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Vanguard’s Move Into FX Trading Spells Big Trouble for Big Banks
When it comes to adapting to a rapidly evolving investment environment, the big banks can’t catch a break these days. It’s no secret that a wave of tech-enabled innovation has thrown a wrench in Wall Street’s traditional securities trading model, compressing margins and allowing non-bank players to take a bigger piece of what once was a very lucrative pie. Couple that with historically low interest rates that are only getting lower, and you have revenues that have hit post-recession lows, forcing firms to take a hatchet to their head counts. The disruption shows no signs of abating. On Thursday, it emerged that The Vanguard Group—the $5 trillion asset management giant that revolutionized index fund investing more than 40 years ago—has drawn up plans for a new foreign exchange trading platform that would see it encroach on territory long dominated by the major investment banks. Vanguard’s platform would deploy technology—blockchain, specifically—to streamline the currency trading market, allowing institutional buy-side firms to trade directly with each other. It would create a peer-to-peer FX trading model to reduce costs for currency investors, allowing them to bypass the banks—who have long acted as the price-setting middlemen in the FX market—and their hefty commissions. Andy Maack, Vanguard’s global head of FX trading, described the model as “disintermediation” in an interview with investment management industry publication _The Trade_last month. “Trading would be decoupled from banks and price discovery could potentially happen outside platforms, where there might be better facilities to enable peer-to-peer matching,” he said. A spokesperson for Vanguard confirmed to _Fortune_the firm is “currently piloting a project focused on improving the efficiency and reducing [the] risk of FX hedging,” but declined to comment further. For some, this sort of attempt at disrupting the $6 trillion-a-day currency market was only a matter of time. Mayra Rodriguez Valladares, managing principal at capital markets consultancy MRV Associates, says she is “surprised that it has taken the buy-side this long” to challenge the FX market’s status quo. “There is no reason that with blockchain and other technological innovations, giant asset managers such as Vanguard, [Charles] Schwab, and Fidelity could not participate in foreign exchange markets more significantly without banks as intermediaries,” according to Valladares. With Vanguard alone trading $2.5 trillion worth of currencies annually, it is an opportunity “that would reduce the buy-side’s costs significantly,” she notes. The platform would be indicative of a larger trend within financial services, and one that’s hitting the banks where it hurts: the development of lower-cost, tech-driven alternatives to traditional trading models. “Vanguard can potentially open [the market] up and say, ‘Look, we know we’re buying and selling all these different currencies—maybe there’s an opportunity for us to trade directly [with other buy-side firms],’” says Brad Bailey, a research director at financial services consultancy Celent’s capital markets division. While that would “dramatically cut costs for trading and hedging FX portfolios” for investors, it would also “cut into a lot of banks’ profitability within their FX businesses,” Bailey notes. “The margins have gotten so tight as more buy-side institutions get intelligent about what the market structures are,” he adds. “Vanguard has always been at the vanguard of making trading as cheap as possible, so they can pass those savings on to their investors.” It would also be a huge step forward for the practical application of blockchain technology, at least beyond the highly speculative and much-debated realm of cryptocurrencies. Vanguard isn’t the first player in the FX space to look to deploy the blockchain as a means of cutting costs and increasing efficiency; in January, HSBC announced that it had utilized the distributed ledger technology to settle $250 billion in FX transactions on its “FX Everywhere” platform. Mark Williamson, HSBC’s global COO of FX cash trading and risk management, subsequently told Reuters that the blockchain-based system had reduced the cost of settling FX trades by roughly a quarter. HSBC’s experiment with blockchain is an example of a big bank trying to stay ahead of the curve when it comes to the technological disruption of a major business line. And given the sheer scale of the banks’ presence in the FX market, and their ability to provide credit to currency investors, there’s little chance that a venture like Vanguard’s will completely recalibrate the currency market overnight. What the asset manager’s tech-fueled foray into the FX realm does indicate, however, is that there are few areas within the financial services sector that aren’t prone to disruption. The big banks, for their part, will have to continue to account for nimble, and often well-funded, newcomers promising cheaper alternatives in an increasingly fragmented investment landscape—or else find their margins further squeezed. “FX is a huge market, and there’s always going to be a space for the banks—but each step a buy-side institution like [Vanguard] makes is going to cut costs and put pressure on the banks,” Bailey says. “There’s no standing still in terms of technological investment; if you’re standing still, you’re going backward. That’s the reality for the banks.”
USD (DXY) up 0.08%, EUR down 0.04%, GBP down 0.50%, JPY down 0.12%, CNY Onshore up 0.12%, CNH Offshore up 0.02%, AUD down 0.23%
VIX up 0.65% to 9.25
Gold up 0.13% to $1,269.01
Silver down 0.11% to $16.62
Copper up 0.25% to $305.40
WTI Crude down 0.79% to $50.39
Brent Crude down 0.18% to $56.90
Natural Gas down 0.44% to $2.91
Corn down 0.07% to $3.49/bu
Wheat up 0.06% to $4.41/bu
Bitcoin up 1.55% to $4,414.56
Treasuries 2yr yields are up ~1.3bps at 1.500%, 10yr yields are up ~1.6bps at 2.364% and 30yr yields are up ~0.9bps at 2.899%
Japan 10yr yields 0.045%, up ~1.0bps on the day
France 10yr yields 0.750%, up ~1.9bps on the day
Italy 10yr yields 2.156%, up ~1.8bps on the day
Spain 10yr yields 1.704%, up ~1.8bps on the day
Germany 10yr yields 0.474%, up ~2.2bps on the day
What’s happening this morning? It was another slow evening of news other than the German Aug factory order numbers (which were very strong although the euro and Eurozone stocks are both in the red), a few US earnings reports (COST and YUMC), andsome M&A (GIMO, HON, JWN, PENN/PNK, SNCR, and more). The overall macro narrativeremains the same as it was at the Thurs close (see below for an update on the macro narrative as well as potential upcoming risks). The major Asian indices generally saw gains – TPX +0.28%, NKY +0.3%, Hang Seng +0.28%, HSCEI +0.54%, Taiwan +0.14%, Australia +1.04%, and India +0.5-7% (mainland China and Korea were both closed). There weren’t any huge themes in Asia although Macau casino stocks were weak in HK on back of underwhelming Golden Week visitor numbers (autos and financials led HK on the upside). Australia’s 1% rally was led by banks, miners, and telecoms. The major Eurozone indices are trading off small (~10-20bp); autos are outperforming while banks, retail, energy, and utilities lag. The GBP is extending its losses from Thurs amid more uncertainty around UK PM May (the DXY spiked ~50bp Thurs and is up small so far Fri morning). US S&P futures are trading down 1-2 points.
