We could focus on whatever events took place in the overnight session or the seasonally-adjusted economic data avalanche that will dominate US newsflow over the next two days (ADP, ISM New York, Factory Orders, Services ISM, Yellen Speaking, and of course Nonfarm payrolls tomorrow), or we could ignore all of that as it is absolutely meaningless and all very much bullish, and use a phrase from Standard Chartered which said that “the dollars Yellen is removing could be compensated for by cheap euros from the ECB; result may be enough cash sloshing around to underpin this year’s run-up in risk assets even if the Fed begins mulling higher interest rates too.” In other words, the bubble will go on, as the Fed passes the baton to the ECB, if not so much the BOJ which is drowning in its own imported inflation. Case in point: two of the three HY deals priced yesterday were PIK, and the $1 billion in proceeds was quickly used to pay back equity sponsors. The credit bubble has never been bigger.
For those who care, here is the market snapshot: European shares rise, close to intraday highs, with the autos and retail sectors outperforming and telcos, chemicals underperforming. The Italian and Swedish markets are the best-performing larger bourses, French the worst. The euro is weaker against the dollar. Spanish 10yr bond yields rise; Irish yields increase. Commodities decline, with Brent crude, corn underperforming and soybeans outperforming.
Taking a look at Asia today, markets are having a relatively buoyant 2nd day of Q3 helped by the record closes on Wall Street. Gains are being led by the Hang Seng (+0.95%) which is playing catch up after being closed for holidays yesterday, while gains are also being posted on the ASX200 (+1.1%) and the Nikkei (+0.3%). The AUD (-0.5%) has lost some ground against the greenback today following disappointing May trade data, though it’s still near eight-month highs. In Japan, the BoJ’s tankan inflation survey suggested that firms expect consumer price inflation of 1.5% in the year ahead, unchanged from last quarter’s survey. Inflation projections 3yrs and 5yrs from now are only 1.6% and 1.7% respectively, which is down to unchanged versus the last quarterly survey and still short of the BoJ’s goal.
As DB’s Jim Reid notes, in an otherwise quiet week for Fed policymakers, Yellen’s lecture at the IMF today (11am) will take much of the limelight. The exact topic of her speech is not yet known though as it is simply being billed as a Central Bank lecture, followed by a Q&A conversation with IMF Managing Director Christine Lagarde. If Yellen does discuss current monetary policy, we can probably expect more of the same overall tone that we saw from her post-FOMC press conference. Recall also that at that press conference, Yellen mentioned that “high yield bonds have certainly caught our attentionâ€, so it will be interesting to see whether she elaborates on this topic given the IMF appears to have become more vocal about the issue of financial stability lately. DB’s Joe Lavorgna notes that Yellen will not have the employment data at the time of her talk. Traditionally, the Fed Chair does not get these figures until the early evening of the night before their release.
Turning to the day ahead, on the US docket we have US ISM New York, factory orders, mortgage applications, ADP employment change.
Bulletin headline summary from Bloomberg and RanSquawk
- Treasuries 7Y and longer gain, curve spreads flatten, as markets await ECB/Draghi and nonfarm payrolls tomorrow; Yellen due to speak at IMF 11am ET.
- Stocks in Europe traded broadly higher (Eurostoxx 50, +0.08%), benefiting from yet another record high close over on Wall Street yesterday, which saw the DJIA come within 2 points of 17,000.
- GBP/USD rose to its highest level since October 2008 following better than expected UK Construction PMI and Nationwide housing survey
- The dollars Yellen is removing could be compensated for by cheap euros from the ECB; result may be enough cash sloshing around to underpin this year’s run-up in risk assets even if the Fed begins mulling higher interest rates too, according to Standard Chartered Plc in Dubai
- Foreign ministers from Ukraine, Russia, Germany and France meet in Berlin this afternoon for talks intended to “try and reduce the tensions,†according to a Russian Foreign Ministry spokeswoman, as Ukraine ended a cease-fire and vowed to retake territory from separatists in the violence-torn east
- A second batch of used Russian Sukhoi combat jets arrived in Baghdad to help Iraqi forces fight an al-Qaeda breakaway group threatening to fracture the country
- The State Department has told lawmakers informally that Obama wants to sell Iraq more than 4,000 additional Hellfire missiles for the government’s fight against Islamic insurgents, according to people familiar with the plan
- Belgium overcame a World Cup-record 16 saves by goalie Tim Howard and defeated the U.S. 2-1 in extra time to set up a quarterfinal soccer match against Argentina, which won 1-0 against Switzerland
- Stock investors have found a new hero in Japan’s JPY128.6t ($1.3t) retirement fund, SocGen said; the Topix rebounded 5% in 2Q as the GPIF moved closer to an asset overhaul that’s expected to pour JPY3.6t into Japan’s equities
- Jamie Dimon said he’ll start treatment for throat cancer, raising new questions about succession plans at the biggest U.S. bank
- Sovereign yields mixed. EU peripheral spreads widen. Asian and European stocks, U.S. stock futures gain. WTI crude falls, gold and copper little changed
