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Dollar Surges Above 200DMA, Futures Flat As Most Markets Closed For Labor Day

Courtesy of ZeroHedge. View original post here.

With most of the world's markets closed, celebrating Labor Day in France, Italy, Spain, Germany, Switzerland, Norway, Sweden, South Korea, China and Hong Kong, overnight markets have been especially thin, with virtually no newsflow, even as the dollar surge continues keeping a lid on S&P futures.

What markets were open moved little: Japan's Topix index fell 0.2%; Aussie stocks were up 0.6%; S&P 500 futures faded an overnight gain of 0.1% and were trading flat. Treasury 10-year yields steady in a tight range of 2.95%-2.96%; Australia 10-year yield falls 1bp to 2.76%. WTI crude rises 0.3%; Dalian iron ore closed

Ahead of today's much anticipated launch of US metal tariffs against Europe, late on Monday the White House announced that Donald Trump decided to delay imposing said tariffs on EU, Mexico and Canada until June 1, but the impact on markets will be deferred due to holidays around the globe.

The highlight of the overnight session was again the dollar, as the DXY index notched its ninth gain in 11 days, and broke above its 200-DMA for first time since May 2017, leading to a USD-driven move across G-10 and EMFX markets, while weighing on most commodities and US futures.

The Bloomberg Dollar Spot Index (BBDX) extended its advance Tuesday to the highest level since January as Treasuries halted three days of gains ahead of the Federal Reserve’s policy meeting.

Elsewhere, the pound extended losses after weaker-than-forecast April manufacturing PMI data; the Sonia curve further prices out chances of a May hike. The latest drop in GBP spurred the FTSE, one of the few European equity gauges trading, to rise for a fourth day. SEK continues recent selloff, and the lack of liquidity saw the Swedish krona drop nearly 1% against the dollar and to a fresh eight-year low against the euro.

US Treasuries remained in a tight range, with yesterday’s month-end related bid faded in Asian hours.  The yield curve flattened on Monday on a combination of month-end and softish data, causing the 10yr yield to retreat from last week’s best levels, falling to sub-2.94%. While most of the action was concentrated in the long-end of the curve (30s yields down c.2bps at settlement), all the major yield spreads were narrowing; 5s30s flattened by c.1bps the lowest spread in more than six years. Ahead of Wednesday’s Quarterly Refunding Announcement, the US Treasury borrowed USD 488bln in Q1, expectations are to issue USD 75bln in net marketable debt in Q2, down USD 101bln previous estimate, and USD 273bln in net marketable debt in Q3. Elsewhere, BTPs underperformed their peers on Monday after Italy’s 5SM leader Di Maio called for a fresh election in June. Following the election in March, talks between parties have largely failed and no successful attempts were made to form a government. US 10yr T-Notes futures settle 4 ticks higher at 119-20.

Today's market attention will now turn to the much-anticipated Apple earnings due after the close, when Tim Cook is expected to announce a slowdown in iPhone sales and guidance, potentially offset with a massive expansion in Apple's dividend and buyback, potentially as much as $400 billion.

In geopolitical news, Iran's Foreign Minister tweeted Iran allegations are old allegations that have already been dealt with by the IAEA. Meanwhile, US Secretary of State Pompeo stated that Israel's nuclear files on Iran are real and that many are new, while US Treasury.

Elsewhere, Secretary Mnuchin stated that President Trump is still considering the Iran agreement. White House is said to be mulling restrictions on China researchers amid trade dispute.

Crude futures retraced some of the Iran/Israel-related move higher. Post the climb seen in oil on Monday following increased pressure on the US by Israel to pull out of the Iranian nuclear deal, oil pared back some of these gains, with both WTI and Brent down slightly amid the firmer USD. Gold has fallen to a six week low following the stronger USD which continued its rise toward 3 month highs. Metals markets remain sensitive to the news that Trump has extended steel and aluminium tariffs for Canada, EU, Mexico, among others. Here too, though, volumes were contained by widespread market closures including China.

