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Thursday, March 28, 2024

Global Stocks, US Futures Slide As Oil Rebound Fizzles, Pound Tumbles

Courtesy of ZeroHedge. View original post here.

European stocks pared a decline of as much as 1.2% on Wednesday but remained in the red, as the FTSE 100 erased losses after the pound resumed its drop ahead of today’s key cabinet meeting, and as oil rebounded after a Reuters report OPEC+ may cut 1.4MM barrels of output, following the latest mixed data out of China…

…  while Asian shares slumped and US equity futures slid in the red fading earlier gains.

Overall sentiment was negative, with stocks around the globe in the red, if not suffering major losses.

Europe’s Stoxx 600 Index was dragged lower by mining and energy shares following the latest round of disappointing Chinese retail sales data, as good news for the auto sector – following a Bloomberg report that the White House would hold off imposing auto tariffs for now – wasn’t enough tip the broad European market into the green.

European stocks were also pressured by the worst German GDP print since 2015, after Europe’s strongest economy contracted in the 3rd quarter as a result of collapsing auto production.

Not helping was continued political gridlock in Italy, whose cabinet defied Europe overnight and resubmitted its budget proposal, predicting a 2.4% budget deficit, a number that had previously been rejected by Brussels. European energy stocks were down 0.9%; they pared losses at one point as oil recovered after a OPEC’s President said the group and its allies will cut production, and Reuters reported up to 1.4MM barrels in production would be cut. West Texas crude attempted a rebound after posting its longest losing streak on record, however the spike has been short-lived for now and at this pace, oil’s record 12-day decline appears set to continue.

The UK’s FTSE 100 was flat with the pound falling as much as 0.5% vs USD after a sharp jump on Tuesday, with the success of U.K. Prime Minister Theresa May’s Brexit deal still in question, given the need to win over her Cabinet members and later Parliament.

Energy producers also weighed in Australia, where equities slumped. Japanese stocks came off their highs of the day, while shares declined in Hong Kong, China and South Korea. The Nikkei 225 (+0.2%) shrugged off a contraction to GDP data with the benchmark index kept afloat for most the session by JPY weakness and as automakers cheered reports the US was said to be planning to hold off on implementing auto tariffs for now. Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (-0.9%) were also downbeat as participants digested mostly uninspiring releases from China including softer than expected New Yuan Loans, Aggregate Financing and Retail Sales, although Industrial Production and Fixed Assets Investment data topped estimates

In currencies, all eyes were on the pound, which swung between gains and losses as traders wait to see if Theresa May could persuade her cabinet to back her Brexit deal. The dollar reversed a decline during Asian hours, while the Norwegian krone hit its lowest level since June 2017 following a rout in oil prices. The euro dipped 0.2% to $1.1270 as euro-area economic growth slowed in the third quarter, held back by a contraction in Germany. The Swedish krona fell as inflation missed estimates for October, weakening the case for an interest rate hike as soon as next month.

Treasury yields were flat and the dollar remained near an 18-month high, rising from earlier session lows. Italy’s sovereign bonds climbed despite the government submitting a defiant budget to the European Commission on Tuesday.

Traders also fretted over the next move in oil, which has suffered a historic rout at an already challenging time for global equities, which have been digesting a downturn in the tech sector, the ongoing trade spat between the two biggest economies as well as a higher-rate regime.

And as we reported earlier that the Trump administration is holding off for now on imposing new tariffs on automobiles, there is ground for some optimism, but Brexit and Italian risks linger, American inflation data is out Wednesday and key reports on the crude market are also imminent.

In addition to today’s key CPI report, attention will also turn to Fed Chair Jerome Powell, who speaks Wednesday, with some analysts expecting him to calm worries about the central bank pushing its interest rate-hike cycle too far.

Elsewhere, India’s rupee rallied to an almost two-month high and its sovereign bonds advanced as the slump in oil prices deepened, easing investor concerns over the oil-importing nation’s current-account deficit. Emerging-market equities slipped. Gold fell.