Calendar for Fri 10/6 – the focus will be on the US jobs report for Sept (8:30amET), US wholesale inventories/trade sales for Aug (10amET), US consumer credit for Aug (3pmET), and Fed speakers (Kaplan 8:30amET on CNBC, Bostic 9:15amET, Dudley 12:15pmET, Kaplan 12:45pmET, and Bullard 1pmET). o US jobs preview – there is very little anticipation or focus on the Sept jobs report (Fri morning 8/6 8:30amET) as 1) most are anticipating large storm-related distortions and 2) at this point in the cycle it only requires ~75K monthly adds to keep the UR steady (as was discussed in this JPMorgan report http://bit.ly/2fbT6cE). The St is in print at +80K for adds (vs. ADP for Sept at +135K and Aug BLS +156K) w/a 4.4% UR (unchanged w/Aug) and wages +0.3% M/M and +2.5% Y/Y (vs. Aug +0.1% M/M and +2.5% Y/Y). It’s very difficult to see the Sept BLS report changing the near-term US monetary policy trajectory (w/ongoing normalization and a FF hike on 12/13). The potential for a hike on 11/1 is very low and if anything the Sept CPI on Fri 10/13 may be a more important data point than jobs on Fri 10/6. Instead, the bigger Fed uncertainty has nothing to do w/data or policy but instead concerns staffing (i.e. who will be the next chair? A Trump announcement could come as soon as next week – Powell and Warsh are the frontrunners according to media reports w/the former appearing to have a slight edge).
Top Headlines for Friday
Eco data recap for Fri morning 10/6 – the big data came out of Germany where factory orders for Aug beat expectations by a wide margin (orders +3.6% M/M vs. the St +0.7% and +7.8% Y/Y vs. the St +4.7%). See JPMorgan’s comments on the German data (http://bit.ly/2y42sh4). Japan’s wage inflation figures for Aug were soft, as expected (http://bit.ly/2kuygr0). o Fed chair – markets would be comfortable w/any of the main candidates (including Powell, Warsh, Cohn, Yellen, etc.) w/the exception of one person: John Taylor. Bloomberg. o Fed update – Kansas City Fed President George spoke Thurs night and said the US economy needed further rates hikes (http://cnb.cx/2kqTiqj). JPMorgan’s Mike Feroli published an updated FOMC hawk/dove chart following the confirmation of Quarles (http://bit.ly/2z1jSti). o Japan’s “Party of Hope” unveils an economic agenda that pledges to rely less on aggressive fiscal and monetary stimulus – Reuters http://reut.rs/2ghahXu o AUD hit as RBA’s Harper doesn’t rule out a rate cut in a WSJ article. http://on.wsj.com/2xW3nkD
UK PM May the subject of more speculation amid disclosure of plot to topple her; former party chairman, Grant Shapps, said May’s leadership should now be challenged. Reuters http://reut.rs/2yMrmzB
Spain/Catalonia – Spain’s Constitutional Court ordered the suspension of the Catalan parliament’s regional session scheduled for Mon; Catalonia had planned on declaring independence at the session. Reuters http://reut.rs/2xlDfjC o Spain’s gov’t will change rules and make it easier for firms to move their legal base out of Catalonia – Reuters http://reut.rs/2z1WQCF
Tax update - there is a lot of focus on taxes in the US as the Senate Budget Committee (right at the Thurs close) and the full House (at ~1pmET Thurs afternoon) advance budget resolutions (the full Senate will presumably vote within the next two weeks). This is a necessary step in the tax process (as these resolutions contain the reconciliation instructions allowing tax to pass via a simple majority in the Senate) but also a relatively minor one. Far more complicated will be agreeing on rates, deduction schedules, deficits, etc., and if anything all the press in the last few days and weeks point to divisions within the GOP on these matters being larger than anticipated. o Schumer warns that the proposal to eliminate the SALT deduction will kill the GOP tax plan – Bloomberg. https://bloom.bg/2xXX8KL o GOP desire to repeal the estate tax runs into resistance - from Republicans. As a result this piece of the 9/27 tax blueprint (among others) may wind up being scrapped - WSJ. http://on.wsj.com/2gf9G8E o Fed officials express concern over tax plans – Fed officials warned the tax plan may only provide a temporary boost to growth while fueling inflation and driving debt to unsustainable levels – Reuters http://reut.rs/2xWMrdG
Republican headaches keep growing as donors withhold money, a tax consensus fails to materialize, and “establishment” figures depart the scene (Strange losing to Moore, Corker retiring, etc.). Republican leaders are increasingly concerned about the party’s grip on the House and Senate should it fail to pass a tax bill. Leaders “fear that the inchoate populism that Mr. Trump personifies, and which Mr. Bannon is attempting to weaponize against incumbents, is on the march” – NYT http://nyti.ms/2y3lUKT
Trump looks to jolt NAFTA – the White House is considering a proposal that would represent a radical shift to the principles underlying NAFTA. According to rule changes being considered, automobiles would need to have a specific level of US-made content in order to qualify for tariff breaks (right now autos only need to have a specific level of content from within the NAFTA region). WSJ. http://on.wsj.com/2y4LXlo
Trump makes cryptic comment ahead of a dinner with US military leaders. Trump said the dinner might represent “the calm before the storm”. Asked repeatedly by reporters to clarify his comments, Trump said, “You’ll find out” – Bloomberg https://bloom.bg/2xXI2r6
Trump was “furious” over NBC’s Tillerson “moron” article; John Kelly was forced to rearrange his schedule and stayed in Washington in order to try and calm tensions – NBC. http://nbcnews.to/2fOGx3B
Iran/Trump – Trump will “decertify” the Iran nuclear accord next week (speech on 10/12) and declare the agreement as not being in the US national interest according to the Washington Post (article out at ~2:40pmET Thurs afternoon). This is consistent w/what the AP and Politico reported earlier in the week. Note that Trump’s 10/12 declarations won’t end the Iranian nuclear pact as it will be up to Congress whether re-impose sanctions on Tehran (and Trump will hold off on recommending such a step). Washington Post http://wapo.st/2z1zeOw o Decertifying the Iran Deal Wouldn’t Have to Kill It – WSJ http://on.wsj.com/2y40dKY
