If there isone thing that is virtually certain about today’s trading (aside from the post Rig Count surge in oil because if there is one thing algos are, it is predictable) is that despite S&P futures being a touch red right now, everything will be forgotten in a few minutes and yet another USDJPY momentum ignition ramp will proceed, which will push the S&P forward multiple to 18.0x on two things i) it’s Friday, and an implicit rule of thumb of central planning is the market can’t close in confidenece-sapping red territory ahead of spending heavy weekends and ii) the Nasdaq will finally recapture 5000 following a final push from Apple’s bondholders whose recent use of stock buyback proceeds will be converted into recorder highs for the stock, and thus the Nasdaq’s crossing into 5,000 territory because in the New Normal, the more expensive something is, the more people, or rather algos, want to buy it.
European equities trade relatively mixed heading into the North American crossover with European newsflow on the light side thus far. On a sector specific basis, material names lead the way lower in tandem with the paring of recent gains in precious metals complex, while notable movers in Europe come in the form of Airbus (+6.6%) and IAG (+4.3%) following their respective earnings. However, as has been the case over the past few days, a bulk of the price action for Europe has been provided by fixed income markets, with German paper initially seeing a leg lower alongside the Saxony CPI release which showed a substantial bounce-back from the previous for both the M/M and Y/Y (M/M 0.9% vs. Prev. -1.2%, Y/Y 0.3% vs. Prev. -0.3%). This move was then extended throughout the morning, paring some of the hefty gains seen over the past few days, with some analysts also noting an unwind of month-end extensions. From a UK perspective, the short-sterling strip is being weighed on by the latest comments from BoE’s Shafik who said if slack is absorbed quickly, lift-off could be at a faster rate than the market currently expects.
The Nikkei 225 (+0.1%) failed to hold on to earlier gains after crawling to a fresh 15yr high, as JPY clawed back some of its recent losses. Shanghai Comp (+0.4%) and Hang Seng (-0.3%) were supported by further speculation of continued support measures by the Chinese government. JGBs trade up 4 ticks with short-end paper notably outperforming, as results of today’ BoJ’s JPY 1.2trl purchasing operation indicated strong demand in the 1-3yr sector.
In FX markets, overnight AUD was the session’s biggest mover, falling against all of its counterparts as RBA rate talk gathered pace ahead of next week’s policy meeting. Analysts at Deutsche Bank, JP Morgan and Westpac all brought forward their forecasts for a 25bps rate cut next week, with markets now pricing in a 54% chance of such action. Heading into the European open, a video of RBA watcher McCrann got passed around desks with the commentator suggesting he expects the RBA to stand pat on rates for the moment, however, AUD has been relatively unshaken by these comments. Elsewhere GBP weakness has been observed across the board amid no new fundamental news, seemingly led by EUR/GBP which typically moves higher on the last trading day of the month due to month end demand. Emerging market currencies including TRY, ZAR and MXN are seen markedly lower this morning despite the USD trading lower as the prospect of Fed rate lift-off continues to weigh on the outlook for EM economies; TRY trades at a record low.
In the commodity complex, WTI crude futures rebounded overnight after finishing yesterday’s session down 5.53%, which saw the WTI-Brent crude spread at its widest level since January 2014, with energy specific news relatively light. Contrary to the move in energy prices, precious metals markets have drifted lower throughout the session, paring back some of the recent gains which saw gold prices rise their most in 3 weeks. In a similar manner, copper saw a pull-back from yesterday’s 6-week highs where prices rose to within proximity of the USD 6,000 per ton level.