Expected data include mortgage applications and inflation. Canopy Growth, Macy’s and Cisco are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,723.75
  • STOXX Europe 600 down 0.9% to 361.31
  • MXAP down 0.2% to 150.12
  • MXAPJ down 0.6% to 478.54
  • Nikkei up 0.2% to 21,846.48
  • Topix up 0.2% to 1,641.26
  • Hang Seng Index down 0.5% to 25,654.43
  • Shanghai Composite down 0.9% to 2,632.24
  • Sensex up 0.09% to 35,177.13
  • Australia S&P/ASX 200 down 1.7% to 5,732.77
  • Kospi down 0.2% to 2,068.05
  • German 10Y yield fell 1.9 bps to 0.39%
  • Euro down 0.1% to $1.1274
  • Italian 10Y yield rose 0.8 bps to 3.074%
  • Spanish 10Y yield rose 1.2 bps to 1.618%
  • Brent futures up 0.5% to $65.77/bbl
  • Gold spot down 0.2% to $1,200.23
  • U.S. Dollar Index little changed at 97.30

Top Overnight News

  • Prime Minister Theresa May has clinched a Brexit deal with the European Union after months of deadlock. She now has to convince a skeptical Cabinet that it’s not a sellout and overcome near impossible odds to get it through Parliament
  • The U.S. and China have resumed contact “at all levels” over trade ahead of a planned meeting between President Donald Trump and China’s Xi Jinping, White House economic adviser Larry Kudlow said
  • China’s industrial production and business investment gained pace, while retail sales growth slowed, signaling some stabilization for policy makers grappling with the slowest economic growth in nearly a decade
  • Japan’s economy contracted in the third quarter for the second time this year after an earthquake, typhoons and torrential rain battered production at home and exports declined amid softer demand overseas
  • The Trump administration will hold off for now on imposing new tariffs on automobile imports as top officials weigh revisions to a report on the national security implications, according to two people familiar with the matter
  • Oil was showing little sign of recovering from its unprecedented decline as investors flee a market hammered by swelling supplies and a darkening demand outlook
  • Euro-area GDP grew 0.2%, matching an initial estimate, but half the pace recorded in the previous period, Eurostat said Wednesday. The German economy shrank for the first time since early 2015 after the auto industry took a hit
  • U.S. Senator Lindsey Graham called Saudi Arabia’s Crown Prince Mohammed bin Salman “unstable and unreliable” and said he and other lawmakers were discussing sanctions against the longtime U.S. ally in the wake of Saudi journalist Jamal Khashoggi’s killing
  • OPEC and allied oil producers will cut or adjust production as needed to balance the market, the group’s president, United Arab Emirates Energy Minister Suhail Al Mazrouei, said Wednesday

Asian equities traded lacklustre following a similar performance on Wall Street where the energy sector was hit by a further






aggressive slide in oil prices but with losses in the broader market stemmed amid resilience in financials and tech. ASX 200 (-






1.7%) was led lower by weakness in energy names after WTI crude fell nearly 8% on its record 12th consecutive decline, while






Nikkei 225 (+0.2%) shrugged off a contraction to GDP data with the benchmark index kept afloat for most the session by JPY






weakness and as automakers cheered reports the US was said to be planning to hold off on implementing auto tariffs for now.






Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (-0.9%) were also downbeat as participants digested mostly uninspiring






releases from China including softer than expected New Yuan Loans, Aggregate Financing and Retail Sales, although Industrial






Production and Fixed Assets Investment data topped estimates. Finally, 10yr JGBs were higher as the lacklustre risk tone across






the region underpinned demand and in which upside gained traction as the Japanese benchmark stock index momentarily gave up






all its gains.

Top Asian News

  • China’s Economy Hints at Improvement Ahead Amid Consumer Gloom
  • Sumitomo Mitsui Profit Jumps on Trading, Loans and Fee Business
  • Samsung Arm Faces Criminal Probe After Breaking Accounting Rules
  • Iran Executes Gold Coin ’Sultan’ as U.S. Sanctions Bite
  • Weber Sees Takeda Getting More Than 66% Vote on Shire: Nikkei

Major European indices, excluding FTSE 100 (+0.1%), are in the red (albeit off of worst levels, amid a mild uptick in crude prices






and positive earnings from Tencent), with the FTSE MIB (-1.2%) lagging its peers amid political jitters and negativity from Mediaset






(-8.1%) post earnings and Telecom Italia (-4.0%) following a negative broker move amid board unrest; of note, reports suggest that Alfredo Altavia is the lead candidate for CEO. Sectors are mixed with energy names and materials lagging whilst utilities lead.






