After yesterday’s unprecedented volatility fireworks across all markets and continents, today so far has been a modest disappointment, with no crashes and subsequent surges in China, where the Politburo’s only achievement was keeping the bubble dream alive by pushing the Shanghai Composite over 5,000 for the first time since January 2008, closing the index 1.5% higher on the day – a very modest gain by China’s recent blow-off top standards. Europe, too, has been relatively tame with the 10 Year Bund starting off on the wrong foot, the yield rising back above 0.91% before once again dipping to the upper 0.8% range, tracking the move in the EURUSD tick for tick, which also is a tractor beam for the US 10 Year.
On the equity, front, things are just as muted, with futures at the Low of Day as of this moment, despite yesterday’s last minute manic buying spree, the S&P set to open below 2100 as a result. Oil is likewise weaker with an OPEC announcement imminent, one which will be neutral at best and quite bearish at worst as fundamentals are once again gaining the upper hand over margin, leverage and positioning.
In any event, all of the above will promptly change at 8:30:00:00001 today when the NFP payroll is announced (or leaked a few milliseconds earlier): a very strong number and it will be risk off across the board driven by EUR strength; a sub-200K print and the shorts will be trampled yet again.
A closer look at equity markets, reveals the Shanghai Comp (+1.5%) surged to its highest level since Jan’08 in what was once again a volatile session for the index. The Hang Seng (-1.1%) fell with the 50 DMA capping further downside. Nikkei 225 (-0.1%) traded in the red after breaking below yesterday’s low. JGBs rose lifted by short-covering following yesterday’s global bond market rebound, which saw the 10yr yield retreat back below 0.5%.
In Europe, Bunds initially continued their recent their decline with the 10y yield failing to consolidate above 0.9% with prices finding support at the 150.00 handle. Meanwhile, developments from Greece have suppressed European fixed income products as Greek Interior Minister Stathakis stated that the debt-stricken nation are to bundle their June IMF payments to the end of the month, which will in turn provide Greece with more time to reach an agreement with its creditors.Â
Furthermore, Greek 2y and 4y bonds are substantially pressured and their yields have surged 207bps and 176bps respectively. Separately, in a rather tentative session ahead of risk events in today’s data slate, European equities (-0.9%) have followed on from the negative closes in Asia and Wall Street. In terms of stock specific news, Vodafone were under renewed merger speculation involving Liberty Global and initially opened higher, however later fell into negative territory after a Vodafone (- 2.0%) representative later clarified that they are in early discussions with Liberty Global over a potential asset swap deal and not a merger.
In FX markets, EUR/USD has held onto gains from the open with support stemming from updates on the Greek negotiations and higher European rates. USD/JPY has shown mild gains in the wake of comments from the GPIF head who said he does not see the immediate need to amend their investment strategies in the wake of the risk of a stronger JPY due to diverging
monetary policy of the BoJ and Fed. Furthermore, analysts at Standard Chartered suggested that the pair may surge above 127 if today’s US NFP data beats expectations and sees the pair trading between the range of 122-127 this month. Elsewhere, GBP underperforms other major currencies and GBP/USD near lowest levels driven by cross-related selling and positive German data supporting EUR vs. GBP.
Despite the softer USD, WTI and Brent crude futures are mildly lower ahead of the OPEC meeting with several oil ministers from the cartel signalling that oil production will be kept unchanged. Precious metals have remained relatively range-bound ahead today’s key risk events, with Spot Gold drifting marginally lower in the session.
In Summary: European shares fall with the financial services and personal & household sectors underperforming and basic resources, utilities outperforming. Greece defers IMF payment. Bundesbank raises German economic growth outlook on consumption, German April manufacturing orders above estimates. Shanghai Composite rose above 5,000 for first time since 2008. The Swedish and Swiss markets are the worst-performing larger bourses, the Italian the best. The euro is stronger against the dollar. German 10yr bond yields rise; French yields increase. Commodities decline, with WTI crude, Brent crude underperforming and natural gas outperforming. U.S. consumer credit, nonfarm payrolls, unemployment, average earnings, labor force participation, due later.
