While the US daytime trading session has lately become a
desperate attempt to expand multiples on the declining earnings of
the S&P500, thanks to recurring BOJ intervention in the USDJPY,
to keep the S&P above the 100 SMA at all costs including
generous central banker verbal intervention...
... then it is during the US overnight session when global
deflationary reality reasserts itself with a vengeance, and sure
enough at last check, the 10 Year has rallied with 10Y yield
hitting 1.71% before this morning’s 4Q GDP release, as well as
following the latest deflation number of -0.6% out of Europe (worse
than the -0.5% expected) which was the biggest price decline on the
continent since 2009. "Treasuries remained well bid overnight
due to month-end index adjustments. Some talk of a
reallocation from equities to bonds trade going through in both
Asia and continuing in Europe," ED&F Man head of rates and
credit trading Tom di Galoma wrote in a note to explain the latest
Great Unrotation, if only until the Virtu HFT algos get the full
blessing of the Fed to ramp the USDJPY, and thus the stock
market.
The overnight session started on the right foot, with Asian
equities trading mostly higher in the final trading day of the week
and month with the exception of Chinese bourses, as the ongoing
margin trade crackdown continues to weigh on sentiment.
Consequently, the Shanghai Comp (-1.6%) is now on course
for its biggest weekly loss since the Dec’13and the Hang
Seng (-0.4%) relatively flat. Elsewhere, the Nikkei 225 (+0.4%) is
headed for a monthly gain while the ASX 200 (+0.7%) rose above
5,600 for the first time since Sep’14 amid increasing expectations
of a rate cut by the RBA next week.
Likewise in Europe, the session saw equities open higher after
the positive Wall Street close last night,
however through the morning European equities have retraced
these gains in line with US Index futures. The session
underperformer has been the FTSE, with supermarkets Sainsbury’s
(-1.5%) and Morrison’s (-1.2%) weighing on the index after comments
from UK Secretary of State for Business Vince Cable yesterday
proposing fines of up to 1% of turnover with regards to concerns
about supermarket treatment of suppliers. Elsewhere, Banca Monte
Paschi (-6.15%) are one of Europe’s laggards today after reports
that the Italian bank is contemplating a EUR 1bln capital
boost.
In terms of US equities, aftermarket earnings showed Google miss
expectation on EPS, while Visa and Amazon both beat. The European
morning has seen reports that Alibaba's financial branch are said
to IPO in 2016, with the unit valued around USD 50bln. While pre
market we’ll see earnings from as well as earnings pre market from
Mastercard, AbbVie and Chevron.
Fixed income markets have today seen T-Notes outperform their
European counterpart, underpinned by lower US equity futures,
indicative of lower open on Wall Street. In Europe, BTPs outperform
on the back of strong demand said to be from touted domestic
buyers, with analysts at IFR note that month-end is contributing to
BTPs strength with the Italian bond contributing the most to this
month’s extensions.
In FX markets, today has seen similar price action in EUR/CHF as
was Monday, whereby the cross rose quickly before paring the move
shortly after,
today breaking the 1.05 handle to the upside to its highest
levels since the SNB intervention and to trade around levels that
some speculate the SNB is comfortable with. As we wrote
yesterday, this is most likely an SNB month-end window-dressing
trade seeking to make the EURCHF P&L losses on its balance
sheet appear more manageable. Another move of note is that of the
RUB, which weakened ahead of the Central Bank rate decision.
Despite 31 out of 32 analysts expecting rates to be held, the rate
was cut by 200 bps which saw USD/RUB break above 70.00.
The commodity complex has ebbed higher today after experiencing
recent weakness. However, despite trading in positive territory on
the day, WTI crude futures remain on track to reach the longest run
of monthly losses since January 2009. News today has seen Libyan
oil minister state that the country’s Es Sider port has 2.5mln bbl
in storage tanks, with Ran Lanuf also with over 2mln bbl. The
minister also stated that Libya oil refineries are processing
approximately 150k bpd.
Elsewhere, the precious metals are in the green as gold retraces
from recent two week lows. Interestingly, after the month in which
SNB removed their floor and ECB announced a QE package over EUR
1trl, the yellow metal is on track for the biggest monthly gain
since 2011.
