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Global Stocks Rise Ahead Of Much Anticipated Speeches By Yellen, Draghi

Courtesy of ZeroHedge. View original post here.

Global markets are stuck in a holding pattern with S&P futures up modestly after fluctuating overnight, as European and Asian shares rise with oil while the dollar has dipped lower ahead of the biggest central bank event of the year: the Fed's Jackson Hole symposium where Janet Yellen and Mario Draghi will speak at 10am and 3pm ET, respectively. Meanwhile, world stocks drifted toward their best week in six on Friday, as a near three-year high in emerging markets shares and a roaring rally in industrial metals bolstered the year’s global bull run.

US futures got a marginal boost by comments from Gary Cohn before the FT shortly after 5am ET, pushing back against suggestions he will leave the White House and confirming another push for tax reform.

European Stocks were mixed for much of the morning session before edging higher, with gains for miners eclipsing retailer declines in the wake of Amazon's announcement it would cut Whole Foods prices on Monday in the Stoxx Europe 600 Index.

As discussed over the past week, the only show in town over the next couple of days is the Yellen and Draghi show at the Jackson Hole symposium (today's agenda here). They talk at 10am and then 3pm (EST/NY time). As for Yellen it seems the swing factor is whether the Fed is placing greater weight on very loose financial conditions and financial stability concerns over any supposed short term soft inflation numbers. Deutsche Bank yesterday published a piece re-visiting Yellen’s July 2014 speech on “Monetary Policy and Financial Stability” as a benchmark for assessing any changes in her views on the topic. The bank suggests that there is an interesting parallel between today and mid-2014 when Yellen delivered that speech. Then, as now, financial conditions were very loose. Yet despite easy financial conditions at the time, Yellen's speech concluded that the nature and magnitude of financial stability considerations as of mid-2014 were insufficient to justify tighter monetary policy. The key question for markets is whether enough has changed since July 2014 for Yellen to reach a different conclusion and send a more hawkish signal about the future monetary policy path at Jackson Hole?

“Will financial-stability concerns prompt the Fed to hike, even when inflation is so low? This is what the market wants to know,” John Cairns, a strategist at Rand Merchant Bank in Johannesburg, wrote in a client note. “With little else to focus on, the market has morphed the symposium into a colossus. Risks are two-way: Yellen could take the hike off the table, or reaffirm it.”

In macro, the yen was heading for its worst week since July 7 as traders awaited clues on pace of monetary tightening from central bankers at Jackson Hole and as tensions ease on the Korean peninsula.

In Asia, Japan’s Topix index closed 0.3% higher with volume on the gauge about 20 percent below its 30-day intraday average. The S&P/ASX 200 Index in Sydney fluctuated before finishing little changed and South Korea’s Kospi index rose 0.1 percent. The Hang Seng Index in Hong Kong added 1 percent and the Shanghai Composite Index advanced 1.7 percent. The MSCI Asia Pacific Index rose 0.2 percent.

Curiously, 10Y JGB Yields slid back and were just above 0% even as the Bank of Japan cut back on purchases of five-to-10 year JGBs for a second time this month, this time from JPY440BN to 410BN, encouraged by a decline in the benchmark yield.

Offshore yuan trades near strongest in 11 months, while won halts 4-day gain. The pound headed for its fourth consecutive weekly decline against dollar, its longest losing streak since Jan. 2015, as concerns over Brexit negotiations and tepid economic data weighed on U.K. currency. Bund futures edge lower, small widening seen in semi-core EGBs, with a large bund block printed vs cash OATs catching some focus

In commodities, oil prices rose on expectations that U.S. production could be hit by what looks set to be one of the strongest hurricanes in more than a decade. Hurricane Harvey as it has been named, is packing winds of up to 125 miles per hour (200 km per hour), and is forecast to drive a surge in sea levels as high as 12 feet (3.7 meters) and dump up to 35 inches (97 cm) of rain over parts of Texas. .S. crude futures rose 0.7 percent to $47.75 a barrel, and global benchmark Brent advanced 0.7 percent to $52.41. They had fallen as much as 2 percent on Thursday as refiners in the path of Harvey shuttered production.

