The “polar vortex” (no, really) which is about to unleash even record-er cold temperatures upon the US may be the greatest thing to happen to the economy: after all once Q1 GDP estimates miss once again, what better scapegoat to blame it on than cold winter weather during… the winter. However, for the overnight markets, the weather seems to have had an less than desired effect following both much weaker Services PMI data out of China, and after the entire USDJPY ramp achieved during Bernanke’s late Friday speech evaporated in the span of two hours in Japanese Monday morning trading, sending the Nikkei reeling lower by 2.35%. One reason for this may be that like in the early summer when both the Yen and the Nikkei froze in a rangebound formation, South Korea has vocally started t0 complain about the weak Yen, which as readers may recall was one of the catalysts to put an end to the surge in the USDJPY and EURJPY. This time may not be different, furthermore as Goldman forecast overnight, it now expects a BOK rate cut of 25 bps as soon as this Thursday. Should that happen expect the JPY coiled-short spring to pounce.
Joking aside, the release of weaker than expected macroeconomic data from China, together with somewhat mixed Services PMIs from Europe meant that heading into the North American open, European stocks are seen mixed. Nevertheless, financials outperformed from the get-go, supported by reports that Brussels is set to ease financial
reforms so that big European banks are not forced automatically to split lending operations from risky trading. Also, Monte Paschi shares in Italy gained over 2% following reports that that some US funds may consider investing as much as EUR 350mln to buy a 20% stake in the bank. At the same time, London listed RSA traded up over 5% after being added to UBS’s most preferred list.
Looking elsewhere, a combination of coupon/redemption flows, together with the somewhat lacklustre performance by stocks supported the bid tone by Bunds. On that note, January has the second highest amount of coupons and redemptions in 2014 (EUR 34bln of coupon payments and EUR 98bln of redemptions). Also, touted buying by domestic names ensured that despite the broad based widening of EU sov. bond yield spreads with respect to German 10y, PO/GE 10y spread actually narrowed by over 5bps. However overall, trade volumes remained light as some market participants observed Epiphany holiday.
US Docket:
- ISM non mfg comp, cons 54.5 (10:00 am)
- Factory orders (Nov – mom), cons 1.7% (10:00 am)
- Senate confirmation vote for Yellen as Fed Chair (5:30 pm)
- POMO: $1.00 – $1.50 billion focusing on 02/15/2036 – 11/15/2043 maturities (11:00 am)
- US Sells $28bn 3m and $26bn 6m bills (11:30 am)
Global markets recap:
- Chinese HSBC Services PMI (Dec) M/M 50.9 (Prev. 52.5) – weakest level of expansion in 28 months.
- European stocks are relatively mixed following this morning’s Service PMIs.
- Going forward, the second half of the session sees the release of the latest ISM non-manufacturing survey, as well as factory orders report from the US.
- S&P 500 futures up 0.1% to 1827.5
- Stoxx 600 down 0.1% to 327.4
- US 10Yr yield down 1bps to 2.98%
- German 10Yr yield down 3bps to 1.92%
- MSCI Asia Pacific down 0.8% to 139.1
- Gold spot up 0.1% to $1237.8/oz
EUROPE
- Sweden, Finland, Austria mkts closed today for the Epiphany holiday
- 7 out of 19 Stoxx 600 sectors rise; bank, real estate outperform, basic resources, travel & leisure underperform
- 46% of Stoxx 600 members gain, 51.2% decline
- Euro-zone Dec. services PMI 52.1 in line with est.
- U.K. Dec. services PMI 58.8 vs 60.3 est.
- Top Stoxx 600 gainers: RSA Insurance Group PLC +6.7%, Vestas Wind Systems A/S +5.2%, Mediobanca SpA +3.2%, Banca Monte dei Paschi di Sien +2.9%, UniCredit SpA +2.9%, Banco Popolare SC +2.6%, Commerzbank AG +2.6%, FLSmidth & Co A/S +2.5%, Pandora A/S +2.4%, Stada Arzneimittel AG +2.3%
- Top Stoxx 600 decliners: Edenred -4.2%, Aker Solutions ASA -3.1%, Barry Callebaut AG -3%, Remy Cointreau SA -2.8%, John Wood Group PLC -2.7%, Randgold Resources Ltd -2.3%, Umicore SA -2.3%, Fresnillo PLC -2.3%, Polymetal International PLC -2.2%, Portugal Telecom SGPS SA -2.1%
ASIA
- Asian stocks fall with the Kospi outperforming and the Nikkei underperforming.
- MSCI Asia Pacific down 0.8% to 139.1
- Nikkei 225 down 2.3%, Hang Seng down 0.6%, Kospi up 0.4%, Shanghai Composite down 1.8%, ASX down 0.5%, Sensex down 0.3%
- 0 out of 10 sectors rise with tech, utilities outperforming and telcos, energy underperforming
- China HSBC/Markit Services PMI for Dec. 50.9 vs 52.5 prior
- Gainers: Bangkok Dusit Medical Services +9.7%, Kangwon Land Inc +8.3%, Minor International PCL +7.5%, BEC World PCL +7.3%, MMC Corp Bhd +6.7%, Eclat Textile Co Ltd +6.1%, Siam Commercial Bank PCL/The +5.7%, ANA Holdings Inc +4.8%, Lotte Confectionery Co Ltd +4.2%
- Decliners: Daelim Industrial Co Ltd -8.9%, Adaro Energy Tbk PT -7.9%, Samsung Engineering Co Ltd -7.4%, Tambang Batubara Bukit Asam Pe -7%, Astra Agro Lestari Tbk PT -6.1%, BBMG Corp -5.8%, Fast Retailing Co Ltd -5.8%, Anhui Conch Cem ent Co Ltd -5.6%, TPK Holding Co Ltd -5.2%, Highwealth Construction Corp -5.1%
