but not a lot of excitement. This was best illustrated by the S&P500’s (+0.03%) performance which was the second smallest gain YTD. And while the SHCOMP is starting to fade its recent euphoria and China was up only 0.24%, Europe continues to cower in the shade of Russian sanctions as both German Bund yields rose to record highs, and Portugal’s BES tumbled by 10% once again to 1 week lows. Today Europe is expected to formally reveal its latest Russian sanctions, which should in turn push Europe’s already teetering economy back over the edge.
Expect the DE Shaws to recalibrate the Spoos correlation algo from AUDJPY to USDJPY today following renewed calls from the street that the RBA will be forced to cut rates before the end of the year: the US stock market clearly can’t have that overhang.
Stateside, the FOMC begins its two-day meeting today, but won’t release its policy statement until tomorrow. Consensus believes that the Fed will take a pass on saying anything that it thinks would move markets this week. Neither the overall economic activity picture nor the inflation data have been firm enough recently to move the Committee to signal that they are moving closer to lift-off. Employment growth has been stronger than expected in recent months. But wage inflation remains low, business and housing investment numbers have softened most recently, and core inflation has moved sideways. On balance, this is not a picture that will get a data-driven Fed excited. Even an upward surprise in the Q2 GDP release on Wednesday is unlikely to elicit any significant change in the wording of the FOMC statement. Of greater interest to the market (and the Fed) will be how the PCE and ECI inflation numbers, as well as the July employment report, come out later this week. These data, along with ensuing data reports ahead of the September FOMC meeting, will be important in shaping the potentially important message the Fed delivers at that time as it likely updates its exit guidance.
Turning to Asia, Chinese equities are consolidating their 2%+ gains from yesterday with HSCEI up 0.15% as we type. As we mentioned yesterday, Chinese A-shares are up around 20% from the YTD lows and this morning a number of commentators have suggested that we are in the midst of a Chinese equity bull market. The KOSPI and Nikkei are the outperformers today though, off the back of stronger corporate earnings from the likes of Kia, Hyundai and Nissan. In rates, most Asia-Pac bonds are trading slightly lower today, which is a spillover of the mild EM selloff seen in EMEA and LATAM yesterday (Brazil 10yr yield +8bp). The USD is down slightly against most major Asian currencies overnight. Asian stocks rise with the Hang Seng outperforming. MSCI Asia Pacific up 0.3% to 149.6; Nikkei 225 up 0.6%, Hang Seng up 0.9%, Kospi up 0.6%, Shanghai Composite up 0.2%, ASX up 0.2%; 8 out of 10 sectors rise with consumer, tech outperforming and energy, utilities underperforming
Heading into the North American open, stocks in Europe are seen broadly lower, with the Portuguese PSI-20 index underperforming amid fresh concerns over the troubled lender Banco Espirito Santo (-6.5%). On the sector breakdown, energy related stocks underperformed, with BP (-1.0%) shares reversing initial gains after the oil-giant posted a rise in second quarter profits, with the company also noting that further sanctions against Russia could affect its business as it posted a rise in second quarter profits. 11 out of 19 Stoxx 600 sectors rise; real estate, bank outperform, autos, oil & gas underperform. 58.7% of Stoxx 600 members gain, 38.5% decline. Eurostoxx 50 +0.2%, FTSE 100 +0.2%, CAC 40 +0.1%, DAX +0.1%, IBEX +0.3%, FTSEMIB +0.6%, SMI -0.2%