Industrial metals are headed for a dazzling week, with copper remaining near a three-year high hit on Thursday on signs of stronger demand in top consumer China while inventories in London warehouses fell. Nickel which is used in stainless steel was up more than 6 percent for the week and benchmark Chinese iron ore futures DCIOcv1 were up for an eighth straight week. Gold meanwhile was up slightly at $1,287.07 an ounce, heading for a 0.2 percent gain for the week.

As discussed over the past week, the only show in town over the next couple of days is the Yellen and Draghi show at the Jackson Hole symposium (today's agenda here). They talk at 10am and then 3pm (EST/NY time). As for Yellen it seems the swing factor is whether the Fed is placing greater weight on very loose financial conditions and financial stability concerns over any supposed short term soft inflation numbers. Deutsche Bank yesterday published a piece re-visiting Yellen’s July 2014 speech on “Monetary Policy and Financial Stability” as a benchmark for assessing any changes in her views on the topic. The bank suggests that there is an interesting parallel between today and mid-2014 when Yellen delivered that speech. Then, as now, financial conditions were very loose. Yet despite easy financial conditions at the time, Yellen's speech concluded that the nature and magnitude of financial stability considerations as of mid-2014 were insufficient to justify tighter monetary policy. The key question for markets is whether enough has changed since July 2014 for Yellen to reach a different conclusion and send a more hawkish signal about the future monetary policy path at Jackson Hole?

Economic data include durable goods orders. Big Lots is reporting earnings.

Bulletin headline summary from RanSquawk

  • European retailers underperform as Amazon plans to cut Whole Foods prices.
  • EUR slightly firmer after firm IFO data.
  • Looking ahead highlights include comments from Fed Chair Yellen and ECB President Draghi.

Market Snapshot

  • S&P 500 futures up 0.24% to 2,447
  • VIX down 2.13% to 11.93
  • STOXX Europe 600 up 0.3% to 375.51
  • Brent futures up 0.7% to $52.39/bbl
  • Gold spot up 0.2% to $1,288.43
  • U.S. Dollar Index little changed at 93.26
  • MSCI Asia up 0.2% to 160.35
  • MXAPJ up 0.3% to 532.06
  • Nikkei up 0.5% to 19,452.61
  • Topix up 0.3% to 1,596.99
  • Hang Seng Index up 1.2% to 27,848.16
  • Shanghai Composite up 1.8% to 3,331.52
  • Sensex up 0.09% to 31,596.06
  • Australia S&P/ASX 200 down 0.03% to 5,743.86
  • Kospi up 0.1% to 2,378.51
  • German 10Y yield rose 1.9 bps to 0.395%
  • Euro unchanged at $1.1799
  • US 10Y Yield unchanged at 2.19%
  • Italian 10Y yield fell 0.8 bps to 1.819%
  • Spanish 10Y yield rose 1.7 bps to 1.615%

Top Overnight News from BBG

  • Jackson Hole is one of the most anticipated central-bank events on the calendar, even though it’s been five years since it delivered anything resembling a policy prescription
  • While traders are keyed up for any policy signals in Mario Draghi’s speech, he is unlikely to declare mission accomplished just yet, as after more than 2 trillion euros of QE, inflation is still below the ECB’s goal and officials are nervous that bullish comments might spark unwarranted market tightening
  • Dollar bulls are defying the currency’s longest monthly-losing streak in six years by adding to wagers it will strengthen
  • The Bank of Japan may scale back its bond buying next week after the debt market rallied, undeterred by a second reduction this month in the central bank’s purchases of five-to-10 year securities
  • Harvey Strengthens as Gasoline Surges on Texas Refinery Threat
  • Executives Warn MiFID Has Firms Caught Like ‘Deer in Headlights’
  • JPMorgan’s Frenkel: More Risk in Fed Delaying Than Hiking Early
  • Smartphone Maker HTC Is Said to Explore Strategic Options
  • Draghi Has Reason to Temper the Drama in Jackson Hole Sequel
  • U.S. Is Said to Plan New Venezuela Sanctions Announcement Friday
  • Trump Battle for Wall Money Squeezed by Deadline for Debt Limit
  • Trump to Rally Public on Taxes as Republicans Hash Out Details
  • Amazon’s Price Cuts on Kale Leave Rivals Bracing for Impact
  • Higher Home Prices Risk Closing Door on U.S. Housing Momentum
  • German Business Confidence Weakens Even as Economy Forges Ahead
  • China’s 1st Bond Workout With 78% Haircut Ushers in New Era