North Korea – US lawmakers are pressuring the Trump White House to toughen sanctions against North Korea – WSJ. http://on.wsj.com/2xlKdVQ
The Economist's lead article this week speaks to sentiment at the moment and this is one of the big reasons why stocks are proving to be so resilient. "Asset prices are high across the board. Is it time to worry?" (http://econ.st/2xVXOjv). o The WSJ notes that a key European junk-bond index is now yielding less than 10yr US TSYs although it offers a reasonable explanation for this ostensibly irrational price level – WSJ. http://on.wsj.com/2xkwYVb
Company-specific news update from Thurs night. There were a few earnings reports out Thurs AMC but for the most part it was another slow evening. COST EPS beats thanks to better SG&A and favorable tax while GMs were light; Sept same-store-sales beat w/upside in the US (the stock ended down 3% during the Thurs after-hours trading session). YUMC’s results came in ahead of expectations (EPS/same-store-sales) and it increased capital return. SNCR reentered M&A talks w/Siris Capital (Siris is looking to buy SNCR’s Intralinks and may take a ~20% equity stake in SNCR); SNCR ended up ~27% during the Thurs after-hours trading session. According to the WSJ, HON is pursuing an acquisition of Evoqua Water Tech in a deal that could be worth $3B (http://on.wsj.com/2yseCSp). The WSJ reported (during trading on Thurs http://on.wsj.com/2xjE24p) on merger talks between PENN and PNK (the firms have been unable to agree to terms but PENN is still interested in buying PNK).
JWN buyout not completely dead – the Nordstrom family is exploring a new deal structure w/Leonard Green that would involve less debt. The family is trying to raise more equity (although it isn’t clear where the money will come from). WSJ. http://on.wsj.com/2ggTvbh
GIMO – Elliot’s takeover talks w/the company have ground to a halt according to Reuters over price disagreements – Reuters http://reut.rs/2fNCepo
SUM, ASHG – SUM has made a rival bid for ASHG as it looks to scuttle the existing Ash Grove-CRH PLC transaction. Ash Grove’s board said the offer could result in a superior proposal and that it would engage in talks with the third party. Bloomberg.
AMZN: the one market where Amazon is failing to dominate: Hollywood. The WSJ discusses AMZN’s failure to become a force in content. WSJ. http://on.wsj.com/2xZcJtr
Macau casino stocks slump during Fri trading as Golden Week visitor numbers disappoint expectations – Bloomberg https://bloom.bg/2fOuGmd
Identifying risks – what could go wrong?
Reflation enthusiasm is undercut by less aggressive CB normalization, dramatic curve flattening, and/or a softening in nominal growth. Of all the reflation pieces (monetary policy normalization, expansionary fiscal policy, firming inflation, and ongoing real growth strength), the last piece (real growth) is increasingly being taken for granted.
Bank investors wind up focusing too much on reflation/yields (which are tailwinds) but miss weakening credit (higher provisions) and tepid loan growth.
The first speech by the next Fed chair unsettles sentiment (assuming the chair isn’t Yellen).
The tax process slows in Washington as Republicans prove incapable of reaching a consensus on rates, deductions, and deficits.
Paul Ryan decides to “pull a Boehner”, stepping down as Speaker out of frustration with his inability to pass legislation.
The final tax bill results in materially higher rates for upper-income Americans.
May winds up stepping down as UK PM, sowing ongoing Brexit uncertainty.
Abe does much worse than anticipated during the upcoming Japan election (10/22).
North Korea conducts an above-ground nuclear bomb test (or even worse, an atmospheric test).
Iran decides to resume its nuclear weapons program, sparking an immediate escalation of Middle East geopolitical tensions (Trump’s Iran speech is coming up on 10/12).
Washington introduces (or threatens to introduce) tough new regulations aimed at internet/social media companies following the Russia election investigations (note that US internet giants will be testifying before Congress on 11/1).
Prominent members of the Trump team decide to leave the gov’t (the market would be particularly sensitive to Tillerson, Mattis, Kelly, and/or Cohn departing; recent media reports suggest the Tillerson-Trump relationship is particularly strained).
The pro-reflation bias commenced back on 9/11 and has been propelled ever since by ongoing real growth strength, firming inflation, normalizing monetary policy/rhetoric, and expansionary fiscal policy (in particular in the US w/the 9/27 tax blueprint but also in Germany following that country’s election outcome and fin min change).
This enthusiasm can extend for a few more weeks but the ECB/BOE decisions (on 10/26 and 11/2, respectively) will mark the culmination of a series of pro-reflation catalysts/developments and thus the trade may enter a period of extended consolidation around those central bank events.
Meanwhile the nuances of this present reflation process aren’t being appreciated – growth and corporate earnings are late-cycle (not early), multiples are already rich (although not necessarily ridiculous), inflation is only very gradually firming to target, the economy faces enormous structural headwinds in the form of labor supply and productivity growth, and while central banks are normalizing policy will stay extremely accommodative for years to come (the structural headwinds and slow tightening pace will prevent yields from materially rising and curves from significantly steepening).
The tenor of sentiment is beginning to evolve and there is definitely greater frustration w/people being forced to participate in a tape many don’t particularly love at present levels – this helps fuel runs such has occurred over the last few weeks (the SPX hasn’t closed in the red since Mon 9/25) but it also makes for a precarious setup w/a lot of weak “renters” who will be quick to sell the minute momentum pauses.
