After three days of violent moves and sharp intraday reversals, in a week that feels far longer than just 4 days in, even equities appear exhausted today, and have entered the slow drift into the Easter break with volatility and volume far more subdued than earlier in the week courtesy of a slowdown in the newsflow, and as a result risk is once again bid, as it has been in the early part of most days this week… the question is will we get another late-day selloff.
Commenting on the recent risk moves, Deutsche Bank notes that markets seem to have spent the last 24 hours packing their bags and jetting off for the long weekend after an eventful last few weeks.
Aside from digesting a few more tech related stories, the lack of any material newsflow – the first time we can say that in a while – certainly seems to have helped. Indeed, by the end of trading last night the S&P 500 and Dow closed -0.29% and -0.04% respectively. The lack of any real direction throughout the session is best summed up by the fact that the S&P 500 passed between gains and losses by 37 times.
For some investors, especially the bulls, the coming holiday will be a relief following a roller coaster quarter in which stellar global equity gains gave way to a volatility blow up in February and a tech wreck. “We’ve done some damage with the correction and it’s going to take some time to repair,” Bob Doll, portfolio manager and chief equity strategist at Nuveen Asset Management, told Bloomberg TV. “Expect choppy, sideways volatility.”
The MSCI All-World Index of global stocks is set to end a 7-quarter winning streak – its longest such stretch of gains since 1997 – while global bonds are set for their first decline in currency neutral terms since 2016. The “melt-up” that sent the MSCI’s world share index up 8% in January has melted away, and now the Dow Jones, S&P 500, FTSE Nikkei and scores of other big markets are all down for the year.
“We have got to make sure (the market selloff) …is not too prolonged because the longer this goes the higher the chance it will start to affect the man on street,” said Head of Equities at London & Capital Roger Jones.
So heading into Easter weekend, European stocks are higher on Thursday after a mixed, if mostly higher session in Asia, as equity markets staggered toward the end of the most tumultuous quarter in years.
For the third consecutive day, S&P futures support at the 2,600 level, and we trading at session highs, 10 points higher than Wednesday’s close, around 2,618, while the VIX edged lower in early trading. “I think most of these markets are staring at the 200-day moving average on the S&P 500 to see if it breaks,” said Societe Generale’s Kit Juckes. As a reminder, the S&P 200DMA is at 2,588, so around 30 points lower.
Europe’s Stoxx 600 Index headed for a 3rd day of gains as most major country bourses traded quietly in the green. Automakers led the move higher after Renault and Nissan Motor were reported to be in talks to merge. Defensive sectors were in the red with focus on utilities and healthcare whilst broad gains are seen across all the other sectors. Sodexo (-14.1%) was the laggard this morning after reporting its earnings, dragging down Elior (-1.0%) and Compass (-3.6%) in the UK food catering segment. SwissRE (+2.9%) is leading the SMI after Softbank is said to be interested in building a 25% stake in the Co. for a USD 9.6bln deal. TomTom suffered losses of 6.3% after approaching Deutsche Bank for a potential sale of the whole firm or minority stake, but then denied calling for an adviser to seek potential buyers. Understandably, volumes were subdued, with many traders wrapping up ahead of a long weekend.
To be sure, the overnight quiet has been the exception lately, with the Stoxx 600 making gains or losses of more than 1% 16 times in the current quarter.
Earlier in Asia, equity markets traded indecisive as bourses failed to completely shrug-off the lacklustre lead from Wall Street. Helping the mood were media reports that Japan had sounded out North Korea’s government about a bilateral summit, and that Pyongyang had also discussed the possibility of a broader meeting with other global leaders. As a result, Japanese shares closed higher even as the yen retraced some of Wednesday’s slump, while stocks in China and Korea gained. ASX 200 (-0.5%) and Nikkei 225 (+0.6%) were mixed with Australia dragged lower by tech as well as recent weakness across commodities, while the Japanese benchmark was propped up for most the day by a softer currency. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (+1.2%) were choppy in the midst of earnings season and with initial gains seen following reports of VAT reductions, although continued liquidity inaction by the PBoC and ongoing trade tensions with the US eventually weighed.
