First it was Treasurys to fill the NFP gap, and then, a little after 4am, it was the USDJPY’s turn which – despite all talk of an imminent upside breakout – promptly tumbled by nearly 30 pips well below 102, to 101.9 thus also returning to pre-NFP levels. Equity futures, however, have hardly retraced any of their Thursday gains and at last check were down a modest 0.1% or so: a situation which we expect will be promptly “fixed” once the BTFD dark pool algos appear, aided by the NY Fed/Citadel-controlled VIX “intervention” algo.
Risk assets have started the week off on a slightly softer footing but overall volumes are fairly low given the quiet Friday session last week and with the lack of any major weekend headlines. Equity bourses are down between 25-50bp on the day paced by the Nikkei (-0.4%). In China, a number of railway construction stocks are up 3-4% after reports that China Railway Corp will buy around 300 sets of high speed trains and may potentially launch 14 news railway construction projects soon as part of national investment plans.
European equities markets retreated today amid thin volumes and light newsflow, with the basic materials sector underperforming as softer metals and commodity prices weigh on miners. The CAC-40 underperforms as large-cap names Sanofi (SAN FP) and Total (FP FP) fall after warning on FX effects on their upcoming earnings and weak refining margins respectively. After topping 17,000 last week, focus shifts to US earnings, with Alcoa (AA) due after-market tomorrow, and Wells Fargo (WFC) rounding off the week on Friday.
The Q2 earnings calendar kicks off this week with Alcoa’s update on Tuesday. Wells Fargo will be the first of the major US banks to report (on Friday) but we’ll have to wait until next week for the bulk of the major banks to provide their earnings updates. In terms of what’s in store this quarter, DB’s US equity strategist David Bianco expects a standard earnings season with typical results vs. expectations, but improved sales and EPS growth and a significant increase from 1Q EPS. David expects 2/3rd of the companies to beat with an average beat of 2-3%. He is also looking for sales growth to improve to ~5% y/y from the anaemic ~2.5% pace of the last 2 years on higher energy prices, improving capex and loan growth. Analysts polled by Reuters are calling for earnings growth for the second quarter of 6.2%, and a return to double digit growth in Q3 and Q4. The last time that S&P 500 earnings achieved double-digit percentage growth was the third quarter of 2011 (18%), according to Reuters. Of 133 earnings pre-announcements from S&P 500 components so far, 97 have been negative, 24 positive and 12 in line with existing forecasts, according to Thomson Reuters data. That puts the negative-to-positive ratio at 4-to-1 for the second quarter, the lowest since the fourth quarter of 2012. So as ever expectations have been pushed down in the weeks going into the reporting period.
In summary, European shares remain lower, close to intraday lows, with the basic resources and financial services sectors underperforming and utilities, telco outperforming. The Swiss and Spanish markets are the worst- performing larger bourses, the Swedish the best. The euro is little changed against the dollar. Commodities decline, with natural gas, silver underperforming.
Market Wrap
- S&P 500 futures down 0.1% to 1975.5
- Stoxx 600 down 0.3% to 347
- US 10Yr yield little changed at 2.64%
- German 10Yr yield little changed at 1.27%
- MSCI Asia Pacific little changed at 147.6
- Gold spot down 0.5% to $1314/oz
EUROPE MARKETS
- 3 out of 19 Stoxx 600 sectors rise; utilities, telco outperform, basic resources, financial services underperform
- 29.3% of Stoxx 600 members gain, 68.5% decline
- Eurostoxx 50 -0.2%, FTSE 100 -0.2%, CAC 40 -0.3%, DAX -0.1%, IBEX -0.3%, FTSEMIB -0.1%, SMI -0.4%
ASIA MARKETS
- Asian stocks little changed with the Sensex outperforming and the Nikkei underperforming.
- MSCI Asia Pacific little changed at 147.6
Nikkei 225 down 0.4%, Hang Seng down 0%, Kospi down 0.2%, Shanghai Composite little changed, ASX down 0.1%, Sensex up 0.5% - 4 out of 10 sectors rise with utilities, financials outperforming and energy, health care underperforming