Bulletin Headline Summary from RanSquawk

  • Labour day holiday in France, Italy, Spain, Germany, Switzerland, Norway, Sweden, South Korea, China and Hong Kong
  • DXY spiked passed its 200dma with 2018 peak of 92.640 in focus, cable falls through 1.3700 level as miss on manufacturing data adds to woes
  • Looking ahead, highlights include, US mfg PMI, Canadian GDP, US construction spending, ISM mfg PMI, APIs, NZ jobs and GDT

Market Snapshot

  • S&P 500 futures down 0.2% at 2,642.75
  • STOXX Europe 600 up 0.05% to 385.53
  • MXAP down 0.2% to 173.83
  • MXAPJ down 0.2% to 568.04
  • Nikkei up 0.2% to 22,508.03
  • Topix down 0.2% to 1,774.18
  • Hang Seng Index up 1.7% to 30,808.45
  • Shanghai Composite up 0.2% to 3,082.23
  • Sensex up 0.6% to 35,160.36
  • Australia S&P/ASX 200 up 0.5% to 6,015.23
  • Kospi up 0.9% to 2,515.38
  • German 10Y yield fell 1.2 bps to 0.559%
  • Euro down 0.3% to $1.2039
  • Brent Futures down 1.5% to $74.02/bbl
  • Italian 10Y yield rose 4.3 bps to 1.53%
  • Spanish 10Y yield rose 1.8 bps to 1.28%
  • Gold spot down 0.5% to $1,308.29
  • U.S. Dollar Index up 0.4% to 92.22

Top Overnight News

  • President Donald Trump will delay imposing steel and aluminum tariffs on the European Union, Mexico and Canada until June 1 as he finalizes deals with them, the White House said in a statement
  • U.K Apr. Manufacturing PMI: 53.9 vs 54.8 est; Markit note adverse weather was partly to blame in Feb. and Mar., there are no excuses for Apr’s disappointing performance, chances of a near term hike from BOE increasingly remote
  • Italian President rules out new elections in June: Messagero
  • Japan Apr. Manufacturing PMI: 53.8 vs 53.3 est; Markit note output growth quickens to 3mth high; input prices continued to inflate sharply
  • The U.K. is proposing a new plan to kick-start stalled Brexit talks and make progress on the vexed issue of the Irish border as negotiations resume in Brussels this week
  • U.S. Treasury Secretary Steven Mnuchin said he’s unconcerned about the bond market’s ability to absorb rising government debt after his department said it borrowed a record amount for the first quarter
  • Britain’s opposition Labour party plans to spend 2.3 billion pounds (3.2 billion) installing insulation in low-income households to help bring down what it says are “skyrocketing” energy bills
  • Developing economies are better suited to withstand a global downturn than in the past, said Bruno Braizinha, a rates and cross-asset strategist at Societe Generale SA. A U.S. recession next year or in early 2020 will probably be shallower than the global financial crisis a decade ago, and emerging market fundamentals are much stronger and supported by Chinese growth, he said in an interview
  • The U.S. isn’t seeking to put Russian aluminum giant United Co. Rusal out of business by sanctioning the company, Treasury Secretary Steven Mnuchin said, but its majority owner Oleg Deripaska must reduce his stake to less than 50 percent
  • BP Plc capped a shaky Big Oil earnings season on a more upbeat note, as investors reacted positively to the highest profit in years even as the continuing burden of oil-spill payments pushed debt higher

