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Futures Flat After Barrage Of Overnight News; CPI Looms

Courtesy of ZeroHedge. View original post here.

US futures are flat, and European stocks are little changed after their longest winning streak since mid-March following a barrage of overnight news, including a dramatic escalation in fighting between Israel and Syria/Iran, a shocking election victory in Malaysia where opposition leader Mahathir Mohamad ended the six-decade rule of Najib Razak’s party sending more shock waves among emerging markets, and the blessing by Bersluconi of a new, anti-establishment, populist government in Italy.

The busy news agenda offers no respite to investors this week, with tension between Israel and Iran mounting just days after U.S. President Donald Trump roiled the international community with his decision to ditch a nuclear accord with the Islamic Republic. Meanwhile, the stage is set for a populist government to form in Italy, and traders are rapidly coming to terms with an election upset in Malaysia. Many will now be looking to American inflation data as a welcome diversion.

Meanwhile, it is Ascension Day holiday across several European countrie, leading to even poorer volumes, while the biggest economic catalyst of the week looms in the face of today’s US CPI print due in under 2 hours.

While the latest burst higher in US equities may have taken a breather, overnight Asian shares advanced, largely tracking oil as WTI crude rose to the highest since 2014, topping $71 on rising middle-eastern geopolitical fears. Having breached 3% for the second time in 2 week, 10Y Treasury yields, which have been driving up the greenback and exacting pain on emerging markets, dipped back under 3% to push the dollar toward its first drop in five days.

Europe’s Stoxx Europe 600 Index drifted lower on what is a public holiday in various parts of the region, with markets closed in countries including Switzerland, Sweden, and Austria. The main risk overnight was that Italy’s 5 Star and League have made significant steps to form a government, and expect to finalize everything in a short time. Looking at Brexit, EU officials suggest that the EU is looking to find a way forward to maintain trade between the UK and EU post-Brexit despite having reservations about PM May’s current plans.

Earlier, the MSCI Asia Index rose 0.5%, thanks to broad-based gains in stocks around the region. The Shanghai Comp. (+0.5%) and Hang Seng (+0.9%) shrugged off another liquidity drain by the PBoC to trade positive in which Hong Kong resumed its recent trend of outshining its regional peers, while participants also digested mixed Chinese inflation figures that showed CPI missed estimates at 1.8% vs. Exp. 1.9% although PPI growth gathered pace for the 1st time in 7-months to 3.4% as expected

  • Chinese CPI (Apr) Y/Y 1.8% vs. Exp. 1.9% (Prev. 2.1%).
  • Chinese PPI (Apr) Y/Y 3.4% vs. Exp. 3.4% (Prev. 3.1%)

The big story out of Asia was the shocking outcome of the Malaysian elections, where opposition leader Mahathir Mohamad’s surprise victory ended the six-decade rule of Najib Razak’s party and has investors bracing for further jolts across the EM space. While Malaysian markets were closed, trading in non-deliverable forwards suggested the ringgit will tumble Monday in the wake of the surprise ouster of the country’s ruling party. The 2045-maturity dollar bond also declined. The dip in the dollar, however, stabilized developing markets which signaled stability after days of losses, and the MSCI Emerging Market Index rallied for a fourth day.

Elsewhere in FX, the dollar fell alongside Treasury yields ahead of U.S. CPI data and an auction of 30-year debt on Thursday. The pound edged up ahead of the Bank of England policy decision, while the New Zealand dollar slipped to a five-month low after its central bank left the door open for a possible cut. The Bloomberg Dollar spot index fell for the first time in five days as the dollar slid against most of its G-10 peers, with the biggest gains seen in the Canadian dollar; benchmark Treasury yields slipped below the 3 percent level

“We find the reasons of the rally temporary in nature and by looking at past experience from dollar-depreciation cycles, we conclude that, as long as global growth holds up well, then the greenback should resume weakening on a multi-quarter basis,” according to Vasileios Gkionakis, head of currency strategy research at UniCredit Bank

Elsewhere, looking at today’s BOE decision, “what matters for the pound is whether Governor Carney is a man with or without conviction over future rate hikes,” according to ING Groep NV’s currency strategist Viraj Patel. A 7-2 split, Patel’s base-case scenario, would see sterling climb toward $1.36.

In geopolitics, the White House commented that the US is preparing to add additional sanctions on Iran as soon as next week. Overnight, the main event was the Israel Defense Forces conducting operations on Iran targets in Syria overnight.

Elsewhere, Deputy head of Iran’s revolutionary guards Salami said Europe cannot confront the US in the nuclear accord, adds diplomacy cannot help Iran, the only way is confrontation.