In overnight trade and tariff news, the China Ministry of Commerce said it hopes US drops unilateralism and protectionism, while it also hopes US takes steps and resolves conflict with China through dialogue. Furthermore, Mofcom added that US action on trade is like opening a Pandora’s box and that it sees spillover effects.
It was initially reported that US and are China in talks to shield soybeans from trade war, but this was later followed by conflicting overnight comments from the US Soybean Export Council that said China is still contemplating import curbs on US soybeans.
In FX, the dollar found support around fixing times, and after sliding earlier in the session is back to unchanged levels.
In a rather lackluster session, G-10 currencies remained confined to relatively tight ranges as traders await direction from tier-one data out of the U.S. due later Thursday. The USD/JPY holds close to 106.50 as yesterdays strong USD was unwound during Asian hours. A small pickup in activity into the Tokyo fix also saw EUR/USD and GBP/USD forced to session lows with most G-10 pairs then remaining in tight ranges.
Here are the overnight FX highlights from Bloomberg:
- EUR/USD was little changed, trading in a tight range, while the U.S. yield curve continued to bull-flatten
- The pound weakened amid continued month- and quarter-end flows
- USD/JPY declined as the pair’s surge Wednesday prompted investors to book profits ahead of the Easter holiday outside Japan
- Aussie recovered after dropping to a fresh year-to-date low of 0.7643 against the dollar, supported by gains in the price of iron ore
Treasuries also rose, if modestly, paced by core government bonds in Europe, with EGBs particularly quiet, showing a small outperformance of the European periphery, while benchmark yields on German government bonds crept back above 0.5% having been on a sharp slide for most of the month. Spanish yields meanwhile saw their biggest monthly fall since mid-2016. The 10-year U.S. Treasury yield was at 2.7662 percent after touching a near two-month low of 2.743 percent overnight amid the strains on Wall Street.
In commodities, WTI was poised to end its longest losing streak in almost a month, even as U.S. crude stockpiles resumed their expansion. Gold nudged lower, extending Wednesday’s plunge, while cryptos continued to slide overnight.
Bulletin Headline Summary from RanSquawk
- European bourses drifting higher heading into the long Easter weekend
- DXY stable around the 90.00 level
- Looking ahead, highlights include national German CPI, US personal income, PCE, Canadian GDP, Fed’s Harker
- S&P 500 futures up 0.4% to 2,618.50
- STOXX Europe 600 up 0.1% to 369.63
- MXAP up 0.02% to 171.83
- MXAPJ up 0.1% to 562.21
- Nikkei up 0.6% to 21,159.08
- Topix up 0.3% to 1,704.00
- Hang Seng Index up 0.2% to 30,093.38
- Shanghai Composite up 1.2% to 3,160.53
- Sensex down 0.6% to 32,968.68
- Australia S&P/ASX 200 down 0.5% to 5,759.37
- Kospi up 0.7% to 2,436.37
- German 10Y yield fell 0.3 bps to 0.5%
- Euro up 0.02% to $1.2310
- Italian 10Y yield fell 3.3 bps to 1.586%
- Spanish 10Y yield fell 1.0 bps to 1.203%
- Brent futures down 0.1% to $69.43/bbl
- Gold spot little changed at $1,324.33
- U.S. Dollar Index little changed at 90.11
Top Overnight News from Bloomberg
- North Korean leader Kim Jong Un and South Korean President Moon Jae-in will hold a summit on April 27, according to a South Korean Unification Ministry official. China’s commerce ministry said the nation is open to talks with the U.S. and it won’t submit to unilaterally coerced negotiations
- Japan will not get dragged into bilateral negotiations with the U.S. over steel and aluminum import tariffs, Finance Minister Taro Aso says in parliament Thursday
- Officials from the two Koreas are meeting Thursday on their heavily militarized border to discuss details of an upcoming summit between Kim Jong Un and South Korean President Moon Jae- in. The talks at Panmunjom could set the stage for a similar meeting between Kim and U.S. President Donald Trump
- Robert Lighthizer, the U.S. Trade Representative ,said Wednesday he’s “hopeful’’ of reaching a deal “in the next little bit” with Canada and Mexico to update the North American Free Trade Agreement. Canada’s chief negotiator,Steve Verheul, said he didn’t know what an “in principle’’ deal would look like and “significant gaps” remain
- Treasury 7-Year auction got a cool reception as it came after a rally cut benchmark 7Y yields from Tuesday high of 2.78%. The 2.34 bid-to-cover ratio, lowest since February 2016, compared with 2.54 average for previous six auctions
- President Donald Trump is hailing the revised U.S. free trade agreement with South Korea as a “great deal” yet the revamped U.S.-South Korea accord unveiled earlier this week isn’t much different from the existing pact that Trump often condemned as “disastrous.” White House ‘win’ on South Korea gets mixed marks