Bottom Line: the lack of major catalysts is helping the rally propagate and the calendar is relatively clear until earnings (which kick off w/banks on Thurs 10/12). The reflation impetus will likely stay in place into the ECB/BOE (10/26 and 11/2, respectively) after which a consolidation (at least) is likely (note that a lot of the “easy” tax steps are occurring now – the blueprint on 9/27, the budget resolutions, etc. However, reaching a consensus on rates, deductions, and deficits will be extremely difficult and this will become more apparent later in Oct and into Nov, around the same time as the ECB/BOE decisions).
Calendar of events to watch for the week of Mon Oct 9
Calendar for the week of 10/9 – overall it should be a relatively slow week although a few items are in focus. The current reflation emphasis makes the US CPI on Fri 10/13 prob. the single most important eco data point of the week but there are other numbers in focus (German trade/IP for Aug and China imports/exports for Sept). The CQ3 earnings season kicks off in earnest with the banks on Thurs and Friday. Away from scheduled events, media reports suggest Catalonia could formally declare independence on Mon (although this could easily be delayed following court challenges and as the region’s leaders seek a settlement w/Madrid) while the White House may unveil its infrastructure spending blueprint during the week of 10/9 (http://bit.ly/2wwiop9). South Korean security officials have warned that North Korea may fire additional missiles between 10/10 and 10/18 while Trump’s Fed chair selection could come soon (media reports suggest Powell and Warsh are the two frontrunners). Trump is expected to deliver an Iranian policy speech on/around Thurs 10/12 during which he will declare the nuclear deal as no longer being in the US national interest. HON has said it will announce its formal portfolio review decision prior to earnings (media reports, including on CNBC, suggest it will retain its aerospace unit).
Calendar for Mon 10/9 – the day should be pretty quiet owing to the US Columbus Day holiday (equities will be open but fixed income is closed). The focus will be on the China FX reserve numbers for Sept (Fri night/Sat morning 10/7), the China Caixin services PMI for Sept (Sun night/Mon morning), Germany’s industrial production for Aug (2amET), and earnings (LVMH reports results after the European close).
Calendar for Tues 10/10 – the focus will be on the German trade figures for Aug (2amET), a bunch of analyst meetings (including TECD, Santander, WDAY, and WMT), the PG shareholder meeting (at which the Trian/Peltz board seat request will be voted on), and earnings (CUDA after the close).
Calendar for Wed 10/11 – the focus will be on the US JOLTs report for Aug (10amET), Fed minutes from the 9/20 meeting (2pmET), analyst meetings (KR), and earnings (DAL, BLK, FAST, and OZRK before the open).
Calendar for Thurs 10/12 – the focus will be on Eurozone IP for Aug (5amET), the US PPI for Sept (8:30amET), Trump’s Iran speech, analyst meetings (BOX, HPQ, LSCC, and WDC), and earnings (C, DPZ, JPM, LNN, Sky PLC, and Tata Consultancy pre-open).
Calendar for Fri 10/13 – the focus will be on China’s imports/exports for Sept (Thurs night/Fri morning), the US CPI for Sept (8:30amET), US retail sales for Sept (8:30amET), the Michigan Confidence numbers for Oct (10amET), US business inventories for Aug (10amET), analyst meetings (SAFM), and earnings (BAC, DRFG, FHN, FRC, JBHT, Man Group, PNC, and WFC pre-open).
Catalysts – big events to watch over the coming months
China mainland markets closed Mon 10/2-Fri 10/6 for the National Day holiday.
US jobs report for Sept – Fri 10/6.
US infrastructure spending - the Trump White House may unveil its long-anticipated infrastructure plan during the week of 10/9 according to House Transport chairman Rep. Bill Shuster.
North Korea - South Korea’s national security adviser Chung Eui-yong said he expected Pyongyang to act around Oct. 10 and 18 (Reuters).
WMT analyst meeting – Tues 10/10 (note that KR has an analyst meeting the next day, Wed 10/11).
PG shareholder meeting – Tues 10/10 (decision to be made on Peltz’s board seat request).
Fed minutes – minutes from the 9/20 meeting will be released Wed 10/11. 2pmET.
HON – the co will announce its portfolio review decision before earnings in Oct.
Iran - Trump is planning to deliver an Iran policy speech on 10/12 and he is expected to say that the landmark 2015 nuclear deal is no longer in the U.S. national security interest (AP)
Bank earnings – the CQ3 earnings season kicks off w/Citigroup and JPM Thurs morning 10/12 while BAC, PNC, and WFC all report Fri 10/13.
US inflation – the Sept CPI will hit Fri 10/13.
IMF/World Bank - 2017 Annual Meetings of the World Bank Group and the International Monetary Fund. Oct 13-15 in Washington.
CQ3 earnings – the week of Mon 10/16 is the first busy week of the CQ3 reporting season.
Fed chair decision during the week of 10/16? Based on Trump’s “two to three” weeks comment (on Fri 9/29), his decision on a Fed chair could come as soon as the week of 10/16 (this week is also the first busy period of the CQ3 earnings season, the deadline for Trump to rule on the Iran nuclear deal, and the beginning of the China National Congress on 10/18). Media reports suggest the Fed chair frontrunners are Warsh and Powell followed by Yellen and Cohn.
China - the National Congress of the Communist Party of China starts Oct 18.
China Q3 GDP and Sept retail sales, IP, and FAI (Wed night/Thurs morning) – Thurs morning 10/19.
EU leaders hold summit in Brussels. Oct 19-20. Brussels.
Japan – the country will hold snap elections on Sun 10/22.
Flash PMIs for Oct – Tues 10/24
ECB meeting/press conf. Thurs Oct 26. The ECB is expected to provide guidance on LSAP tapering at this meeting (St assumes LSAP drops from EU60B now to EU40B w/6 month extension).
