After weeks of overnight turbulence following every twist and
turn in the Greek drama, this morning has seen a scarcity of mostly
gap up (or NYSE-breakding "down") moves, and S&P500 futures are
unchanged as of this moment however the Nasdaq is looking set for
another record high at the open after last night's better than
expected GOOG results which sent the stop higher by 11% of over $40
billion in market cap. We expect this not to last very long as the
traditional no volume, USDJPY-levitation driven buying of ES will
surely resume once US algos wake up and launch the self-trading
spoof programs. More importantly: a red close on Friday is not
exactly permitted by the central planners.
Light newsflow has failed to provide European equities with any
substantial direction (Euro Stoxx: -0.1%). Market attention will be
on today's German parliamentary vote on Greek reforms which is said
to conclude at around 1200BST/0600CDT and is widely expected to be
approved: after all the ECB needs to be paid with money effectively
from the ECB.
Bunds have outperformed their US counterparts during the
European session, undertaking a bid tone this morning as some desks
attribute the move to the aforementioned German vote, despite
expectations for the vote to comfortably pass.
Asian equities traded mostly higher taking a positive lead from
Wall Street , where the Nasdaq-100 reached 15-yr highs following
strong earnings from Netflix and Google, with latter rising by 12%
in after-market trade. Hang Seng (+1.0%) and Shanghai Comp. (+3.5%)
outperformed following reports that China Securities Finance Co.
won CNY 2trl worth of credit to support Chinese stocks. Nikkei-225
(+0.3%) rose, with the index now on course to post its best week
since Nov'14. Finally, JGBs gained overnight with the BoJ
conducting its large purchase program.
In FX, central bankers remain in focus heading into the final
session of the week, as has been the case throughout the week, with
GBP/USD the notable outperformer at one point rising by over 50
pips this morning as European participants react to further hawkish
comments by BoE's Carney from last night, who stated UK interest
rates could rise "at the turn of this year". As such, EUR/GBP has
continued its recent decline reaching its lowest level since
2007.
Elsewhere, the USD-index resides in modest negative territory
(-0.1%) to come off its recent highs which came on the back of
hawkish comments from Fed's Yellen in her semi-annual testimony to
congress over the past 2 days.
In terms of Asian-Pacific currencies, USD/JPY broke above the
124.00 handle to trade at its highest level for almost a month,
while NZD/USD came off its multi-year lows after finding support at
the 0.6500 level, which provided some respite following the
continued decline which saw the pair fall by over 2 points in the
past 2 days.
In the commodity complex price action has been relatively
subdued with the exception of copper and platinum, with the latter
falling to 6.5 year lows after dipping below USD 1,000/oz. Copper
futures slid after the crossover of its 50 and 100DMA, followed by
the overlap of the 100 and 200DMA to exacerbate the move to the
downside. While the energy complex has seen WTI (+USD 0.14) and
Brent crude (+USD 0.02) reside in neutral territory which a lack of
fundamental catalysts driving much direction in prices.
Looking ahead, today sees US CPI, housing starts, building
permits and University of Michigan preliminary reading as well as
comments from Fed's Fischer and Canadian CPI.
Bulletin Headline Summary
GBP/USD is the notable outperformer as European participants
react to last nights comments by BoE's Carney.
The USD-index resides in modest negative territory to pare some
of its Fed's Yellen semi-annual testimony inspired gains.
US CPI, housing starts, building permits and University of
Michigan preliminary reading, Canadian CPI and comments from Fed's
Fischer.
Treasury curve flattens in overnight trading sending 5/30 curve
(+143bps) to its lowest level since June 16 ahead of today’s CPI
release.