Elsewhere, Smiths Group (+6.3%) are in the green after confirming their full year management expectations and spinning-off their






Healthcare unit. E.ON (+2.5%) are firmer after reporting a beat on earnings, Wirecard (-4.0%) are at the bottom of the Stoxx 600






post-earnings, whilst Rio Tinto (-3.0%) shares have been hampered after a downgrade at Liberum

Top European News

  • Macquarie Being Investigated by Denmark for Role in Tax Scandal
  • EON Reports Profit Gain, Eyes Synergies From Innogy Takeover
  • Maersk Raises Lower End of Forecast Range as Sales Pick Up
  • U.K. Inflation Unexpectedly Stays at 2.4% as Food Costs Decline
  • Convicted Balkan Ex-Leader’s Asylum Plea Puts Orban in a Jam

In FX, it’s Brexit day for the Pound, or at least another pivotal moment in the process towards reaching a deal before the UK officially leaves the EU as the Cabinet decides whether to back or reject the withdrawal agreement. The session kicks off at  14GMT and the outcome remains uncertain even though PM May appears to have persuaded key Ministers to vote in favour, as the minority DUP coalition partner has already indicated its strong opposition. Hence, some retracement in Sterling from the highs seen when news broke that UK and EU negotiators had finally agreed resolved the outstanding issues, with Cable back below 1.3000 and almost retesting 1.2900 on negative legal observations on the terms of the backstop, while Eur/Gbp is firmly back above 0.8700. Note, benign inflation data has also kept the Pound in consolidative/defensive mode. EUR – The single currency remains partly in lock-step with the Gbp on Brexit-related moves, but also depressed by the ongoing Italian-EU budget stand-off and further evidence of slowing momentum in the Eurozone economy, with German GDP weaker than forecast in Q3. Eur/Usd has lost grip of 1.1300 as a result, and from a technical perspective is back below the 100 HMA at 1.1312. SEK/NOK – Another weak Scandi macro release has seen the Sek underperform and Nok decline in sympathy, as Swedish CPI missed consensus and raised more doubt over a Riksbank hike in December rather than February 2019. Moreover, the domestic political backdrop remains clouded as PM candidate Kristersson did not get Parliament consent to try and form a new Government. Eur/Sek up to 10.2980 and toughing strong chart resistance vs circa 10.2135 at one stage, Eur/Nok just shy of 9.6400 from 9.585 at the low.

In commodities, Brent (+0.3%) and WTI (+0.1%) break their downward streak, following sources reporting that OPEC+ are debating a 1.4mln BPD oil supply reduction. This followed today’s IEA monthly stating that OPEC crude output rose by 200kbpd in October, which is up 240k compared to last year; and Q3 stocks posting their largest gain since 2015. At the time, this added to the recent downward pressure on prices before the aforementioned sources suggesting an OPEC+ supply reduction. Of note, we APIs will be released today due to Monday’s Veterans Day Holiday. Gold (-0.1%) is marginally softer amidst a firmer dollar with Gold breaching USD 1200/oz to the downside and unable to benefit from the current risk environment. Separately, shanghai rebar prices have recovered from recent lows, as expectations of economic stimulus from Beijing offsets record October steel output.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -0.7%
  • 8:30am: US CPI MoM, est. 0.3%, prior 0.1%; Ex Food and Energy MoM, est. 0.2%, prior 0.1%

    • US CPI YoY, est. 2.5%, prior 2.3%; Ex Food and Energy YoY, est. 2.2%, prior 2.2%
    • Real Avg Weekly Earnings YoY, prior 1.06%; Real Avg Hourly Earning YoY, prior 0.5%

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