1949: The Year That Set the Course of Chinese-American Relations – NYT http://nyti.ms/2z2hGSv M&A/Strategic Actions
Brooklyn Nets – multiple suitors are in talks to buy a 49% stake in the NBA deal. Mikhail Prokhorov is seeking a valuation of >$2B for the entire team. NY Post. http://nyp.st/2y3KFY0 o Brooklyn Nets – BABA denied that its vice chairman, Joseph Tsai, was in talks to buy a stake in the Nets – Reuters http://reut.rs/2yuCBRa
GIMO – Elliot’s takeover talks w/the company have ground to a halt according to Reuters over price disagreements – Reuters http://reut.rs/2fNCepo
HON - according to the WSJ, HON is pursuing an acquisition of Evoqua Water Tech in a deal that could be worth $3B (http://on.wsj.com/2yseCSp).
HPQ, Samsung – China said it will approve HPQ’s purchase of Samsung’s printer business – Reuters http://reut.rs/2y06khP
JWN buyout not completely dead – the Nordstrom family is exploring a new deal structure w/Leonard Green that would involve less debt. The family is trying to raise more equity (although it isn’t clear where the money will come from). WSJ. http://on.wsj.com/2ggTvbh
PENN, PNK - the WSJ reported (during trading on Thurs http://on.wsj.com/2xjE24p) on merger talks between PENN and PNK (the firms have been unable to agree to terms but PENN is still interested in buying PNK).
Retailers helped through bankruptcy process – Reuters notes that many retailers are obtaining help during the bankruptcy process w/many being allowed to stay in business w/their store bases largely intact – Reuters http://reut.rs/2y3NcAN
SNCR - On October 4, 2017, SNCR and Siris determined to restart discussions regarding a potential transaction. Specifically, Siris is offering to buy Intralinks for $915MM cash, invest $185MM for a convert worth ~20% of SNCR’s common shares, and cancel the ~6MM SNCR common shares it now owns.
SUM, ASHG – SUM has made a rival bid for ASHG as it looks to scuttle the existing Ash Grove-CRH PLC transaction. Ash Grove’s board said the offer could result in a superior proposal and that it would engage in talks with the third party. Bloomberg.
Unilever – the co is seeking PE bids for its spreads business by 10/19; a sale could be worth $8B – Reuters http://reut.rs/2fNDYPe
Full catalyst list
Fri Oct 6 – German factory orders for Aug. 2amET.
Fri Oct 6 – US jobs report for Sept. 8:30amET.
Fri Oct 6 – US wholesale inventories/trade sales for Aug. 10amET.
Fri Oct 6 – US consumer credit for Aug. 3pmET.
Fri Oct 6 – Fed speakers: Bostic, Kaplan, Bullard
Sat Oct 7 – China FX reserves for Sept (Fri night/Sat morning)
Mon Oct 9 – China Caixin services PMI for Sept (Sun night/Mon morning)
Mon Oct 9 – German industrial production for Aug. 2amET.
Mon Oct 9 – earnings after the European close: LVMH.
Mon Oct 9 – Columbus Day holiday in the US (equities will be open while fixed income is closed).
Tues Oct 10 – German trade balance for Aug. 2amET.
Tues Oct 10 – analyst meetings: TECD, Santander, WDAY, WMT
Tues Oct 10 – PG shareholder meeting
Tues Oct 10 – earnings after the close: CUDA
Wed Oct 11 – US JOLTs report for Aug. 10amET.
Wed Oct 11 – Fed minutes from the Sept 20 meeting (2pmET).
Wed Oct 11 – analyst meetings: KR
Wed Oct 11 – earnings before the open: BLK, DAL, FAST, OZRK.
Thurs Oct 12 – Eurozone industrial production for Aug. 5amET.
Thurs Oct 12 – US PPI for Sept. 8:30amET.
Thurs Oct 12 – analyst meetings: BOX, HPQ, LSCC, WDC.
Thurs Oct 12 – earnings before the open: C, DPZ, JPM, LNN, Sky PLC, Tata Consultancy.
Thurs Oct 12 – earnings after the close: EXFO
Fri Oct 13 – China imports/exports for Sept (Thurs night/Fri morning)
Fri Oct 13 – US CPI for Sept. 8:30amET.
Fri Oct 13 – US retail sales for Sept. 8:30amET.
Fri Oct 13 – US Michigan Sentiment for Oct. 10amET.
Fri Oct 13 – US business inventories for Aug. 10amET.
Fri Oct 13 – analyst meetings: SAFM
Fri Oct 13 – earnings before the open: BAC, DRFG, FHN, FRC, JBHT, Man Group, PNC, WFC.
Mon Oct 16 – China CPI/PPI for Sept (Sun night/Mon morning)
Mon Oct 16 – Eurozone trade balance for Aug. 5amET.
Mon Oct 16 – earnings before the open: SCHW
Mon Oct 16 – earnings after the close: BRO, IEX, NFLX, Rio Tinto
Tues Oct 17 – Eurozone Sept auto registrations. 2amET.
Tues Oct 17 – German ZEW survey results for Oct. 5amET.
Tues Oct 17 – US import prices for Sept. 8:30amET.
Tues Oct 17 – US industrial production for Sept. 9:15amET.
Tues Oct 17 – US NAHB housing index for Oct. 10amET.
Tues Oct 17 – earnings before the open: BMI, CMA, CSX, GS, GWW, HOG, JNJ, MS, Pearson, PLD, Remy Cointreau, UNH
Tues Oct 17 – earnings after the close: ADTN, BHP, CP, CREE, IBM, LRCX, NAVI.
Wed Oct 18 – US housing starts for Sept. 8:30amET.
Wed Oct 18 – US building permits fro Sept. 8:30amET.
Wed Oct 18 – US Beige Book. 2pmET.
Wed Oct 18 – earnings before the open: ABT, Akzo Nobel, MTB, NTRS, USB
Wed Oct 18 – earnings after the close: AA, AXP, BHE, CCI, CCK, EBAY, LLNW, SLG, TCBI
Thurs Oct 19 – China Q3 GDP and Sept retail sales, IP, and FAI (Wed night/Thurs morning)
Tues Oct 24 – earnings after the close: AKAM, AMP, CMG, COF, DFS, ESRX, IRBT, T, TSS, TXN.
Wed Oct 25 – US durable goods for Sept. 8:30amET.