Asian stocks shrugged off the negative lead from Wall Street and traded mostly higher, while full focus remained on the key central bank speakers at Jackson Hole. ASX 200 (Unch.) underperformed amid weakness in financials and property names, while Nikkei 225 (+0.5%) coat-tailed on the recent USD/JPY advance after Japan reported inflation in line with expectations. The KOSPI (+0.1%) was cautious as South Korea awaited the fate of Samsung Electronics' Vice Chairman Jay Y Lee, who as reported earlier received a 5 year prison sentence which weighted modestly on the index's largest weighted company. Elsewhere, Shanghai Comp. (+1.83%) and Hang Seng (+1.2%) gained despite the PBoC refraining from operations for a 2nd consecutive day and draining a net CNY 330b1n for the week, with outperformance observed in Li & Fung, PetroChina and CNOOC after strong earnings results. Finally, 10yr JGBs ignored the positive risk sentiment and reduced buying operation by the BoJ, with prices mildly supported amid the backdrop of falling yields. PBoC skipped open market operations, for a net weekly drain of CNY 330BN vs. last week's CNY 110BN net injection.

Top Asian News

  • HNA Is Raising Billions From Shadow Banks That Worry Beijing
  • Last Independent Azeri News Service to Stop Work Amid Crackdown
  • Shanghai Steel Coil on Record Run as Investors Shrug Off Curbs
  • Philippines’ Espenilla Says Hard to Say If Worst Over For Peso
  • Someone Just Made a Giant Bet on Korean Sovereign Bonds
  • Japan CPI Sends BOJ Clear Message While U.S. Data Raises Doubts
  • Japan Stuck in Inflation Doldrums as Core CPI Inches Up to 0.5%
  • Japan Shares Rise as Autos, Banks Climb Ahead of Jackson Hole
  • Best Run in 11 Years Beckons for Metals as China Drives Rally

European equities made marginal gains amid an air of caution ahead of Yellen and Draghi's speeches at the Jackson Hole Symposium. However, retailers are coming under pressure after Amazon announced its plan to cut prices at Whole Foods, subsequently shares in Ahold Delhaize, Carrefour, Tesco and Sainsbury's are among the worst performers. Bunds pressured following the aforementioned better than expected IFO data, in turn, 10Y yields are ticking higher by over 2bps. The German curve also bear steepening this morning, while peripheral spreads are slightly outperforming core debt.

Top European News

  • German Spending Puts Economy on Track for Best Year Since 2011
  • Merkel Faces Volatile Coalition Options If Election Goes Her Way
  • Opposition Leader Resigns in Sweden One Year Ahead of Election
  • Eurocash Turns to Unexpected Loss on VAT Fraud Payout
  • World’s Cheapest Currency Lira Has Goldman, BlueBay on Its Side

In currencies, the USD/JPY traded in a narrow range as Japanese CPI traded in line with expectations but still far below the Bank of Japan's target. Comments from the Japanese economy minister also failed to give any firm direction ahead of the Jackson Hole Symposium, where ECB President Draghi and Fed Chair Yellen are scheduled to speak. Some suggestion of Gotobi¬weekend demand was said to be supporting USD/JPY at the Tokyo fix, while there is also large-sized options expiring at 110.00 (1.93BN) today. EUR/USD also traded in a tight range throughout the Asia-Pac session ahead of the central bank speakers. Some suggestion in the Asia-Pac session that the ECB could vote to end QE on October 26th but that stemmed from RND News, a little known news service and so maybe didn't get as much focus as if it had come from a more reputable source. The range in GBP/USD was just 20 pips in the Asia-Pac session with little interest in the pair amid a lack of UK news and data. Into the weekend there is bound to be comments on Brexit in the Sunday papers which could again catch focus on Monday as is often the case. AUD/USD hovered around 0.7900 in Asia-Pacific treading hours, again in a narrow range. In terms of commodity markets, copper traded on the LME reached a near 3-year high amid hopes for improving global growth.