Flattening of 5/30 curve a reflection of lower commodity prices
indicating lack of inflation and willingness by bond investors to
set-up for a rate hike in September, ED&F Man head strategist
Tom di Galoma says in note
Wherever you look, central bankers are moving markets with ECB
support for Greece and stimulus measures spurring gains in bonds;
signs Britain is moving closer to raising interest rates sending
the pound to a seven-year high
It’s become more difficult to buy and sell securities as
Greece’s financial crisis curbs risk taking and dealers scale back
trading activity to meet regulations introduced since the financial
crisis
China has created what amounts to a state-run margin trader
with $483 billion of firepower, its latest effort to end a
stock-market rout that threatens to drag down economic growth and
erode confidence in the government
Bank of England Governor Mark Carney said the end of record-
low interest rates is in sight and the time for such a move will
become much clearer by the end of the year
The European Union’s 7 billion-euro ($7.6 billion) loan to keep
Greece afloat until its full bailout is approved will have two
layers of guarantees and will be finalized by midday in
Brussels
Growing dissent in Chancellor Angela Merkel’s party bloc makes
the lower-house vote on Friday the latest test of her struggle to
persuade Germans that Greece is still worth helping
IMF’s Lagarde states Greece needs debt forgiveness
Sovereign 10Y bond yields mostly lower, led by Greek 10Y
(-26bps). European stocks mixed, Asia rises, U.S. equity- index
futures mixed. Crude oil, copper and gold fall
US Event Calendar
8:30am: Housing Starts, June, est. 1.106m (prior 1.036m)
Housing Starts, June, 6.7% (prior -11.1%)
Building Permits, June, est. 1.150m (prior 1.275m, revised
1.250m)
Building Permits, June, est. -8.0% (prior 11.8%, revised
9.6%)
8:30am: CPI, June, est. 0.3% (prior 0.4%)
CPI Ex Food and Energy, June, est. 0.2% (prior 0.1%)
CPI y/y, June, est. 0.1% (prior 0%)
CPI Ex Food and Energy y/y, June, est. 1.8% (prior 1.7%)
CPI Index NSA, June, est. 238.632 (prior 237.805)
CPI Core Index SA, June, est. 242.098 (prior 241.76)
Real Avg Weekly Earnings y/y, June (prior 2.2%)
10:00am: U. of Mich. Sentiment, July preliminary, est. 96
(prior 96.1)
U. of Mich. Current Conditions, July (prior 108.9)
U. of Mich. Expectations, July (prior 87.8)
U. of Mich. 1 Yr Inflation, July (prior 2.7%)
U. of Mich. 5-10 Yr Inflation, July (prior 2.6%)
DB's Jim Reid completes the overnight event recap
A combination of decent US earnings and more progress in Greece,
including the news that EU Finance Ministers have agreed in
principle to a bridge loan helped propel equity markets higher on
both sides of the pond yesterday. Indeed in Europe the Stoxx 600
closed up +1.35%, a seventh consecutive daily gain and helping to
cap its longest winning streak since January having rebounded 8.8%
now off the early July lows. There were similar gains for the DAX
(+1.53%), CAC (+1.47%), IBEX (+1.54%) and FTSE MIB (+1.67%) too.
Over in the US the S&P 500 finished up +0.80% to take it back
to within just 0.3% of its all-time high, while the NASDAQ (+1.26%)
went one better to close at a record high as earnings out of
Netflix and eBay helped cap a good day for equity bulls.
Before we dig deeper, with the exception of China it’s been a
fairly subdued end to the week across bourses in Asia this morning.
Chinese equities are on track to close the week on a positive note
however with the Shanghai Comp (+1.37%), Shenzhen (+2.64%) and CSI
300 (+1.56%) all up. The Nikkei (+0.05%) and ASX (-0.02%) are more
or less unchanged while the Kospi (-0.57%) has declined. Credit
markets across Asia, Japan and Australia are around 2bps tighter
while S&P 500 futures are flat. Meanwhile Treasuries are mostly
unchanged this morning while the Dollar index has dropped back a
touch (-0.2%).
Onto Greece now. On the back of the parliamentary approval late
Wednesday night, at yesterday’s ECB meeting we saw the Governing
Council approve a €900m increase to the ELA cap. The small increase
largely endorsed the improving but fragile picture with our
European colleagues expecting capital controls to remain until Q4
when the bank recapitalization has been completed but with the ECB
continuing to review ELA within its rules. For now the bank holiday
has been extended through July 19th. Away from the ELA update the
other headline yesterday was the news that EU Finance Ministers
have agreed in principle on a €7bn bridge loan for Greece from the
EFSF which will be needed to help repay €3.5bn of bonds to the ECB
on Monday. According to Bloomberg, the deal is expected to be
announced formally today after national parliaments have approved
the proposals (Bundestag is set to vote today). Meanwhile, there is
yet to be any response from Tsipras with regards to a cabinet
reshuffle following Wednesday’s vote although it’s possible that we
hear at any moment. For now it certainly feels like headlines are
abating and attention is slowly moving to events elsewhere.