Bulletin Headline Summary from RanSquawk and
Bloomberg
Volatility in EUR/CHF this morning has renewed speculation of
SNB intervention, as the cross trades at levels in which some
suggest the central bank may be comfortable with
The commodity complex has ebbed higher today after experiencing
recent weakness. However, despite trading in positive territory on
the day, WTI crude futures remain on track to reach the longest run
of monthly losses since January 2009
Looking ahead, this afternoon sees GDP from Canada and the US,
with Chicago Purchase Manager and the final reading University of
Michigan Sentiment data released, as well as pre market earnings
from Mastercard, AbbVie and Chevron.
Russia’s central bank lowered its main interest rate as concern
over a looming recession took precedence over stabilizing the
ruble and taming runaway inflation. The ruble weakened beyond 70
against the dollar
European Union governments moved toward imposing further
economic sanctions on Russia, casting a pall over plans to resume
talks Friday in Belarus over the conflict in Ukraine
Mario Draghi’s deflation challenge was underlined on Friday
with prices plunging at a pace last seen in the depths of the
recession in 2009
Spain’s economy expanded at its fastest pace in seven years in
the fourth quarter as lower prices helped boost domestic
demand
Prime Minister Alexis Tsipras promised not to spring any
surprises on Greece’s troika of official creditors in the first
face-to-face meeting with European officials since his Jan. 25
election victory
Finance Minister Yanis Varoufakis said he’s not interested in
persuading Greece’s official creditors to release the final €7b
($8b) of bailout funds as Eurogroup Chief Jeroen Dijsselbloem
headed to Athens for talks on Friday
Sovereign yields mostly lower, Greece 10Y falls 15bps to
10.02% Portugal, Spain and Italy also lower. Asian stocks
mostly higher; European stocks mixed, U.S. equity-index
futures gain. Brent, WTI and gold rise; copper gains
US Economic Calendar
8:30am: Q4 GDP Annualized, 4Q Advance, est. 3% (prior 5%)
Personal Consumption, 4Q, est. 4% (prior 3.2%)
GDP Price Index, 4Q, est. 0.9% (prior 1.4%)
Core PCE, 4Q, est. 1.1% (prior 1.4%)
9:00am: ISM Milwaukee, Jan., est. 58 (prior 57.61)
9:45am: Chicago Purchasing Manager, Jan., est. 57.5 (prior
58.3, revised 58.8)
10:00am: U. of Mich. Sentiment, Jan. final, est. 98.2 (prior
98.2)
DB's Jim Reid concludes with the comprehensive overnight
summary
Today sees the business end of a month I'd like to see the back
of after a cracked rib and a snapped MCL and ACL. Markets have been
as wild as my skiing and we'll review it in full on Monday but its
not impossible that the S&P 500 will see a January decline
(currently -1.83%) whilst the DAX might see a 10% increase
(currently +9.51%). We've also seen a further sizeable fixed income
rally, big moves in currencies, the Swiss Franc shock, sizeable
Euro QE announced and the historic Greek election results.
Expect to see people discussing the January effect and its
impact on the rest of the year. A good January has usually (but not
always) been associated with a good year for US equities. Indeed
using 87 years of data from Bloomberg, there have been 55 positive
Januaries with 44 of those going on to have positive years with an
average increase of about +20%. Of the 32 negative January months
that we've had since 1928, 'only' 14 of those went on to finish the
year higher in the end with average annual returns of around +14%.
The remaining 18 negative Januaries were associated with a negative
full year performance with an average return of around -14%.
Clearly past performance doesn't guarantee future returns and its a
bit spurious but its always fun to look at. Indeed post crisis
we've seen a few counter trend moves as three years (2014, 2010 and
2009) have seen the year bounce back from a bad January
performance.
Yesterday’s +0.95% return for the S&P 500 was a welcome one
for equity bulls following two previous sessions of 1%+ declines.
The closing level actually hid what was a decent rebound off the
intraday lows as markets initially traded down 0.6% with energy
stocks trading weaker. A bounce in both WTI and Brent (+0.18% and
+1.36% respectively at the close) helped the energy component
finish in the green (+0.17%). Just on the subject of oil, we saw
signs of a further subdued outlook at the micro level as
ConocoPhillips reported that it plans to cut capex by 30% this year
following its Q4 earnings report which also saw them post a
quarterly loss. Meanwhile over in Europe, Royal Dutch Shell
yesterday announced that they will reduce investment spending by
$15bn over the next three years. Back to the US, macro data
yesterday also helped support a better tone through the day. The
initial jobless claims print in particular was strong. The 265k
reading came in well ahead of expectations (300k) and was down over
40k from the previous reading. In fact the print was the lowest
since April 2000 and helped drag the four-week average back below
300k to 298.5k although it’s worth pointing out that last week was
a holiday-shortened week. Pending home sales on the other hand were
weak with the -3.7% mom reading well below the +0.5% expected.