In commodities, energy prices are currently coming off overnight highs in which crude prices extended on the advances as traders adjust to supply disruption concerns in the wake of the US withdrawal from the Iran nuclear agreement. Following this withdrawal, Israeli military have increased the number of strikes targeted at dozens of Iranian facilities in retaliation to an Iranian rocket attack on the occupied Golan Heights, signalling a continued escalation of geopolitical tensions in the region. Yesterday’s DOE printed a larger than expected drawdown, providing some support to the complex. WTI (+0.7%) and Brent (+0.6%) crude prices are firmly above the USD 71.00/bbl and USD 77.00/bbl respectively. UBS expects Brent to trade at USD 80/bbl in 6 months (prior forecast at USD 65/bbl) and WTI to trade at a USD 5/bbl discount to Brent (prior USD 4/bbl discount). Elsewhere, gold prices are trading flat amid a slight easing of the greenback, while London copper saw modest gains on the back of lower inventories.

Economic data on Thursday include initial jobless claims and CPI. Nvidia, Telus and News Corp. are among companies due to release results

Market Snapshot

  • S&P 500 futures up 0.2% to 2,701.00
  • STOXX Europe 600 down 0.04% to 392.29
  • MXAP up 0.5% to 173.78
  • MXAPJ up 0.7% to 568.54
  • Nikkei up 0.4% to 22,497.18
  • Topix up 0.3% to 1,777.62
  • Hang Seng Index up 0.9% to 30,809.22
  • Shanghai Composite up 0.5% to 3,174.41
  • Sensex up 0.05% to 35,335.91
  • Australia S&P/ASX 200 up 0.2% to 6,118.75
  • Kospi up 0.8% to 2,464.16
  • German 10Y yield rose 0.2 bps to 0.561%
  • Euro up 0.2% to $1.1871
  • Italian 10Y yield rose 1.6 bps to 1.626%
  • Spanish 10Y yield rose 0.4 bps to 1.308%
  • Brent Futures up 0.6% to $77.69/bbl
  • Gold spot up 0.03% to $1,313.11
  • U.S. Dollar Index down 0.06% to 92.99

Top Overnight News from Bloomberg

  • Trump personally welcomed home three Americans released from detention in North Korea, as he prepares for a landmark summit with Kim Jong Un
  • Israel said it’s carrying out attacks inside Syria after Iranian forces based in that country fired a barrage of missiles at the Golan Heights
  • Italian bonds slid after four-times premier Silvio Berlusconi dropped his opposition to a tie-up, giving the chances of a populist government ruling Italy a sizable boost
  • Oil extended gains above $71 a barrel as a conflict between Israel and Iran ratcheted up, increasing prospects for tighter global supply after the U.S. renewed sanctions on OPEC’s third-largest producer
  • With corporate-debt defaults on the rise, China’s securities regulator will probe bond funds to ensure that they have proper risk controls in place, according to people familiar with the matter
  • Japanese investors sold U.S. sovereign bonds for a sixth month in March, while they added to holdings of French and German debt, according to the Ministry of Finance’s balance- of-payments data released Thursday
  • Mahathir Mohamad’s surprise victory in Malaysia’s election ended the six-decade rule of Najib Razak’s party and has investors are bracing for further jolts as this news comes at a time when emerging markets are already under attack globally
  • While money markets are betting officials will stay on hold this month, investors will look for any split among Bank of England’s MPC members to determine the chances of a rate increase this year
  • Oil extended gains above $71 a barrel on the risk of supply disruptions as a conflict between Israel and Iran ratcheted up

Asian stocks traded positive across the board following the energy-fuelled upside on Wall St, where oil names outperformed as crude gained in the wake of Trump’s withdrawal from the Iran nuclear agreement and DoEs. As such, ASX 200 (+0.2%) was led by the energy sector as oil edged fresh multi-year highs last seen in 2014 and with RBOB also at its best levels since mid-2015, while Nikkei 225 (+0.4%) was also marginally higher amid earnings and with Mitsubishi Motors shares outpacing the broader market after it beat on its FY net and guided sales higher. Shanghai Comp. (+0.5%) and Hang Seng (+0.9%) shrugged off another liquidity drain by the PBoC to trade positive in which Hong Kong resumed its recent trend of outshining its regional peers, while participants also digested mixed Chinese inflation figures that showed CPI missed estimates at 1.8% vs. Exp. 1.9% although PPI growth gathered pace for the 1st time in 7-months to 3.4% as expected. Finally, 10yr JGBs were flat with demand lacking amid gains in riskier assets while a 10yr inflation-indexed auction was also largely ignored and failed to spur price action.