Asia-Pac equity markets traded positive, although lacked firm impetus amid mass closures in the region and following the negative lead from Wall St where sentiment was dampened amid geopolitical concerns. This was due to Israel’s stern rhetoric on Iran which it alleged had lied on its nuclear program, while the telecoms sector led the declines amid doubts the T-Mobile-Sprint merger would get regulatory approval. ASX 200 (+0.6%) saw energy names underpinned on higher oil prices following Israel’s exposure of Iran and the possible implications it could have on the nuclear agreement, while financials also gained after big 4 bank ANZ reported over 4% profit growth. Nikkei 225 (+0.2%) was in the green but with price action indecisive as it began a 2-day trading week and pondered over the recent JPY strength. There wasn’t much price action elsewhere with mainland China, Hong Kong, India, Singapore, South Korea and Taiwan among the markets shut for public holiday, while US equity futures were off prior lows amid mild short covering and after reports the US extended tariff relief for its allies by delaying its decision another month to June 1st. Finally, 10yr JGBs were higher to track the prior day’s upside in T-notes and with the BoJ present in the market under its bond buying programme, while yields were lower across the curve with outperformance seen in super-long-end bonds. Australian RBA Cash Rate (May) 1.50% vs. Exp. 1.50% (Prev. 1.50%). (Newswires) RBA reiterates that steady policy is consistent with growth and inflation targets, while it also repeated that low rates supports the domestic economy and that a stronger AUD would slow economic pick-up. Furthermore, RBA stated that Inflation and wage growth likely to stay low for a while but added that it expects stronger exports.

Top Asian News

  • RBA Leaves Key Rate at 1.5% as Seen by All 27 Economists
  • SoftBank’s Credit Swaps Drop to Two-Week Low on Sprint Deal

As European markets are closed for labour day, focus is on UK’s FTSE 100 (+0.3%), currently trading somewhat lacklustre albeit in thin trade. The index has however received a boost from the weakening sterling following softer UK Manufacturing PMIs. Just Eat (+3%) is higher after delivering strong results whilst BP (+0.8%) is also fuelled post-earnings. Mining names are underperforming amid falling base metal prices influenced by the dollar bid. Other noticeable movers include FTSE 100 heavyweight British American Tobacco (-0.8%), lagging behind following a downgrade at Piper Jaffray.

Top European News

  • Large Upside Buying in Short Sterling Bets on No BOE Rate Hike
  • Italian President Rules Out New Elections in June: Messaggero
  • Qatar’s Wealth Fund Is Said to Weigh Selling European Hotels
  • Swedish Krona Declines an Eighth Day to Lowest Level Since 2009

In FX, the DXY index faced some resistance around recent highs and the 200DMA (91.980), but has worked its way through some hefty buy/sell orders in G10 pairings at key levels along with big barriers and other major technical obstacles to cross the 92.000 marker and register a fresh high since mid-January. The 2018 peak at 92.640 (from January 12th) is next on the radar for bulls.  GBP: The Pound’s misfortunes rumble on and the latest bearish catalysts have come in the form of a sub-forecast UK manufacturing PMI plus weak consumer credit and mortgage approvals. Cable has tumbled through 1.3700 as a result, and through decent bids in the high 1.3670 area, with sellers now eyeing chart ‘support’ just ahead of 1.3650, while Eur/Gbp is testing 0.8800 offers again. SEK: A notable underperformer beyond the G10, as Eur/Sek extends its post-dovish Riksbank rally towards 10.6500 ahead of a big Swedish stock dividend payment day on May 7.  EUR/NZD/AUD/JPY/CHF: All around 0.3-0.4% weaker vs the Greenback, with the Eur/Usd breaching several major downside technical levels on the way to testing a 1.2035-30 Fib area, including 1.2055 and 1.2050 barriers. Aud and Nzd are only just holding above the well documented and obvious 0.7500/0.7000 psychological and round number handles, with the former not getting any support from the RBA overnight (stood pat on rates and maintained a neutral policy stance), while the Kiwi is awaiting latest GDT auction results and NZ jobs data. Usd/Jpy briefly capped by supply at 109.50 and the recent peak just a few pips above, but now testing Fib resistance at 109.65, while Usd/Chf is extending gains above 0.9900.

