Just as the S&P appeared set to blast off to a forward GAAP PE > 21.0x, here comes Greece and drags it back down to a far more somber 20.0x. The catalyst this time is an FT article according to which officials of now openly insolvent Greece have made an informal approach to the International Monetary Fund to delay repayments of loans to the international lender, but were told that no rescheduling was possible. The result if a drop in not only US equity futures which are down 8 points at last check, but also yields across the board with the German 10Y Bund now just single basis points above 0.00% (the German 9Y is now < 0), on its way to -0.20% at which point it will lead to a very awkward "crossing the streams" moment for the ECB.
Oil is lower as well because also overnight we learned that the recent surge in crude prices is precisely what Saudi Arabia wanted to boost production to a new record high. with March production up another 659k b/d to 10.29m b/d (a fresh all time high) amid slower growth forecast for non-OPEC supply and better global demand outlook, OPEC says in its monthly Oil Market Report. “Higher global refinery runs, driven by increased seasonal demand, along with the improvement in refinery margins, are likely to increase demand for crude over the coming months.” And the Saudis will do everything in their power power to paint the streets black… and slick.
As a result, European equities entered negative territory with the DAX earlier breaking below yesterday’s low as ECB positions are unwound and concerns surrounding Greece continue to linger with discussions between Greece and the IMF set to begin today. The ongoing uncertainty has resulted in the short end of the Greek yield curve to climb, with 3y and 5yr yields both surging over 100bps. Furthermore, S&P downgraded Greece’s credit ratings to CCC+ from B-; outlook negative, while German Finance Minister Schaeuble downplayed expectations for a breakthrough in Greek/Eurogroup negotiations by saying ‘nobody expects that there will be a solution.
Shortly after the Eurex open flows were seen into fixed income and Bund futures caught a mild bid which led to the German 10y and 30y yield fell below 0.1% and 0.5% respectively for the first time in history, meanwhile UST’s trade slightly higher tracking its German counterpart.
Asian investors had no Greek headlines, or fundamentals to worry about, and as a result Asian stocks mostly rose led by energy stocks following yesterday’s rally across the energy complex. Shanghai Comp (+2.7%) outperformed after peaking near its 7yr highs, as yesterday’s declines and continued easing speculation triggered a round of fresh buying. Hang Seng (+0.4%) also rose after erasing earlier losses bolstered by a rally across railway stocks. Nikkei 225 (+0.1%) was the session’s laggard weighed on by a strong JPY, strengthening the most this month against the greenback.
In FX markets, the USD-index has begun to retrace some of yesterdays’ US Empire & Industrial Production inspired losses which has weighed on the EUR, with EUR/GBP breaking back below the low printed yesterday at 0.7167. Elsewhere, GBP/USD trades steady with attention turning to tonight’s UK Election debate which will be close watched as the market looks to observe any impact on the latest election polls. AUD strengthened the most in 3-weeks and outperforms its major pairs in the wake of a stellar Australian employment report, which prompted participants to pare May RBA rate cut calls. Unemployment rate fell to a 3-month low as the participation rate rose to an 8-month high, with the headline reading more than double expectations (37.7k vs. Exp. 15.0k (Prev. 15.6k, Rev. 42.0k). As such, markets are now pricing in a 56% chance of a 25bps May RBA rate cut vs. 74% prior to the report.
In the energy complex, WTI and Brent crude futures are unable to hold onto the gains seen after the DoE and API crude inventories data with overnight comments from the Iraqi oil minister Mehdi stating that oil exports should reach a record 3.1mln bpd in April as output from the country’s southern fields stays strong and weather conditions improve. In precious metal markets, spot gold trade firmer above the USD 1200/oz level as yesterdays’ lacklustre US data continues to add to the risk off sentiment observed in the market.
