After two consecutive days of miserable Chinese econ data, when
first imports and exports, and then wholesale deflation
disappointed for one more month, overnight we got even more Chinese
data this time on the "credi input end" when Beijing reported its
September money creation statistics.
Overall M2 rose at 13.1%, in line with consensus, and the
highest since June, but where things improved notably (if one
considers an overindebted China rushing to add even more debt an
improvement) was in total CNY loans which rose from CNY810BN to
CNY1.05TN or CNY150 billion above consensus, as well as a jump in
total social financing which printed at CNY1.3 trillion vs CNY1.3
trillion consensus, up over CNY200BN in the month, and the highest
print since June.
Monetary data summary
Total social financing breakdown
As Goldman summarizes:
"September monetary conditions remained ample. Ample monetary
conditions are helpful in supporting the economy which has been
weak after the middle of the year. We do not think the recent
change in collateral requirements for small enterprises and
agricultural related relending will have a big additional impact on
monetary conditions.
But the central bank still needs to cut RRR amid continued
(but reduced) outflows and the recent increase in repo rates, and
also lower interest rates amid lower CPI inflation to just keep
monetary conditions stable."
Aside from Chinese monetary data, it was a relatively quiet
session in which traders were focusing on every move in the
suddenly tumbling USD, and parsing every phrase by central bankers
around the globe, as well as the
previously noted piece by Fed mouthpiece Jon
Hilsenrathwhich effectively ended the debate whether there will
be rate hikes in 2015.
Adding to the overnight froth, were ECB speakers -
first Ewald Nowotny and then Spain's Restoy- who
said that euro-area core inflation "clearly" below goal, remarks
which were immediately assumed to signal increasing pressure to
boost stimulus, and which promptly translated into even more
weakness in EUR and strength in Bunds throughout the European
morning. Ironically this is just a flipflop from late September,
when Draghi implicitly stated no to expect more QE from the ECB so
the focus turned to Japan. However, with the USDJPY tumbling, the
signal is clearly that Kuroda will now wait, and all eyes turn back
to Mario Draghi.
This back and forth will continue until neither one hikes, or
until the market loses patience and something snaps badly
forcing
the central banks - which are desperate to jawbone as long as
possible because they all know any incremental act will merely
accelerate the endgame in which they have no choice but to paradrop
money - to act.
In any case, with the dollar tumbling early in the overnight
session, and with the ECB only adding fuel to the "more QE" fire,
futures have soared and more than wiped out most of yesterday's
losses, despite Walmart which this morning continues to slide and
was down another 1% at last check below $60, on pace to boost the
dividend yield to 4%.
Looking at stocks, starting in Asia we saw equity markets
shrugged off the lacklustre close on Wall Street to trade higher,
as poor US retail sales pushed back Fed rate hike expectations .
Nikkei 225 (+1.2%) recovered back above 18,000 after USD/JPY
rebounded off its lows, while the ASX 200 (+0.6%) was underpinned
by mining names after gold prices climbed to 3%-month highs. Hang
Seng (+2.0%) and Shanghai Comp. (+2.3%) resided in positive
territory amid gains in telecoms, following the announcement that 3
top telecom firms will combine some assets into a new entity. JGBs
traded relatively flat despite the strong risk on sentiment in
markets, while the BoJ also entered the market to purchase JPY
1.18trl of government bonds.
Stocks in Europe traded higher since the open (Euro Stoxx:
+1.4%), as the release of lower than expected US retail sales
yesterday , together with less than impressive start to the latest
US earnings season, continued to dampen rate hike expectations by
the Fed. This together with dovish comments by ECB's Nowotny who
said that additional set of instruments are necessary, meant that
despite the supply from Spain and France, Bunds traded in the green
this morning.