Wed Oct 25 – US FHFA home price index for Aug. 9amET.
Wed Oct 25 – US new home sales for Sept. 10amET.
Wed Oct 25 – earnings before the open: ALK, ALLY, ANTM, Antofagasta, AOS, BA, BAX, Dassault Systemes, DPS, FCX, FLIR, Fresnillo, HBAN, Heineken, IP, IR, KO, LEA, LH, Lloyds Banking Group, NDAQ, NSC, NYCB, Peugeot, TMO, TUP, V, WBA, WEC.
Wed Oct 25 – earnings after the close: ABX, ACGL, AFL, AMGN, CLGX, DLR, FFIV, FTI, KIM, LSTR, NOW, ORLY, PKG, PLXS, RJF, TSCO, UNM, VAR, XLNX.
Thurs Oct 26 – US wholesale inventories for Sept. 8:30amET.
Thurs Oct 26 – US advance goods trade balance for Sept. 8:30amET.
Thurs Oct 26 – US pending home sales for Sept. 10amET.
Thurs Oct 26 – earnings before the open: Aixtron, ALLE, ALV, Anheuser Busch, APD, Bayer, BMY, BSX, BWA, CCMP, CELG, CHTR, CMCSA, CME, Deutsche Bank, ENTG, EQT, F, HLT, MMC, NEM, Nokia, ODFL, Santander, Schneider Electric, UNP, UPS, WM, XEL.
Thurs Oct 26 – earnings after the close: AIV, ATEN, CB, CDNS, EXPE, FLEX, FTNT, GILD, GOOG, HIG, INTC, LPLA, MSFT, NATI, PFG, SYK, VDSI, VRSN.
Fri Oct 27 – China Sept industrial profits (Thurs night/Fri morning).
Fri Oct 27 – US Q3 GDP, personal consumption, and core PCE for Q3. 8:30amET.
Fri Oct 27 – US Michigan Confidence numbers for Oct. 10amET.
Fri Oct 27 – earnings before the open: B, MRK, PSX, SC, TRU, Volkswagen, WY, XOM.
Mon Oct 30 – US personal income/spending and PCE for Sept. 8:30amET.
Mon Oct 30 – US Dallas Fed index for Oct. 10:30amET.
Mon Oct 30 – analyst meetings: CSX
Mon Oct 30 – earnings before the open: HSBC
Mon Oct 30 – earnings after the close: AVB, CGNX, RE, RTEC, VNO
Tues Oct 31 – US Employment Cost Index for Q3. 8:30amET.
Tues Oct 31 – US Case-Shiller home price index for Aug. 9amET.
Tues Oct 31 – US Chicago PMI for Oct. 9:45amET.
Tues Oct 31 – US Conference Board Sentiment readings for Oct. 10amET.
Tues Oct 31 – earnings before the open: ADM, AET, Airbus, AMT, Barclays, BNP, CMI, ECL, GGP, K, MA, OSK, PFE, XYL.
Tues Oct 31 – earnings after the close: APC, CHRW, CXO, WFT, X
Wed Nov 1 – US ADP jobs report for Oct. 8:15amET.
Wed Nov 1 – US Markit Manufacturing PMI for Oct. 9:45amET.
Wed Nov 1 – US Manufacturing ISM for Oct. 10amET.
Wed Nov 1 – US construction spending report for Sept. 10amET.
Wed Nov 1 – US auto sales for Oct.
Wed Nov 1 – FOMC meeting decision. 2pmET.
Wed Nov 1 – earnings before the open: AGN, APO, CLX, EL, GRMN, HFC, Novo Nordisk, ORBK, Standard Chartered, TAP, TRI.
Wed Nov 1 – earnings after the close: ALL, BHF, BXP, CAVM, CSGS, FB, LNC, MANT, MET, MUSA, OXY, PRU, QCOM, ULTI, XPO.
Thurs Nov 2 – US nonfarm productivity and unit labor costs for Q3. 8:30amET.
Thurs Nov 2 – earnings before the open: ADP, AN, BCE, CI, Credit Suisse, DISCA, H, ICE, Royal Dutch Shell, Sanofi, Swiss Re, WRK.
Thurs Nov 2 – earnings after the close: AAPL, AIG, CBS, CRUS, FLR, HLF, RMAX, SBUX, UNIT.
Fri Nov 3 – US jobs report for Oct. 8:30amET.
Fri Nov 3 – US trade balance for Sept. 8:30amET.
Fri Nov 3 – US factory orders and durable goods orders for Sept. 10amET.
Fri Nov 3 – US non-manufacturing ISM for Oct. 10amET.
Tues Nov 7 – US JOLTs jobs report for Sept. 10amET.
Tues Nov 7 – US consumer credit for Sept. 3pmET.
Thurs Nov 9 – US wholesale trade sales/inventories for Sept. 10amET.
Fri Nov 10 – US Michigan Confidence preliminary numbers for Nov. 10amET.
Tues Nov 14 – US PPI for Oct. 8:30amET.
Wed Nov 15 – US CPI for Oct. 8:30amET.
Wed Nov 15 – US Empire Manufacturing for Nov. 8:30amET.
Wed Nov 15 – US retail sales for Oct. 8:30amET.
Wed Nov 15 – US business inventories for Sept. 10amET.
Thurs Nov 16 – US import prices for Oct. 8:30amET.
Thurs Nov 16 – US industrial production for Oct. 9:15amET.
Thurs Nov 16 – US NAHB housing index for Nov. 10amET.
Fri Nov 17 – US housing starts and building permits for Oct. 8:30amET.
Mon Nov 20 – US Leading Index for Oct. 10amET.
Tues Nov 21 – US existing home sales for Oct. 10amET.
Wed Nov 22 – US durable goods for Oct. 8:30amET.
Wed Nov 22 – US final Michigan Confidence numbers for Nov. 10amET.
Wed Nov 22 – FOMC 11/1 meeting minutes. 2pmET.
Fri Nov 24 – US flash PMIs for Nov. 9:45amET.