In commodities, crude prices up 0.8% as large US refiners shut units in the Gulf of Mexico as they brace themselves for Hurricane Harvey, which is reported to be the strongest storm in 12 years.

Looking at the day ahead, we have the durable goods orders (-5.8% expected) and capital goods orders (0.3% expected) for July. Onto other events, Yellen and then Draghi will speak at Jackson Hole.

US Event Calendar

  • 8:30am: Durable Goods Orders, est. -6.0%, prior 6.4%; Durables Ex Transportation, est. 0.4%, prior 0.1%

    • Cap Goods Orders Nondef Ex Air, est. 0.35%, prior 0.0%; Cap Goods Ship Nondef Ex Air, est. 0.15%, prior 0.1%

DB's Jim Reid concludes the overnight wrap

It's all come round incredibly fast for me (less so for long suffering Trudi) but today is my last day before paternity leave. It's a bank holiday in the U.K on Monday so we're booked in to go to hospital on Tuesday to have the twins at just over 36 weeks. I'll be off for a couple of weeks unless I'm successful in my last minute negotiations with HR that twins surely merit a doubling of paternity leave to 4 weeks. Anyway you'll be in the safe hands of Craig and Jeff over the next couple of weeks. Although I'm hoping Craig is still prepared to help out after Liverpool beat his beloved Arsenal on Sunday.

Talking of double acts, the only show in town over the next couple of days is the Yellen and Draghi show at the Jackson Hole symposium. They talk at 10am and then 3pm (EST/NY time). As for Mrs Yellen it seems the swing factor is whether the Fed is placing greater weight on very loose financial conditions and financial stability concerns over any supposed short term soft inflation numbers. DB's Matt Luzzetti yesterday published a piece re-visiting Yellen’s July 2014 speech on “Monetary Policy and Financial Stability” as a benchmark for assessing any changes in her views on the topic. Matt suggests that there is an interesting parallel between today and mid-2014 when Yellen delivered that speech. Then, as now, financial conditions were very loose. Yet despite easy financial conditions at the time, Yellen's speech concluded that the nature and magnitude of financial stability considerations as of mid-2014 were insufficient to justify tighter monetary policy. The key question for markets is whether enough has changed since July 2014 for Yellen to reach a different conclusion and send a more hawkish signal about the future monetary policy path at Jackson Hole?

As for Mr Draghi, today is a mystery as to what he'll say but the odds have fallen sharply over the last few weeks that he'll say something new. DB’s Mark Wall concluded last week that his references to the Euro's climb might be the swing factor as to how dovish/hawkish he is. They conclude that a benign comment on the exchange rate — for example, accepting it as the outcome of market forces — would be hawkish relative to their baseline expectations. A more dovish tilt would be signalled if Draghi describes the exchange rate as “very important” or “significant”. Overall they think the need to avoid a EUR overshoot suggests the risks are tilted towards the dovish side.

Now onto the US debt ceiling which is now increasingly on the radar for markets. House speaker Paul Ryan is confident that the ceiling will be lifted saying “I’m not really worried about getting it done” and that “we pay our debts in this country”. For those that watch Game of Thrones you'll know that sounds familiar. Elsewhere, Trump’s relationship with Senate majority leader Mitch McConnell continue to be tense, with the President noting that raising the debt ceiling could have been much easier if Mitch followed his advice and lumped the debt proposal into the veteran affairs bill that was just passed. Instead, the process for raising the debt ceiling is “now a mess!” Post his tweet, the short dated Treasury bill maturing October 12 (around the time the Treasury is expected to run out of money unless there is a debt limit increase) increased by as much as 5bp.

Over in markets, US bourses softened yesterday on thin volumes. The S&P fell 0.21% while the Dow and the Nasdaq both dipped 0.1%. Within the S&P, most sectors were in the red, particularly the consumer staples sector (-1.34%) after Amazon said it will cut prices on “a selection of best-selling grocery staples” at Whole Foods stores from next Monday. European markets were slightly stronger, with the Stoxx 600 up 0.16% driven by gains in the utilities and materials sector. Across the region, the FTSE 100 (+0.33%), the Dax (+0.05%), CAC (-0.04%) and the Italian FTSE MIB rose +0.51% after three consecutive days of losses.