- SoftBank Group Corp. is edging closer to a deal to buy a stake in Swiss Re AG that would value the reinsurer at as much as 37 billion Swiss francs ($39 billion), according to people with knowledge of the matter
- Carry trades are set for a fourth straight quarter of losses despite the relative calm of foreign-exchange rates over the past three months
Asian equity markets traded indecisive as bourses failed to completely shrug-off the lacklustre lead from Wall St. where the major indices were subdued amid month-end flows and continued tech losses. ASX 200 (-0.5%) and Nikkei 225 (+0.6%) were mixed with Australia dragged lower by tech as well as recent weakness across commodities, while the Japanese benchmark was propped up for most the day by a softer currency. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (+1.2%) were choppy in the midst of earnings season and with initial gains seen following reports of VAT reductions, although continued liquidity inaction by the PBoC and ongoing trade tensions with the US eventually weighed. Finally, 10yr JGBs were weaker as Japanese yields rose across the curve, with demand for paper sapped by initial outperformance in Japanese stocks and after an uninspiring 2yr auction in which the amount sold, b/c and accepted prices all declined from prior. PBoC skipped open market operations for a net daily drain of CNY 40bln. PBoC sets CNY mid-point at 6.3046 (Prev. 6.2785)
Top Asian News
- Japan Watchdog Says Deutsche Bank, BofA Colluded on Bond Trade
- Ping An Is Said to Start Work on $3 Billion OneConnect IPO
- Hyundai Motor’s Chung Overhauls Group as Succession Looms
- Two Koreas Set April 27 for Kim Jong Un’s Historic Walk South
European equities (Eurostoxx +1.2%) are back into positive territory, improving on the mixed tone seen in Asia overnight and shrugging-off the losses on Wall Street. Defensive sectors are in the red with focus on utilities and healthcare whilst broad gains are seen across all the other sectors. Sodexo (-14.1%) was the laggard this morning after reporting its earnings, dragging down Elior (-1.0%) and Compass (-3.6%) in the UK food catering segment. SwissRE (+2.9%) is leading the SMI after Softbank is said to be interested in building a 25% stake in the Co. for a USD 9.6bln deal. TomTom suffered losses of 6.3% after approaching Deutsche Bank for a potential sale of the whole firm or minority stake, but then denied calling for an adviser to seek potential buyers. Finally, as a reminder, Melrose’s GBP 8bln hostile bid for GKN is due to expire today at 1300 BST.
Top European News
- German Joblessness Hits Record Low as Firms Push Capacity Limits
- Wary U.K. Consumers Keep House Prices Subdued Year Before Brexit
- Bulgaria Reluctant to Seek ECB Scrutiny Before Euro Entry
In FX, the Greenback is showing little sign of losing its month, quarter and Japanese FY end bid, although the DXY is only tentatively above the 90.000 handle and the Dollar is somewhat mixed against its G10 rivals. Usd/Jpy is hovering just above 106.50 having touched 107.00 overnight after the biggest 1 day jump this year so far and with near term support seen at the 30 DMA (106.35). Aud/Usd has recovered some poise after hitting a fresh 2018 low around 0.7644 overnight but looks capped ahead of macro supply seen at 0.7680 vs major support at 0.7600 where hefty option expiry interest also resides (1.2 bn). Usd/Cad remains close to 1.2900 amidst less positive NAFTA vibes (long way to go to reach a deal and US demands on food not palatable), and with the Loonie now looking towards Canadian GDP data for some independent direction. Eur/Usd looks anchored around 1.2300 with strong support and resistance not far from the round number at 1.2286 and 1.2329 (latter representing the 30 DMA) and little to offer impetus via German jobs or inflation data given outcomes relatively close to consensus. Cable is clinging to 1.4050 (just) having lost grip of 1.4200 and 1.4100 handles on the run in to the end of March and long Easter weekend amidst decent expiries at the latter level and 1.4000, while techs are also wary of a fib at 1.4041. Nzd/Usd sits near 0.7200 and Usd/Chf is just above 0.9550
In commodities, WTI (+0.3%) and Brent Crude (+0.1%) are trading in close proximity to yesterday’s post-DoE levels. Prices have also been supported by yesterday’s comments from OPEC stating the producer cartel and other suppliers are looking to continue withholding the output cut for the rest of the year and potentially 2019. Moving on to metals, Gold is trading close to the prior session’s lows where the yellow metal posted its biggest 1-day percentage fall in almost 9 months as it continues to move inversely to the dollar. Base metals have seen a rebound in prices on the London Metal Exchange with Nickel (+2.0%) leading the advance and copper (+1.0%) higher following recent declines.
