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Welcome To Friday 13th: Global Stocks Levitate As Trade And Hot War Fears Recede

Courtesy of ZeroHedge. View original post here.

As DB’s Jim Reid says this morning, “Welcome to Friday 13th. As everything is so calm and stable in the world at the moment what could possibly go wrong today?” As of this moment, not much judging by the solid bid in overnight markets.

Are stocks getting trade and/or “hot” war burnout on this ominous day in the calendar? Judging by the relatively lethargic overnight volumes, this may be the case. And with volumes low, it means the levitation algos have been activated, pushing both US stock futures…

… and global markets modestly in the green.

European equities trade modestly higher (Stoxx 600 +0.3%), reaching a six-week high with builders and miners leading the gains to a third-straight weekly gain, largely due to the US (at the time of writing) having taken no decision on what (if any) military action should be taken on Syria with today’s light calendar also failing to provide any major impetus for stocks. The bullish cash has gotten a boost from trade-sensitive sectors in Europe after Trump expressed optimism on a deal with China and after reports late Thursday he was considering rejoining the TPP pact.

Moves have largely been noted in individual stock rather than broader based macro ones with equities resilient against new Russian sanctions vs. the US. Individual movers include Sage Group (-13%) after cutting guidance, Hammerson (-12%) are also lower after Klepierre’s (+1%) withdrawal of their acquisition offer. Finally, Volkswagen shares up 1.0% after their current CEO is to be replaced by Diess, who will be responsible for group research.

Earlier in the session, Asian equities were broadly higher as the region took its cues from the US, where sentiment was underpinned after US President Trump tweets further alleviated fears of an imminent strike on Syria. This resulted to firm gains across all US major indices, while the financial sector outperformed as yields rose in the wake of the recent hawkish FOMC minutes. As such ASX 200 (+0.3%) and Nikkei 225 (+0.6%) were positive with Australian financials mostly kept afloat following an upbeat Financial Stability Review, while Japan benefitted from the weaker currency-heightened risk dynamic. Elsewhere, Hang Seng (Unch.) and Shanghai Comp. (-0.4%) were underpinned at the open but then pared gains as the risk tone deteriorated following disappointing Chinese trade data and a CNY 100bln net weekly drain by the PBoC, while the White House was also reported to be planning to escalate trade pressure on China.

Meanwhile, S&P futures recovered from session lows seen in Asia. U.S. financials in focus as JPMorgan and Citigroup kick off bank earnings today. Bunds trim earlier losses; Treasuries hold gains across the curve, with long-end outperforming. RUB outperforms major currencies versus USD, trimming a weekly decline; JPY at bottom of the pile. WTI climbs above $67 to a three-year high; nickel leads base-metal gains in London. The dollar weakened as Treasury yields dipped after rising above 2.8 percent Thursday.

In commodities, crude oil climbed to a three-year peak after the International Energy Agency said a global glut that weighed on prices is close to being cleared. The commodity extended a rally sparked by escalating tensions in the Middle East. Aluminum headed for its biggest weekly increase since at least 1987 on concern U.S. sanctions on Russia’s United Co. Rusal will disrupt supplies. Copper, zinc and nickel also gained, along with gold.

In the latest trade war news, the White House is planning to increase trade pressure on China, according to reports in WSJ, additionally US Trade Representative will detail list of goods as early as next week that may be subject to 25% tariffs as part of possible USD 100bln of additional tariffs on China, according to reports in WSJ.

Russian lawmakers have drafted legislation for sanctions on US goods including Tobacco, agriculture, medicine and consultancy. US equity futures held strong on this news.

In geopolitical developments, UK PM May and US President Trump spoke on Thursday and agreed it was vital to deter the further use by Syrian government of chemicals weapons, say that chemical weapons use must not go unchallenged. As we also noted overnight, there have been unconfirmed reports US President Trump put off his final decision regarding strikes on Syria after meeting with security advisers, amid internal conflict with US Secretary of Defense Mattis and National Security Adviser Bolton.

Expected data include University of Michigan Consumer Sentiment, and Fed’s Eric Rosengren is scheduled to speak on economic outlook. Citigroup, JPMorgan, Wells Fargo and PNC are among companies reporting earnings

Bulletin headline summary from RanSquawk

  • Syrian tensions and Russian sanctions the key focus as markets await further direction from Trump
  • Cable and AUD showing strong bids, as risk currencies lose and safe havens bid out
  • Looking ahead Uni. of Michigan, Fed’s Rosengren, Bullard and Kaplan, JP Morgan, Wells Fargo and Citigroup earnings