In terms of notable equity movers, Burberry shares (-12%)
slumped over 10% at the open to its lowest level since June 2013
after reporting weak sales performance which was adversely impacted
by the slowdown in China. Going forward, market participants will
get to digest the release of earning reports by major Wall Street
heavyweights such as Goldman Sachs and Citigroup, as well as trade
updates by Phillip Morris, Schlumberger and UnitedHealth.
The dovish comments from ECB's Nowotny saw an immediate
pronounced effect on EUR, which weakened sharply across the board
and in turn resulted in GBP outperforming its counterpart, keeping
the pair above the key 100DMA level. The downside in EUR, combined
with pushed back Fed rate hike expectations has seen a bid in safe
haven currencies, with the likes of CHF and JPY both seeing notable
strength today , while NZD/USD has continued its recent strength to
reach its highest level for 3 and a half months.
WTI heads for its longest losing streak since July after falling
for a fourth consecutive day, after yesterday's API crude
inventories showed the largest build since April (9300K Prey.
-1200K). Brent and WTI have continued to edge lower throughout the
European session.
Elsewhere gold trades near 3 and a half month highs following a
push-back in Fed hike expectations following yesterday's weak
retail sales data and PPI readings. Elsewhere in the metals
complex, some mild strength has been seen in base metals, as a
result of USD weakness.
Apart from focusing on corporate related news flow, traders will
also await the release of the latest US weekly jobs report, CPI,
Empire Manufacturing and Philadelphia Fed survey. Later today we
also sees the release of DoE inventories (Exp. 2577k vs. Prey.
3073k) which after yesterday's stunning API inventory build have
the potential to send WTI back under $45.
Bulletin Headline Summary from RanSquawk and
Bloomberg
ECB's Nowotny stated that additional set of instruments are
necessary, which saw weakness in EUR and strength in Bunds
throughout the European morning
Stocks in both Europe and Asia traded higher as the release of
lower than expected US retail sales yesterday weighed on Fed rate
lift off expectations, with ECB's Nowotny's adding further
strength
Today's highlights include US weekly jobs report, CPI, Empire
Manufacturing, Philadelphia Fed survey, DoE inventories update and
also EIA natural gas storage change as well as a number of high
profile earnings
ECB’s Constancio sees “potential spillovers” of zero lower
bound exit on other countries in short run
Bank of Korea cuts 2015, 2016 GDP and CPI forecasts
Treasuries decline, paring gains seen yesterday after weaker
than forecast retail sales, WMT profit warning pushed Fed liftoff
expectations further into future.
If a December rate hike is looking less likely, it’s not
because debate among policy makers has gone increasingly public in
recent days, but because the economic data are shifting against
those in favor of a move this year
ECB’s Ewald Nowotny said both headline and core inflation in
the euro area are “clearly” undershooting the institution’s goal,
signaling that more stimulus may be needed
Germany’s Merkel, facing growing criticism from within her own
party for her handling of the refugee crisis, urged lawmakers to
prepare for the long haul as asylum seekers continue to surge into
Europe
The German government forced Volkswagen AG to recall about 2.4m
diesel cars after authorities rejected the carmaker’s proposal for
voluntary repairs
Russia’s Putin said U.S. policy on Syria is weak and lacks
objectives, though he remains open to direct talks as Russia
continues its bombing campaign in support of Syrian leader Bashar
al-Assad
The U.S. will keep about 5,500 troops in Afghanistan into 2017,
slowing the administration’s withdrawal timetable and ensuring that
America’s longest war will endure beyond Obama’s term in
office
Nomura Asset Management Co. will halt orders for its Next Funds
Nikkei 225 Leveraged Index ETF and two other funds from Friday on
concern it’s becoming too large for the futures market it uses to
track Japan’s most famous stock index
Sovereign 10Y bond yields mostly higher. Asian and European
stocks gain, U.S. equity-index futures rise. Crude oil lower,
copper gains, gold little changed
US Event Calendar