In commodities, post the climb seen in oil on Monday following increased pressure on the US by Israel to pull out of the Iranian nuclear deal, oil pared back some of these gains, with both WTI and Brent down slightly amid the firmer USD. Gold has fallen to a six week low following the stronger USD which continued its rise toward 3 month highs. Metals markets remain sensitive to the news that Trump has extended steel and aluminium tariffs for Canada, EU, Mexico, among others. Note, volumes overnight were contained by widespread market closures including China. Iranian crude exports have hit 2.61mln BPD in April, a record figure

Looking at the day ahead, in Europe the focus is on the UK with March money and credit aggregates data, along with the April manufacturing PMI. In the US we'll also receive the final April manufacturing PMI print along with the April ISM manufacturing, March construction spending and April vehicle sales data. The headline earnings release is Apple, while results from Pfizer, Merck and BP will also be closely watched.

US Event Calendar

  • 9:45am: Markit US Manufacturing PMI, est. 56.5, prior 56.5
  • 10am: Construction Spending MoM, est. 0.5%, prior 0.1%
  • 10am: ISM Manufacturing, est. 58.4, prior 59.3

    • ISM Employment, prior 57.3
    • ISM Prices Paid, est. 78.5, prior 78.1
    • ISM New Orders, prior 61.9
  • Wards Domestic Vehicle Sales, est. 13.3m, prior 13.4m; Total Vehicle Sales, est. 17.1m, prior 17.4m

DB's Jim Reid concludes the overnight wrap

One celebration for today is that with the ticking over of the monthly calendar, this US economic expansion now becomes the outright second longest in history with data going back over 164 years and 34 business cycles. At 107 months it nudges ahead of the long 1960s expansion and will beat the 1990s expansion if it extends past July next year. In fact as we’ve discussed before, the last four expansions (since the early 1980s) have all been long ones and are all in the top 6 longest of all time. Why have they been so long? Well as we’ve discussed before we think it’s largely due to demographics and globalisation colliding. The global labour force has naturally surged since 1980 with China deciding to integrate itself into the global economy at almost the same point. China thus dumped an additional billion of low paid labour on the world. This has helped structurally depress global wages for three and a half decades and meant that policy hasn’t needed to be tightened as early in the last four cycles as through most of  history. This has helped prolong these business cycles. However we think we’re just past peak global labour now and therefore subsequent cycles will see wage pressures earlier. So the days of super long business cycles may be over so enjoy this one while it lasts.

Given it’s the first day of a new month we’ve included our usual monthly performance review at the end of today’s EMR. Given the turmoil for equity markets in March, April felt more like a bounce back month for most markets with 25 of our 39 assets ending the month with a positive total return including 13 out of 15 equity markets. The abating trade war spat between China and the US, some signs of stabilising global growth following the monthly PMIs, and a fairly decent earnings season so far on both sides of the pond has certainly helped although as we saw towards the end of the month the bond sell-off has ensured fixed income has been weak and this has provided renewed headwinds for risk after a good recovery.

The last day of April started with an M&A flurry and risk on dominating but ended on the weak side as the S&P 500 closed out at the lows for the day (-0.82%). All sectors within the S&P fell with losses led by telco and health care stocks. Sprint dropped -14% on concerns that its merger deal with TMobile (-6%) may face regulatory challenges while stock specific factors pushed down Allergan (-5%) and Celgene (-4.5%) in the healthcare space. Elsewhere, MacDonalds jumped 5.8% after a result beat while Apple rose 1.8% ahead of its results and possible shareholder payout today. The Dow (-0.61%) and Nasdaq (-0.75%) also retreated while the Stoxx 600 rose for the third consecutive day (+0.18%).