Top Overnight News

  • TPP nations welcome Trump’s interest but don’t want renegotiation; earlier, Trump tweeted that U.S. would only join TPP if it gets a “substantially better” deal
  • The prudent, persistent and patient monetary policy approach followed by the Governing Council so far is fully justified, says ECB Governing Council member Jan Smets
  • China March trade balance -29.8b yuan vs +181.0b yuan estimate; exports -9.8% vs +8.0% est; imports +5.9% vs +7.5% est; China posted a surprise trade deficit in March, the first since Feb. 2017
  • The Reserve Bank of Australia said international investors are underpricing the risk of an economic shock that could alter the outlook for financial markets
  • Singapore’s central bank made a measured change to policy, allowing its currency to strengthen in the face of solid economic growth, while also acknowledging mounting risks from a U.S.-China trade war
  • OPEC is on the verge of “mission accomplished” in its quest to clear the global oil glut that caused the worst industry downturn in a generation, the International Energy Agency said
  • S&P changed Japan’s A+ outlook to positive from stable
  • Trump, May discuss joint response to Syria chemical weapons attack
  • IEA says OPEC near “mission accomplished” as oil glut vanishes

Market Snapshot

  • S&P 500 futures up 0.1% to 2,666.50
  • STOXX Europe 600 up 0.2% to 379.53
  • MSCI Asia Pacific up 0.2% to 173.98
  • MSCI Asia Pacific ex Japan up 0.08% to 571.68
  • Nikkei up 0.6% to 21,778.74
  • Topix up 0.6% to 1,729.36
  • Hang Seng Index down 0.07% to 30,808.38
  • Shanghai Composite down 0.7% to 3,159.05
  • Sensex up 0.3% to 34,211.34
  • Australia S&P/ASX 200 up 0.2% to 5,829.08
  • Kospi up 0.5% to 2,455.07
  • German 10Y yield rose 0.9 bps to 0.524%
  • Euro up 0.06% to $1.2335
  • Italian 10Y yield rose 1.1 bps to 1.559%
  • Spanish 10Y yield fell 0.2 bps to 1.252%
  • Brent futures up 0.7% to $72.54/bbl
  • Gold spot up 0.5% to $1,340.97
  • U.S. Dollar Index little changed at 89.72

Asian equity markets were mostly higher as the region partially took cue from Wall St, where sentiment was underpinned after US President Trump tweets further alleviated fears of an imminent strike on Syria. This resulted to firm gains across all US major indices, while the financial sector outperformed as yields rose in the wake of the recent hawkish FOMC minutes. As such ASX 200 (+0.3%) and Nikkei 225 (+0.6%) were positive with Australian financials mostly kept afloat following an upbeat Financial Stability Review, while Japan benefitted from the weaker currency-heightened risk dynamic. Elsewhere, Hang Seng (Unch.) and Shanghai Comp. (-0.4%) were underpinned at the open but then pared gains as the risk tone deteriorated following disappointing Chinese trade data and a CNY 100bln net weekly drain by the PBoC, while the White House was also reported to be planning to escalate trade pressure on China. HKMA intervened in FX markets again and was said to have purchased HKD 2.44bln to support HKD in defence of the peg.

Top Asian News

  • China Exports Post Seasonal Drop, Leaving Surprise Trade Deficit
  • Techcombank Draws GIC, Fidelity to $922 Million Vietnam IPO
  • Qatar’s $12 Billion Bond Tops Saudi Debt Sale to Lead EM

Equities trade modestly higher (Stoxx 600 +0.3%). This is largely due to the US (at the time of writing) having taken no decision on what (if any) military action should be taken on Syria with today’s light calendar also failing to provide any major impetus for stocks. As such, moves have largely been noted in individual stock rather than broader based macro ones with equities resilient against new Russian sanctions vs. the US. Individual movers include Sage Group (-13%) after cutting guidance, Hammerson (-12%) are also lower after Klepierre’s (+1%) withdrawal of their acquisition offer. Finally, Volkswagen shares up 1.0% after their current CEO is to be replaced by Diess, who will be responsible for group research.

Top European News

  • ECB Looks Down Stimulus Exit Path as Politics Threaten Economy
  • VW Names Diess CEO in Sweeping Overhaul to Set Future Course
  • Italy’s Center-Right, Five Star Quarrel as Deadlock Persists
  • Ruble Claws Back Ground as Morgan Stanley Warns on Volatility
  • Billionaire Pulls Back From Brink on Czech Extremist Backing