8:30am: Initial Jobless Claims, Oct. 8, est. 270k (prior 263k);
Continuing Claims, Oct. 1, est. 2.200m (prior 2.204m)
8:30am: Empire Manufacturing, Oct., est. -8 (prior -14.67)
8:30am: CPI m/m, Sept., est. -0.2% (prior -0.1%)
CPI Ex Food and Energy m/m, Sept., est. 0.1% (prior 0.1%)
CPI y/y, Sept., est. -0.1% (prior 0.2%)
CPI Ex Food and Energy y/y, Sept., est. 1.8% (prior 1.8%)
CPI Index NSA, Sept., est. 237.821 (prior 238.316)
CPI Core Index SA, Sept., est. 243.022 (prior 242.693)
Real Avg Weekly Earnings y/y, Sept. (prior 2.3%)
9:45am: Bloomberg Consumer Comfort, Oct. 11 (prior 44.8)
10:00am: Philadelphia Fed Business Outlook, Oct., est. -1
(prior -6)
Central Banks
10:30am: Fed’s Bullard speaks in St. Louis
10:30am: Fed’s Dudley speaks in Washington
4:30pm: Fed’s Mester speaks in New York
DB's Jim Reid completes the overnight wrap
Global markets have been inflation deprived with weak US PPI
yesterday (-0.5% mom vs. -0.2% expected) adding to a series of
similar prints so far this week. We've seen only the second monthly
deflation print in the UK in nearly 60 years on Tuesday, softer
Chinese CPI yesterday (as well as persistent PPI deflationary
pressure), various soft European prints of those reporting so far,
while there’s been little evidence of a pickup in prices in Japan
when they reported last month. As we'll also see in the day ahead,
US CPI will also likely to dip into deflation yoy later today. For
now all this surely means central banks have the green light to
extend stimulus. We have long thought that this continued monetary
stimulus will struggle to help economies much but it’s been
dangerous to bet against it impacting asset prices. Over the last
month or so we've frequently been asked whether we thought monetary
policy had reached its limit. Our answer has been that as a
positive economic driver its long been fairly impotent however
there is no reason why central bank balance sheets couldn't
increase notably further. This is such a unique global experiment
already that who's to say it can't still go further. There is no
limit to the size of central bank balance sheets until markets
rebel. The current era of financial repression makes such rebellion
harder though.
There was plenty going on in markets yesterday. Along with the
US PPI numbers, soft September retail sales data saw US Treasury
yields tumble lower and Fed rate hike expectations pushed back
further. Looking at the details, headline retail sales advanced
+0.1% mom last month, below expectations of +0.2% with the August
print revised down two-tenths alongside. The numbers were softer
than expected at the core too. Retail sales ex auto and gas printed
at 0.0% mom (vs. +0.3% expected), while more concerning for Q3 GDP
growth forecasts, retail control fell -0.1% mom (vs. +0.3%
expected), including a cumulative three-tenth downward revision to
the prior two months readings. That saw the Atlanta Fed nudge down
their Q3 GDP forecast by a tenth to 0.9%, while US Treasury yields
(-7.2bps) marched back below 2% to close at 1.973%. The USD came
under pressure and finished weaker against all but just three
currencies yesterday (with the Dollar index down 0.89%). Meanwhile,
Fed rate hike expectations were hit hard, with December and March
expectations down to 27% and 49% as of this morning, a fall of 8%
and 10% respectively relative to 24 hours ago.
It wasn’t just rates markets in focus yesterday. Risk assets
were also front and centre after a weak session across the board.
European equities slid (Stoxx 600 -0.74%, Dax -1.17%) following a
weak Asia session post the China data, while Xover leaked 11bps
wider. Mid-afternoon, with markets still digesting the soft retail
sales data a couple of hours prior, US retail giant Wal-Mart then
weighed in, sending US equities tumbling after slashing its profit
forecast for the fiscal year ahead. The company announced that it
expects earnings to decline 6% to 12% in the next fiscal year,
impacted by a higher wage bill and investments in ecommerce. The
guidance came as a shock to the market after street consensus was
expecting a 4% profit gain in the period. Wal-Mart’s share price
plunged 10% on the news and the most since 1988, helping to fuel
moves lower for the S&P 500 (-0.47%) and Dow (-0.92%) while in
credit markets CDX IG ended just shy of a couple basis points
wider.