This morning in Asia, most markets are closed for holidays (China, HK, South Korea), while the ASX200 (+0.49%) and Nikkei (+0.19%) are modestly up as we type. Much of continental Europe will also be closed today. Overnight, the White House confirmed that President Trump has extended the steel tariff exemptions on the EU, Canada and Mexico until 1 June to allow further talks, while agreement in principle has been reached with Australia, Brazil and Argentina, with details to be “finalised shortly”. Elsewhere, Treasury Secretary Mnuchin said he is “not concerned about” the rising supply of US treasuries, in part as “there are still a lot of buyers” and “I think the market can easily handle it”.

The data highlight yesterday was the US PCE data. In fairness Friday’s GDP report meant that yesterday’s PCE was to some degree a formality with the +0.2% mom print in line with expectations. Significantly however, the annual rate is now at +1.9% yoy (from +1.6%) thanks to base effects which puts it technically within a whisker of the Fed’s 2% target with the 6-month annualized rate now at a very solid +2.3%.

Elsewhere the Chicago PMI was weaker than expected (57.6 vs 58) but the prices paid component soared to a near-seven-year-high and surpassed the 70-mark in April for only the third time since 2012. This backs up most survey data that shows price rises are at multi-year highs. Staying with prices, Germany’s April CPI was slightly below market at -0.1% mom (vs. 0% expected) and 1.4% yoy (vs 1.5% expected), while Italy’s CPI print was also below expectations at 0.6% yoy (vs 0.8%).

Meanwhile here in the UK, along with the announcement of ex-DB Sajid Javid as Home Secretary, the Irish Border subject took on some focus as EU’s Chief Brexit negotiator Barnier warned that “until we reach this agreement and operational solution for Northern Ireland…there is a risk, a real risk” of negotiation talks collapsing. Later on, he did soften his tone a bit as he promised to work “day and night” for a solution leading up the June Summit of EU leaders. On other side, the UK’s Brexit Secretary Davis said “we’ve put forward proposals… and look forward to making progress this week”. The preferred option A for the UK is a sweeping new free trade agreement that would avoid the need for border checks post Brexit.

Staying in Europe, 10y BTPs (+4.4bps, BTP/Bunds spread +5.6bp) were the relative underperformer in the bond market yesterday after the latest twist in the political soap opera saw 5SM leader Luigi Di Maio call for new elections as early as June. This comes after talks with the PD broke down. This would in turn potentially raise the uncertainty level again however it’s worth noting that the decision lies with Italy’s President Sergio Mattarella. Elsewhere, core 10y bond yields firmed slightly with UST 10y and Bunds down 0.4bp and 1.2bp respectively.

Over in commodities, WTI oil jumped 1.8% and to fresh multi-year highs before paring gains to close +0.69% higher yesterday ($68.57/bbl), in part as Israel’s PM Netanyahu said “Iran lied about never having a nuclear weapons program” and “after signing the nuclear deal in 2015, it intensified its efforts to hide its nuclear files”. Elsewhere, the US dollar index firmed 0.33% while the Euro fell to the lowest since mid-January (-0.43% to 1.2078).

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the March personal income growth was lower than expected (0.3% mom vs. 0.4%) while spending was in line at 0.4% mom. Elsewhere, the April Dallas Fed index (21.8 vs. 23 expected) and March pending home sales print were both below consensus (0.4% mom vs. 0.7%). In Europe, Germany’s March retail sales fell for the fourth consecutive month, but prior revisions meant the annual growth was 1.3% yoy (vs 1.2% expected). Finally, the Eurozone’s March M3 money supply was 3.7% yoy (vs 4.1% expected). After adjusting for sales and securitizations, growth in household lending was up 3.0% yoy while growth in non-financial corporate loans rose 3.3% yoy.

Looking at the day ahead, in Europe the focus is on the UK with March money and credit aggregates data, along with the April manufacturing PMI. In the US we'll also receive the final April manufacturing PMI print along with the April ISM manufacturing, March construction spending and April vehicle sales data. The headline earnings release is Apple, while results from Pfizer, Merck and BP will also be closely watched.


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