In currencies, it was a relatively subdued session. AUD:  No sign of contagion or concern over a surprise Chinese trade deficit despite the ongoing import tariff spat with the US, as Aud/Usd finally broke through major chart resistance around 0.7785 and triggered stops to probe just above 0.7800 before running out of steam ahead of a fib at 0.7812 and the 200 DMA at 0.7815. NZD: Kiwi also firmer vs the Usd and nudging up towards 0.7400 again, but lagging its antipodean peer as the Aud/Nzd cross rebounds from just below 1.0500 to 1.0550+ on Aud short covering from a more oversold base. GBP: Another G10 outperformer, with Cable almost up to 1.4300 having breached the recent 1.4244-50 range high and now looking at the 1.4345 ytd peak if the nearest big figure is taken out. On that note, further Eur/Gbp selling could give the Pound another boost with market contacts hearing talk of decent demand for downside option strikes  and little in the way of technical support before 0.8600. JPY: Still lagging amongst majors and the main victim of less aversion/tension surrounding trade wars and Syria (for now at least), with Usd/Jpy up through the 107.50-55 zone, which marked the top of late and included a fib level, before tripping some buy orders above 107.60. CHF: Choppy trade in the Franc, with Usd/Chf higher early in the EU session and eyeing the 200DMA at 0.9650-60 amidst speculation about Russian outflows, but back down towards 0.9600 as Russia unveils counter-sanctions vs the US. DXY: Just about maintaining positive momentum above 89.500 with more support coming from US President Trump who is now open to re-joining the TPP, if the terms are favourable, and is still holding off from any strike against Syria to assess chemical attack evidence.

In commodities, WTI (+0.8%) and Brent (+0.8%) are setting new weekly highs, as ongoing tensions over Syria fuel the rally. This follows initial reports that the US was planning to strike 8 targets in Syria, but traders are mindful that US Press Secretary Sanders said no final decision was made. Furthermore, the UK cabinet backed military action against Syria. Elsewhere, the IEA monthly oil market report highlighted forecasts for 2018 global oil demand growth to remain unchanged from the prior month’s report of 1.5mln bpd. Moving onto metals, Gold (+0.1%) is marginally higher as the yellow metal tracks dollar weakness. In terms of base metals, copper (+0.6%) is higher on the day, however, the upside is capped by disappointing Chinese trade data. Aluminium (+13.8% this week) set for its best week since 1987 amid rising concerns of supply disruptions regarding Russian sanctions.

US Event Calendar

  • 10am: JOLTS Job Openings, est. 6,024, prior 6,312
  • 10am: U. of Mich. Sentiment, est. 100.5, prior 101.4; Current Conditions, prior 121.2; Expectations, prior 88.8

DB’s Jim Reid concludes the overnight wrap

Welcome to Friday 13th. As everything is so calm and stable in the world at the moment what could possibly go wrong today? Thanks to all the German readers yesterday who told me my asthma earlier this week was due to a strong dose of birch pollen doing the rounds in Frankfurt at the moment and at this time of year. I’ll have to remember that if Brexit goes horribly wrong.

This week it seems that having the quickest internet connection in the world and getting Mr Trump’s tweets a fraction before everyone else would have been your best chance of success as we trade the range between his  positive and negative sound bites on trade and Syria.

Yesterday was a fairly decent day for risk as, just a day after it appeared tensions had hit a critical point, a softening rhetoric from President Trump helped markets bounce back sharply. Specifically it was Trump’s tweet yesterday morning where he suggested he “Never said when an attack on Syria would take place. Could be very soon or not so soon at all!” Elsewhere Moscow’s ambassador to the UN Nebenzia urged the US and its allies to refrain from military actions and noted “the immediate priority is to avert the danger of war”. On trade, Trump said China’s President Xi is “going to get rid of a lot of taxes and tariffs” and the two countries may end up levying no new tariffs on each other. Elsewhere, he told Trade Representative Robert Lighthizer and economic advisor Larry Kudlow to explore the possibility of re-joining the Trans-pacific partnership (TPP) trade accord, which he had previously pulled out from. Then on NAFTA, Trump said negotiations are “coming along great” but conceded “there’s no timeline” on a potential deal as it could be 3 or 4 weeks or even 2 or 5 months away.

By the end of play the S&P 500 closed +0.83% and the Dow +1.21%. European markets also closed up with the Stoxx 600 (+0.70%) and DAX (+0.98%) both up while FTSE was marginally higher (+0.02%). Bond markets were a bit weaker given the risk on tone, yields on UST 10y rose 5.5bps to 2.837% while Gilts was up 6.4bp in the absence of material economic news flow. Elsewhere, Gold sold off -1.36%, the VIX retreated -8.7% to 18.49 while WTI oil  rose for the fourth consecutive day to be up 8.1% overall this week (+0.37% yesterday).

Today markets will at least have something fundamental to turn their attention to with US bank earnings kicking off for Q1. Indeed, JP Morgan, Citi and Wells Fargo are all due to report just prior the open. Yesterday, Blackrock  (+1.5%) and Delta airlines’ (+2.9%) share price both rose following a better than expected quarterly result. As a reminder, DB’s Binky Chadha published a preview report at the start of the week in which he noted that the bottom up consensus for S&P 500 EPS growth in Q1 is a robust 18.4% on pcp which would mark an acceleration from the 15.2% growth in Q4. He also highlighted that a typical median beat (around 3.4%) would raise growth to an impressive 22.2%. You can find more in Binky’s report here.