Treasuries gave up some of the previous day’s gains with the 10y
benchmark finishing 3bps higher at 1.751%. The theme of Dollar
strength continues however as the DXY rose a further +0.23%.
Turning our attention to the latest Greek developments, the ASE
closed +3.16% firmer and 10y Greek yields rallied some 21bps as
rhetoric out of Euro-area officials helped lift sentiment.
Yesterday’s meeting between PM Tsipras and the European Parliament
President Schultz appeared to yield some supportive comments.
Specifically Schultz was reported on Reuters as saying ‘I have seen
that the government of Alexis Tsipras is not thinking about going
it alone, it wants to make proposals and it wants these proposals
to be discussed with partners’ as well as saying that ‘it’s
important that he wants to find common ground with his peers’.
Today we see the Eurogroup President Dijsselbloem meet with both
finance minister Varoufakis and Deputy PM Dragasakis. This will
come after comments from the Eurogroup President who yesterday was
quoted on Bloomberg saying that ‘we want to keep Greece in the euro
zone, the EU, but that also requires Greeks to meet their
commitments’.
There was also some commentary out of ECB officials yesterday,
unsurprisingly skewed towards the cautious side. In a Bloomberg
report the ECB’s Jazbec was quoted as saying that the new Greek
government is sending ‘very mixed signals’ and that ‘it’s too early
to directly answer questions on when and how the ECB can buy Greek
government bonds’. Meanwhile, the ECB’s Nouy was quoted in the
Greek press saying that although ‘a lot of good work has been done
to strengthen Greek banks balance sheets’ that the country’s
lenders still ‘need to manage, in a conservative fashion, their
liquidity positions’. DB’s resident expert George Saravelos
yesterday summarized the latest developments since Greece’s
election on Sunday in a note. George writes that developments and
pressure on Greece have accelerated over the last few days, with a
very large degree of uncertainty around both the Greek government’s
and Troika’s position on how negotiations will proceed. George
expects this to ultimately be resolved by a Troika request from the
Greek side to commit to program completion and the broad contours
of previously committed policy, particularly with regard to
structural reform. The ECB/ELA financing of Greek banks however
will likely determine the path Greece takes. In terms of what to
look out for next week, finance minister Varoufakis will be meeting
with various European finance ministers early on before we have
Wednesday’s bi-weekly review of the ELA facility and then Greek
parliament opening on Thursday.
In terms of the rest of Europe yesterday, the Stoxx 600 finished
-0.09% although both the DAX (+0.25%) and CAC (+0.44%) closed
firmer after trading between gains and losses for most of the
session. There was similar volatility in fixed income markets
although 10y Bunds closed relatively unchanged at 0.359% whilst
peripheral yields finished 1-2bps wider. Away from Greece, German
inflation caught the headlines after the region reported a -0.3%
yoy headline reading, below expectations (-0.1%) and down from
+0.2% previously. Our European colleagues noted that energy prices
falling 9% were in line with the oil price and exchange rate
movements whilst food price inflation was largely unchanged.
Instead they expect that the softer number is largely as a result
of lower core inflation which they estimate to have fallen to +1.1%
yoy from +1.3% previously. In terms of the rest of the data
yesterday, Spanish retail sales bounced (+6.5% yoy from +1.9%
previously), German unemployment was unchanged at 6.5% and Eurozone
money supply ticked up a notch to 3.6% yoy (from 3.1%). Confidence
indicators for the Euro-area meanwhile were largely in line with
consensus.
Wrapping up yesterday’s news, it was perhaps only appropriate
after our review of Central Banks in yesterdays EMR for Denmark to
announce another cut to their deposit rate. The Nationalbanken
eased a further 15bps to take the deposit rate to -0.5%, the third
easing in ten days with the Central Bank looking to defend the
Krone. Elsewhere the FT reported that EU ministers yesterday failed
to agree on further sanctions to be placed on Russia over the
conflict in Ukraine. In an emergency meeting, the EU instead
instructed the European Commission to provide more prep work around
‘appropriate action’ with a final say likely to come at a summit on
February 12th