It’s been a much more positive start in markets in Asia this
morning, shrugging aside the weakness in US stocks and seemingly
buoyed by yesterday’s soft US data fueling expectations that the
Fed will stay put for some time. In China the Shanghai Comp and CSI
300 are up +1.40% and +1.43% respectively, while in Japan the
Nikkei is +1.43%. The Hang Seng (+2.16%), Kospi (+1.11%) and ASX
(+0.62%) have also seen gains this morning, while the Bank of Korea
has kept rates on hold as expected, but at the same time lowered
its growth and inflation forecasts for this year and next. S&P
500 futures are pointing towards a positive start, up half a
percent, while Asia credit is 5bps tighter this morning.
Moving on, after some concerns in the JP Morgan earnings
released late on Tuesday, there were better numbers to be had out
of both Bank of America and Wells Fargo, who both reported beats at
the profit and revenue lines yesterday in their latest quarterly
report. Meanwhile Netflix was the notable reporter after market
hours, missing at both levels after disappointing the market on the
number of domestic subscribers added during the quarter.
There was more Fedspeak for us yesterday too with Lacker the
latest Fed official to speak. In an interview with Fox, the
Richmond Fed President said the latest retail sales data did not
change his fundamental outlook and while he wasn’t certain if the
Fed would raise in October, his overall views haven’t changed much
from September, noting in particular that real interest rates
should probably be higher.
Staying on the Fed, the release of the Beige Book yesterday
didn’t offer too many surprises. Of particular note however was the
mention from some districts of pressure in manufacturing activity
which was said to have ‘turned in a mixed but generally weaker
performance’, largely impacted by the stronger dollar. Consumer
spending was said to have grown modestly, while price pressures
were said to be ‘contained’. While nine of the twelve districts
reported modest of moderate growth, concerning was the mention of
wage gains being just ‘mostly subdued’.
Wrapping up yesterday’s data, over in Europe we saw Euro area IP
print in line at -0.5% mom in August, dragging the YoY rate down to
+0.9%. With regards to the inflation numbers, France reported an as
expected -0.4% mom headline print, which resulted in the YoY rate
staying at a still very low 0.0%. Meanwhile Spain reported a -0.3%
mom headline decline, in line with Bloomberg estimates and with the
YoY rate unchanged at -0.9%. Elsewhere, in the UK the latest
employment report was largely good news. The ILO unemployment rate
fell one-tenth to 5.4% in the three months to August, the lowest
level since June 2008. Employment rose 140k, however average weekly
earnings were up less than expected (+3.0% vs. +3.1% expected) over
the three months, a rise of one-tenth.
Looking at the day ahead, with nothing of note in Europe this
morning its all eyes on the US this afternoon with the September
CPI print the highlight. Consensus estimates are for a soft
headline reading (-0.2% mom) which will be enough to drag the YoY
back into deflationary territory at -0.1%. Estimates for the core
are running at +0.1% mom, with the YoY rate unchanged at +1.8%.
Away from this, we’ll also get initial jobless claims, October
empire manufacturing, average weekly earnings, the Philly Fed
business outlook print and the September monthly budget statement
later tonight. Fedspeak wise we are due to hear from Bullard and
Dudley, both due to speak at 3.30pm BST, followed by Mester later
tonight (due 9.30pm BST). On the earnings front, Goldman Sachs and
Citigroup are the banks due to report in the early afternoon, while
Schlumberger (after the close) will be worth keeping an eye on as
an early indicator into the energy sector.