This morning in Asia, markets are mixed with the Nikkei (+0.51%) and Kospi (+0.49%) both up while the Hang Seng (-0.08%) and Shanghai Comp. (-0.31%) are modestly down as we type. Datawise, China’s March trade balance was well below market at -$5.0bln (vs. $27.5bln expected) mainly due to an unexpected decline in exports growth (-2.7% yoy vs. 11.8% expected), which follows a strong February reading of +44.1%. In the US, following his prior tweets on Amazon, President Trump has now ordered the creation of a task force to examine the United States Postal Service’s pricing, policies and workforce costs and noted the USPS “must be restructured to prevent a tax-payer funded bailout”.

Now recapping other markets performance from yesterday. In bonds, Spain’s 10y yields slightly outperformed  (-1.7bp) ahead of a potential credit rating upgrade by Moody’s from Baa2 to Baa1, which would bring it in line with S&P and Fitch. Turning to FX, the US dollar index firmed for the first time in five days (+0.20%), while the Euro was down -0.32% following the slightly dovish ECB minutes. In commodities, most LME base metals weakened but aluminium rose for the seventh consecutive day to a c6 year high (+3.33% yesterday). DB’s Nick Snowdon and team takes a closer look at the potential supply disruptions given the US sanctions on Rusal – the world’s second largest producer (Link).

Moving onto the ECB minutes and central bankers speak now. The minutes indicated that “…the broadly agreed conclusion was that the evidence for a sustained rise in inflation toward levels consistent with the Governing council’s inflation aim was still not sufficient”. Further, “there was widespread concern that the risk of trade conflicts, which could be expected to have an adverse impact on activity for all countries involved, had increased”. In terms of the recent softening in economic indicators, the ECB’s Coeure didn’t seem to be too concerned as he noted “the possibility of larger than estimated slack does not mean that monetary policy will have to remain unchanged”. Elsewhere on inflation, the ECB’s Weidmann noted the price-stability goal must not be weakened and that he “rejects any proposal to let inflation overshoot the 2% threshold for some time or to raise the inflation goal”. In the US, the Fed’s Kashkari reiterated that a trade war “will be enormously bad for the US and global economy”.

Following on, DB’s Peter Sidorov has published a report looking at the impact that QE has had on money supply growth in recent years and estimate the likely impact from the ending of QE later this year. Peter notes that the slower pace of QE since the start of the year has been dragging on broad money (M3) growth and he expects this to weigh a little further in the next print on 30 April. However, Peter and the team are not expecting the slowdown in money growth to be severe or persistent. Private sector money creation – new lending – is gradually rising and should play an increasing role as we move into 2019 (Link).

Now turning back to Syria. In the UK, PM May’s cabinet has issued a statement noting that it “agreed on the need to take action to alleviate humanitarian distress and to deter the further use of the chemical weapons by the Assad regime”. Over in France, President Macron said “we have proof that…chemical weapons were used…by the regime of Bashar al-Assad” and “we’ll need to take decisions in due course, when we judge it most useful and effective”.

In credit, Michal in my team has published a one-page report “IG Strategy Data Flash: Strong US Credit Inflows as European IG Fund Outflows Go On”. It provides charts and short commentary on the latest IG bond fund flows and puts them in the broader context of flows in other asset classes. You can download the report here.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the March import price index was flat mom but annual growth still rose to an 11-month high of 3.6% yoy (vs. 3.8% expected). The weekly initial jobless claims (233k vs. 230k expected) and continuing claims (1,871k vs. 1,843k expected) were both higher than expectations. The Euro area’s February IP fell for the third consecutive month and was below market at -0.8% mom (vs. 0.1% expected) and 2.9% yoy (vs. 3.6% expected). The main driver for the weakness was a decline in the production of capital goods during the month. Elsewhere, the final reading for France’s March CPI was confirmed at 1.7% yoy while Sweden’s CPI was slightly below market at 1.9% yoy (vs. 2% expected). In the UK, the BOE’s credit conditions survey indicated that the availability of secured credit to households and credit to the corporate sector were unchanged in 1Q, with no change expected in 2Q. However, the availability of unsecured credit to households was reported to have tightened significantly in 1Q.

Looking at the day ahead, the final March inflation prints in Germany and Spain are due, along with the February trade balance reading for the Euro area. In the US we end the week with February JOLTS data and the preliminary April University of Michigan consumer sentiment reading. The Fed’s Rosengren and Bullard are also scheduled to speak in the afternoon. Away from this, the Summit of the Americans will also begin (through to April 14th) while US banks JP Morgan, Wells Fargo and Citigroup are due to report earnings.


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