J.P. Morgan Market Intelligence is a product of the Institutional Equities Sales and Trading desk of J.P. Morgan Securities LLC and the intellectual property thereof. It is not a product of the Research Department and is intended for distribution to institutional and professional customers only and is not intended for retail customer use. It may not be reproduced, redistributed or transmitted, in whole or in part, without J.P. Morgan’s consent. Any unauthorized use is strictly prohibited.
Major Cryptocurrencies Are Rallying This Morning As the Jump in Bitcoin’s Price Following the Maintenance Shutdown of BitMEX Sparks Further Concerns About Price Manipulation in Bitcoin Markets
According to cryptocurrency exchange Bitfinex, short orders are nearing all-time highs. At the moment, there are 39,542 short orders outstanding on Bitfinex, the second highest level since April 12, 2018.
Bitcoin jumped 4% overnight after Hong Kong-based cryptocurrency futures exchange BitMEX shut down trading for a few hours for a regular maintenance update. In aggregate, the total market capitalization of call cryptocurrencies jumped USD$12bn in over a hour. Bitcoin commentators attribute the jump in Bitcoin to the fact that BitMEX permits traders to short Bitcoin on margin. Some other Bitcoin observers, like Alex Kruger, believe the price behavior of Bitcoin affirms concerns about price manipulation and should lead the SEC to reject the ProShares Bitcoin ETF proposal this week. Unlike the other Bitcoin ETF proposals, the ProShares Bitcoin ETF propose to own CME and CBOE Bitcoin futures.
Bitmain, the Chinese Bitcoin mining company, announced that it has invested an undisclosed amount in Lambda, a blockchain data storage startup. Bitmain hopes to help Lambda further develop its technology to launch “secure” blockchain-based infrastructure and decentralized applications. The startup, based in Singapore, recently cloised a token private sale round that included investments from FunCity Capital, BlockVC, BlueHill, Zhen Fund, and other well-known institutions.
Coinbase releases 5 core principles to help guide its release of a suite of institutional crypto products: "fair and orderly" markets, enforcing transparent market rules, offering "fair access to all market participants," disclosing listing practices and market rules publicly, and safeguarding clients "with institutional-grade infrastructure and processes."
An analysis by Cointelegraph and Chinese law firm L&Y Law Office finds irregularities in the Bitmain pre-IPO investor deck. Specifically, the wording of the document suggests DST Global has already invested in the Bitocin mining equipment company though no investment has been confirmed.
Diar Ltd, a research firm using data from CoinAPI, finds that cyrptocurrency trading volumes are shifting away from US exchanges to foreign exchanges (primarily Asian). According Diar’s analysis, Coinbase and Bitstamp have seen their total volumes drop 83% and 73% YTD.
A research firm from Slovakia has reported another scam application on the Ethereum network. Next Web reports that Lukas Stefanko, a malware researcher, found a fraudulent Ethereum app in the Androd Google Play Stores that had an offer price of USD$388.
Hyper Deflationary Monetary System (HDMS) cryptocurrencies are a new class digital money that is meant to provide mechanisms to support the increase in real buying power. In comparison to other cryptocurrencies, HDMSs have an objective to create upward price pressure on their valuations in comparison to other digital currencies. Some examples include BNB, OPTI, and BAY.
The South China Morning reports that Kripto University Center has opened the largest cryptocurrency mining site in Russia in a former Soviet fertilizer-producing lab.
The National Research Council of Canada (NRC) announced the release of a blockchain explorer on the Ethereum network. The Industrial Research Assistance Program (IRAP) is now hosting the explorer on the InterPlanetary File System (IPFS) with help from Bitaccess, a blockchain startup.
The Central Bank of Thailand is exploring the possibility of launching its own digital currency and expects to release phase 1 of the proof of concept by March 2019. The Central Bank-backed digital currency will be on distributed ledger technology developed by R3. In addition to R3 as a technology partner, the Thai Central Bank is also partnering with Bangkok Bank Public, Krung Thai, Siam Commercial Bank, Standard Chartered Bank (Thailand) and HSBC to bring the digital monetary currency to market.
Ripple Labs is rumored to be thinking of combining xVia, xCurrent and xRapid Solutions to solidify its market-leading positions in cross-border FX transactions. The solution will be called Convergence and will offer the benefits of speed and security while also keeping fees low.
The United Arab Emirates is preparing to launch the first Shariah-compliant cryptocurrency exchange. The crypto trading platform, First Islamic Crypto Exchange, will operate globally with the hopes of increasing the involvement of Muslims in the global cryptocurrency market.
The Union of European Football Associations (UEFA) announced it successfully used a blockchain-powered Android App to successfully trial a blockchain ticketing system for last week’s Super Cup match between Real Madrid and Atlético Madrid.
Several blockchain-powered news apps have been suspended by WeChat according Lanjinger, a local financial news outlet. The accounts were purportedly suspended after being suspected of pushing ICO and cryptocurrency “hype” which is in conflict with WeChat’s terms of services. Deepchain, Huobi News, Node Capital-backed Jinse, and CoinDaily are some of the news apps impacted by WeChat’s decisions.