Bond yields increased in the US but were little changed in Europe. US bond yields were up c3bp (2Y: +2.5bp; 10Y: +3bp) across maturities. On the other side of the pond, core European bond yields were mixed but little changed, with bunds (2Y: -1bp; 10Y: unch), Gilts (2Y: -1bpbp; 10Y: -0.5bp) and French OATs (2Y: -1bp; 10Y: +0.4bp) mixed. Notably, Portugal’s 10Y yields continued to increase from its CY17 lows and was up 6bp to 2.819% yesterday.

Turning to currencies, changes were fairly minimal, with the US dollar index up 0.1% and Sterling/USD flat, while the Euro dipped 0.1% against the USD and Sterling. In commodities, WTI oil fell 2% yesterday as Hurricane Harvey approaches the oil refining hub at Texas, but prices have recovered c0.6% this morning. Precious metals were slightly lower (Gold -0.4%; Silver -0.7%) while base metals were little changed this morning (Zinc -0.04%, Aluminium -0.03%; Copper +1.3%).

This morning in Asia, markets have broadly strengthened, with the Nikkei up +0.60%, the Kospi +0.12%, the Hang Seng +0.68% and Chinese bourses up c +0.9%. Elsewhere, the Japanese July national core inflation reading was in line at 0.5% yoy, but remains well below BOJ’s 2% target.

In a prelude to Jackson Hole, Kansas City Fed chief George said another rate hike is possible this year, saying “based on what I see today, I think there’s still opportunity to do that (rate hike)’’. Conversely, Dallas Fed chief Kaplan reiterated his views that officials should be more patient and wait for signs of renewed inflation before raising rates. He noted that “I’m not saying we won’t act by the end of the year, but we have the ability to be patient”. Kaplan also noted that it would be hazardous to loosen banking regulations at a time of soaring asset prices. However, both were in favour of making an announcement in September on starting the balance sheet unwind.

Elsewhere, there were more mixed signals as to the momentum on Trump’s tax reform plans. Earlier this week, Bloomberg reported there was more agreements between both sides on how to fund the tax cuts, while reports overnight now suggest Republican leaders don’t expect to release a joint tax plan with the White house next month, and instead will rely on House and Senate committees to solve residual unanswered questions. We continue to wait and see.

Finally, for those interested in economic debate, Philadelphia’s Fed economists have published a paper suggesting forecasting models based on the Phillips curve, which asserts a link between unemployment and inflation, don’t actually help predict inflation.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, existing home sales fell 1.3% mom in July, but remained up 2.1% yoy. The decline in sales in recent months has moved the level closer to that suggested by the usually accurate pending home sales indicator. The MBA reported that both the rate of mortgage delinquency and foreclosure fell to new cyclical lows of 4.24% and 1.29% respectively in 3Q. Elsewhere, the Kansas City Fed’s August manufacturing index was higher than expected at 16 (vs. 11), the strongest reading since March. Finally, employment claims were broadly in line, with initial jobless claims at 234k (vs. 238k expected) and continuing claims at 1,954k (vs. 1,950k expected).

Across the pond, the UK’s preliminary 2Q GDP stats were in line, at 0.3% qoq and 1.7% yoy. Private consumption rose 0.1% qoq (vs. 0.3% expected), the least since 4Q 2014, but capex rose 0.7% qoq, which was a better outcome than the market had expected. Back to the consumer side, the UK’s CBI Distributive Trades Survey painted a bleak picture in August with a net 10% of respondents reporting a decline in sales yoy. In France, the August manufacturing confidence was higher than expected at 111 (vs. 108), the highest reading since 2011.

Looking at the day ahead, Germany’s final 2Q GDP data (0.6% qoq and 2.1% yoy expected) will be out as this note is published, as well as 2Q data on private consumption, capital investment, export / import and domestic demand. Further, the IFO business climate and expectations for August will be out later on. In France, there is the consumer confidence data. Over in the US, we have the durable goods orders (-5.8% expected) and capital goods orders (0.3% expected) for July. Onto other events, Yellen and then Draghi will speak at Jackson Hole.


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