Looking at the day ahead, it’s a reasonably busy day for data highlighted by that February PCE data in the US, and personal income and spending reports. The latest weekly initial jobless claims reading, March Chicago PMI and final revisions to the March University of Michigan consumer sentiment reading are also due. Away from the data, in the early evening the Fed’s Harker is due to speak.
US Event Calendar
- 8:30am: Initial Jobless Claims, est. 230,000, prior 229,000; Continuing Claims, est. 1.87m, prior 1.83m
- 8:30am: Personal Income, est. 0.4%, prior 0.4%; Personal Spending, est. 0.2%, prior 0.2%; Real Personal Spending, est. 0.1%, prior -0.1%
- 8:30am: PCE Deflator MoM, est. 0.2%, prior 0.4%; PCE Deflator YoY, est. 1.7%, prior 1.7%
- 8:30am: PCE Core MoM, est. 0.2%, prior 0.3%; PCE Core YoY, est. 1.59%, prior 1.5%
- 9:45am: Chicago Purchasing Manager, est. 62, prior 61.9
- 9:45am: Bloomberg Consumer Comfort, prior 56.8
- 10am: U. of Mich. Sentiment, est. 102, prior 102; Current Conditions, prior 122.8; Expectations, prior 88.6
DB’s Craig Nicol concludes the overnight wrap
Markets seem to have spent the last 24 hours packing their bags and jetting off for the long weekend after an eventful last few weeks. Aside from digesting a few more tech related stories, the lack of any material newsflow – the first time we can say that in a while – certainly seems to have helped. Indeed, by the end of trading last night the S&P 500 and Dow closed -0.29% and -0.04% respectively. The lack of any real direction throughout the session is best summed up by the fact that the S&P 500 passed between gains and losses by 37 times.
The Nasdaq (-0.85%) did lag behind but at least that was the first sub-2% move in either direction for that index since this time last week. That performance looks even more solid when you look at the fall for the NYSE FANG index (-2.40%), which is now down -13.15% in the last 8 sessions. The tech equivalent of the VIX did however rise to 30.19 and is not far off the recent high of 33.89. In fact, the spread of the VXN over the VIX at one stage touched the highest in 13 years yesterday. Meanwhile, Europe spent much of the day scrambling back from a big leg lower at the open, sparked by that selloff in the US the night before. The Stoxx 600 clambered to a +0.46% gain after being down as much as -1.33% at one stage.
In bond land 10y Treasuries consolidated below 2.80% after yields closed at 2.782%, although touched 2.7425% intraday which is the lowest since early February. That was despite a bigger than expected upward revision to Q4 GDP (more on that below). The curve flattened once more though with 2s10s down 1.3bps to a fresh 10-year low while 5s30s also fell 3.4bps. In Europe yields were broadly speaking a couple of basis points lower yesterday.