Top Asian News

  • Mahathir Set to Become Malaysian Prime Minister After Shock Win
  • Li Ka-shing to Retire Today, Ending Storied Career of Top Tycoon
  • Bank of China, JD.com to Promote Cooperation on Fintech
  • Malaysia’s 1MDB Spurs Voter Backlash, Global Probes: QuickTake
  • Philippines Raises Benchmark Rate as Inflation Battle Heats Up

European equites trading mostly lower (Eurostoxx 50 -0.4%) ahead of the BoE rate decision, with the energy and telecoms sectors underperforming (-1.1% and -1.3% respectively). This resulting from Randgold Resources and BT’s (-8.2% and -9.0% respectively) uninspiring earnings, as well as BT’s announcement of job cuts. Financials are lower by 0.3% while RBS’s (+4.3%) lower than expected pay-out on MBS sales during the financial crisis, and UniCredit’s (+0.9%) positive financial results. Italy’s FTSE MIB is underperforming on the recent Italian political developments. In stock specific news Next (+6.2%) raised guidance on warm weather boosting sales, and Alstom (+0.9%) announced a USD 3bln agreement with GE to exit multiple energy joint ventures.

Top European News

  • Italian Production Rises in Positive Sign for Economic Output
  • U.K. Construction Slumped in March as Snow Stalled Projects
  • RBS Clears Path to Award Dividends After $4.9 Billion DOJ Deal
  • UniCredit Pushes on Costs, Asset Quality to Affirm Leadership
  • ITV’s Online Ad Sales and Production Boost McCall as TV Weakens

In FX, DXY is Losing a bit more impetus below 93.000 and looking for some support from US CPI data amidst expectations for firmer headline and core prints, but softer leads via PPI in the run up. NZD/AUD: A very dovish hold from the RBNZ last night has hit the Kiwi hard, as the Central Bank signalled an even more prolonged period of unchanged policy and 50-50 odds that the next move in the OCR could be up or down. Nzd/Usd subsequently dived from a recovery high not far from 0.7000 to within a few pips of 0.6900, while the Aud/Nzd cross catapulted to just over 1.0800 from circa 1.0700 and lower in recent sessions. Conversely and consequently, Aud/Usd has continued its rebound from near 0.7400 lows towards 0.7500, but could be capped by mega option expiry interest at the big figure spread over the next few days (5 bn in total from today to May 16). CAD: The Loonie continues to outperform G10 counterparts and climb alongside oil prices that have extended to the upside on the US-Iran nuclear deal breakdown and with draws in US crude inventories adding to supply concerns. Usd/Cad is now bids/support around 1.2775 vs peaks earlier in the week just over 1.3000 and may derive further direction from Canadian new house price data later (although the US inflation data is likely to be more influential for the pair).

In commodities, energy prices are currently coming off overnight highs in which crude prices extended on the advances as traders adjust to supply disruption concerns in the wake of the US withdrawal from the Iran nuclear agreement. Following this withdrawal, Israeli military have increased the number of strikes targeted at dozens of Iranian facilities in retaliation to an Iranian rocket attack on the occupied Golan Heights, signalling a continued escalation of geopolitical tensions in the region. Yesterday’s DOE printed a larger than expected drawdown, providing some support to the complex. WTI (+0.7%) and Brent (+0.6%) crude prices are firmly above the USD 71.00/bbl and USD 77.00/bbl respectively. UBS expects Brent to trade at USD 80/bbl in 6 months (prior forecast at USD 65/bbl) and WTI to trade at a USD 5/bbl discount to Brent (prior USD 4/bbl discount). Elsewhere, gold prices are trading flat amid a slight easing of the greenback, while London copper saw modest gains on the back of lower inventories.

US Event Calendar

  • 8:30am: Initial Jobless Claims, est. 219,000, prior 211,000; Continuing Claims, est. 1.8m, prior 1.76m
  • 8:30am: US CPI MoM, est. 0.3%, prior -0.1%
    • US CPI Ex Food and Energy MoM, est. 0.2%, prior 0.2%
    • US CPI YoY, est. 2.5%, prior 2.4%
    • US CPI Ex Food and Energy YoY, est. 2.2%, prior 2.1%
    • US CPI Index NSA, est. 250.7, prior 249.6
    • US CPI Core Index SA, prior 256.2
  • Real Avg Weekly Earnings YoY, prior 0.94%; Real Avg Hourly Earning YoY, prior 0.4%
  • 9:45am: Bloomberg Consumer Comfort, prior 56.5
  • 2pm: Monthly Budget Statement, est. $212.0b, prior $208.7b deficit

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