Some of that attention is now turning to earnings in the US
which were generally better than expected on the whole yesterday
and helped support part of the better tone in markets. As well as
the contributions from the aforementioned tech names, Citigroup,
Intel (post market Wednesday), Philip Morris, Goldman Sachs and
UnitedHealth all reported beats, although the latter two did see
some weakness in the details which disappointed the market
slightly. Google meanwhile reported after the closing bell, with
results ahead of consensus and sending the share price 10% higher
in aftermarket trading.
It’s still early days so far but of the 52 S&P 500 companies
to have reported, 73% have beaten earnings expectations, although
the split is more 50/50 at the top line while the stronger Dollar
has continued to play out as a theme for a number of the corporates
this reporting period.
Elsewhere, there was little new to report from Fed Yellen’s
testimony in front of the Senate yesterday which largely reflected
her speech on Wednesday, including that she favours tightening in a
‘prudent and gradual manner’.10y Treasuries did end the day more or
less unchanged (-0.2bps) at 2.351% while the Dollar index firmed
for a second consecutive session, closing +0.52%. In terms of the
data flow in the US, initial jobless claims declined for the first
time in four weeks, falling 15k to 281k (vs. 285k expected), the
19th consecutive week below 300k now. The NAHB housing market index
was unchanged for July at 60 (vs. 59 expected), however the
Philadelphia Fed business outlook dropped in July (5.7 vs. 12.0
expected) having bounced to 15.2 in June with both new orders and
the employment index down.
Over in the Europe meanwhile 10y Bunds also had a quiet session,
closing 0.5bps higher at 0.831%. Led by a tightening across the
Greek curve, 10y yields in Spain (-3.7bps), Italy (-1.5bps) and
Portugal (-1.5bps) all finished tighter. Credit markets also
continued to rebound with Crossover and Main 11bps and 3bps tighter
respectively. There were signs yesterday too of the primary market
for European credit coming back to life having stalled with the
volatility around Greece after a couple of decent sized bond issues
yesterday.
Aside from the obvious focus on Greece, there was no change in
the ECB’s monetary policy stance yesterday. The Governing Council
reiterated their ability to use all instruments available within
its mandate in the face of any material change in the outlook for
price stability while Draghi said that ‘economic risks have been
contained as a result of our monetary policy’ and the overall
picture of the economy was largely seen as unchanged. On the data
front, there were no revisions to the final Euro area CPI prints
for June at either the headline (+0.2% yoy) or the core (+0.8%
yoy). The May trade balance for the region showed a slightly
smaller than expected surplus (€21.2bn vs. €22.0bn expected).
Staying on the Central Bank theme, the Bank of England’s
Governor Carney was vocal once again, this time narrowing his time
frame slightly saying that ‘the decision as to when to start such a
process of adjustment will likely come into sharper relief around
the turn of the year’. Carney also said that ‘interest rate
increases would proceed slowly and rise to a level in the medium
term that is perhaps about half as high as historic averages’. The
Governor did cite risks to the world outlook from Greece and China,
saying that ‘we can expect the global economy to proceed at a
solid, not spectacular pace’. His comments came post market close,
with 10y Gilts earlier finishing 4bps tighter at 2.075%. Sterling
saw a modest spike up following the comments, but pared those moves
to finish down 0.19% versus the Dollar.
Looking at today’s calendar now, it’s a particularly quiet
morning in Europe with no significant data due with the focus
likely to be on further Greek developments and the Bundestag vote.
It’s all eyes on the US this afternoon however where we get the
June CPI report with our US colleagues expecting higher energy
costs to help push the headline up +0.3% (in line with market) in
the month. At the core, the market is looking for a +0.2% mom
reading. Along with the inflation numbers, average weekly earnings
are also expected along with housing starts, building permits and
the July University of Michigan consumer sentiment print.