So, as it’s the last day before markets shut down for the long weekend, it should be a fairly quiet end to the week although we say that slightly tentatively given what markets have done over the last few weeks. In any case we do have some important data to consider as we’ll get the US PCE report for February this afternoon. Both our US economists and the market expect a +0.2% mom print for the core, while the headline deflator is also expected to come in at +0.2% mom. The data takes on a little bit more significance in light of the Fed last week raising its inflation forecast above 2% in 2019. Our economists note that a print in line with their expectation would keep the year-over-year reading roughly steady at +1.5% yoy, however the 6m and 3m annualized rates should jump to +2.1% and +2.4% respectively, and so putting a bit of daylight between the run rate and the Fed’s target. Our colleagues also make the point that this is the last inflation data before the wireless services price drop is annualized in the March report, which will boost core CPI and core PCE by about 20bps and 10bps, respectively. Anyway, today’s data is due out at 1.30pm BST.
Ahead of it, markets in Asia are trading mixed this morning with the Nikkei (+0.40%) and Kospi (+0.27%) modestly up while the Hang Seng (-0.27%) and ASX 200 (-0.37%) are slightly lower. Bourses in China are flat having recovered from an early fall. Futures in Europe and the US are down about -0.10%.
Back to the subject of tech, yesterday Luke Templeman in our team published a timely and topical note as part of his Accounting Lifeguard series called ‘Europe’s digital tax’. Luke highlights that the ‘interim’ three percent tax on digital revenues is likely to be the mere opening salvo in negotiations between European states about the design of a new tax system and companies outside the technology sector should not be complacent. The EU’s digital tax may merely represent the first change to move taxation from being a domicile-based system to one based on value-creation. Given the decades-long rise of multinational firms, their taxation has become an increasingly sensitive topic. Digital firms are now the test subjects. You can find a link to Luke’s report here.
Rounding back to the US GDP print which we mentioned at the top, Q4 growth was revised up four-tenths and more than expected to +2.9% yoy annualized (vs. +2.7% expected) at the final reading. A 20bp uplift from personal consumption was the main driver. The data also included the latest corporate profits numbers, however it was a bit of a disappointment. Profits fell -0.1% qoq following two straight quarters of growth, although it appeared to be driven by financials predominantly with non-financial corporate profits still fairly solid.
In terms of the other macro data from yesterday, the February advanced goods trade deficit in the US was slightly wider at -$75.4bn (vs. -$74.4bn expected), while February wholesale inventories (+1.1% mom vs. +0.5% expected) and pending home sales (+3.1% mom vs. +2.0% expected) were both above expectations. In Europe, Germany’s April GfK consumer confidence index was slightly above consensus at 10.9 (vs. 10.7 expected) while France’s March consumer confidence was in line at 100. In the UK, March CBI retailing reported sales was below market at -8 (vs. 7 expected), partly impacted by the harsh weather during the month, although we should note that the data can be particularly volatile.
Away from the data, there were also some Brexit headlines to digest yesterday. The BOE noted that it’s “reasonable” for UK based firms “to plan that they will be able to continue undertaking activities during the (Brexit) implementation period in much the same way as now”. Chancellor Hammond also echoed similar sentiments and said that the BOE’s statement and the transition deal “will provide further confidence to financial services firms that there will be a smooth exit”. Notably, the FCA did caution that the transition agreements are not binding until they’re ratified as part of the withdrawal agreement.
Before we look at the day ahead, the Fed’s Bostic has reiterated that staying on a gradual path of rate hikes would be appropriate. He added that “unemployment is very close to full employment position and inflation our 2% target. If things are close to where we hope that they’ll be, then our policy doesn’t need to be super accommodative”. Elsewhere, the Bundesbank’s Wuermeling noted that “the upbeat economy and the inflation forecast would justify bringing (QE) to a rapid end, if the economic recovery in the Euro area continues as expected”.
Looking at the day ahead, it’s a reasonably busy day for data highlighted by that February PCE data in the US, and personal income and spending reports. The latest weekly initial jobless claims reading, March Chicago PMI and final revisions to the March University of Michigan consumer sentiment reading are also due. In Europe, the main highlight will likely be the flash March CPI report in Germany. Money and credit aggregates data in the UK along with the final Q4 GDP revision is also due. Away from the data, in the early evening the Fed’s Harker is due to speak.
Before we wrap up, a quick mention that on Easter Friday most major markets will be shut for the long weekend holiday. Industrial production and housing starts data is due in Japan for February while in Europe we’ll get the flash March CPI reports in France and Italy. Finally, on Saturday, China’s official PMIs for March will be released.