Futures, Global Stocks Surge As Italy, Fed Optimism Halts Rout
After last week's market woes, stocks have started the new week in a sea of green, with equity markets rising around the globe, buoyed by renewed optimism over trade and easier financial conditions ahead of this week's Feed speeches and key G-20 summit between Trump and Xi, while European shares surged as Italian officials adopted a more conciliatory tone resulting in hopes Italy's populist government is willing to concede in the long-running standoff with Brussels. S&P futures rose 1.2%, erasing losses from the latter part of last week, after decent Black Friday retail sales data, boosted by strong Asian and European risk sentiment. In Europe, banking and automaker shares led the Stoxx Europe 600 Index higher, with all sectors in the green, after stocks rose in most of Asia except for China and Australia. Italy’s sovereign bond yields tumbled after the Deputy Premier Matteo Salvini signaled a new openness to alter the country’s budget deficit target for next year; BTPs rally through the 100-DMA and short-dated futures push above September highs ahead of this evening’s "decisive" budget talks as the Bund/BTP spread tightened ~19bps to 286bps. Europe's Stoxx 600 Banks Index surged on Monday as news on Brexit and Italian developments lifted the broader market: banks advance 2.6%, topping the European benchmark’s 1.3% gain after Italy's populist cabinet suggested he is willing to change the nation’s budget deficit target for next year. Greek markets also rallied as Eurobank revealed a plan to deal with troubled loans. Italy's FTSE MIB surged up as much as 3.2%, its biggest one-day gain since June, and outperforms its peers as Italian Banks benefited from the positive BTP price action amid reports that the country’s coalition government is discussing reducing the 2019 deficit target to 2.0%-2.1% from 2.4%. In turn hinting that Italy are willing to be flexible on the budget after the European Commission rejected it earlier this month. Italian PM Conte and Deputy PM Salvini have since declined to comment on specific numbers. As such, Italian banks UBI +6.1%, UniCredit +6%, BPM +5.3%, Intesa Sanpaolo +5.3%, were among the top performers in the index, while The Italian Government is to meet Monday evening to discuss a potential reduction of the deficit goal; Il Messaggero also reported that Italian Finance Minister Tria will bring various simulations on budget changes to top-level Italian government this evening in Rome. Additionally, are discussing reducing the 2019 deficit target to 2.0-2.1% from the current 2.4% target. Elsehwhere, Italian Deputy PM Di Maio says budget deficit target reduction is not a problem as long as budget measures remain the same. Adding that the government remains committed to reform, and there can be a dialogue with the EU on the deficit target; also seeking to talk to the EU regarding more investments. Says there can be dialogue with the EU on the deficit target; also wants to talk to the EU regarding more investments.Additionally, Salvini said they've had "positive feedback" form Brussels when asked about lowering their 2019 deficit target, but refuses to talk about numbers. Italy's PM Conte has declined to comment about the specific numbers on the budget. Elsewhere, UK banks have also received a lift after the European Council endorsed UK PM May’s Brexit deal, which still has to pass through parliament, with Dec 12th touted as the possible date for a vote, hence RBS (+2.6%) and HSBC (+2.6%) and Barclays (+2.6%) shares are higher. Gilts will be focused on PM May’s speech to Parliament at 3:30pm London time. Credit-default swap indexes for both European high-grade and high-yield debt fell in tandem amid the general risk-on mood, with the cost of insuring against default retreating from a two-year high Earlier, Asian stocks began the week broadly positive as stock markets picked themselves up from the Thanksgiving holiday lull, but with upside capped amid ongoing commodity weakness. ASX 200 (-0.8%) and Nikkei 225 (+0.8%) were mixed with Australia dampened by losses in miners after the broad weakness across energy and metals in which crude slipped nearly 8% on Friday, while the Japanese benchmark was propped up by favorable currency moves. Elsewhere, Hang Seng (+1.8%) and Shanghai Comp. (-0.1%) conformed to the broad rebound in sentiment, but with the mainland less decisive as Chinese commodity prices followed suit to their global peers in which Dalian iron ore futures dropped around 6% at the open and China oil futures hit limit down. Finally, 10yr JGBs saw mild gains amid the BoJ’s presence in the market for JPY 680bln of JGBs in the belly to super-long end and which coincided with a decline in the Japanese 10yr and 20yr yields to their lowest in 3 months. The yen and dollar were broadly weaker, Treasuries edged lower with the 10Y TSY at 3.05%, while high-beta currencies gained as global equities advanced. The euro followed Italy’s stocks and bonds higher as the nation’s government signaled it was looking to lower its 2019 budget deficit target. Sterling advanced after EU leaders agreed to the Brexit deal and as Theresa May prepared to sell her Brexit deal to U.K. lawmakers Monday, while oil attempted to form a short-term base. In geopolitical news, Ukraine accused Russia of an act of war after the latter fired at Ukrainian ships and seized 3 vessels off Crimea, while Russia said the Ukrainian ships entered its territorial waters near Crimea. Furthermore, Ukrainian President Poroshenko has reportedly asked Parliament to meet on Monday to discuss martial law. On Monday, Russia reopened the Kerch Strait near Crimea for shipping according to sources. In overnight central bank speak, ECB's Praet said that recent developments indicate some loss of growth momentum, with factors related to protectionism, financial market volatility and vulnerabilities in emerging markets are creating headwinds that are becoming increasingly noticeable. And the underlying strength of the euro area economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed. Also says that they will need to clarify, possibly in the December meeting, what the ECB means by reinvesting for an extended period of time. Adds that they need big changes in scenarios to not follow rate guidance, it is clear that risks to the downside have increased noticeably. Looking ahead, investors will turn their focus this week to Federal Reserve speeches and policy-meeting minutes that may give clues on the 2019 rates outlook, and a key sit-down between Presidents Xi Jinping and Donald Trump ahead of the next scheduled escalation in tariff hikes. With bond traders having reduced expectations for the pace of U.S. monetary policy tightening, Fed Chairman Jerome Powell has the opportunity of shedding light on prospects for a pause in a speech Wednesday. “The market will be looking for potentially some signs of dovish overtures coming through” from the Fed this week, John Lockton, head of investment strategy in Sydney at Wilsons Advisory & Stockbroking, told Bloomberg TV. On trade, investors “are looking for a pathway. I am not sure we are going to see a detailed agreement. A pathway to success, a pathway to an outcome will be highly supportive of equities globally,” he said. WTI (+1.1%) and Brent (+1.8%) have retraced recent losses as the USD eases from highs and market risk-sentiment improves after the complex plummeted almost 8% on Friday amid concerns of a supply glut and lower January oil demand. This comes as Saudi Arabia reported that crude production stands at an all time high at 11.1-11.3mln BPD. WTI flirts with the USD 51.00/bbl handle while Brent hovers around USD 60.00/bbl in early European trade, with traders keeping an eye on any hints to next year’s oil production from OPEC+ countries, with the Dec 6th meeting looming. However, we may get some sort of direction just before December with the Saudi Crown Prince and Russian president meeting on the side lines of the G20 summit this coming weekend. Furthermore, some traders are noting that hedge funds haven’t been this pessimistic in regard to global oil prices for almost three years. Finally, Shanghai International energy Exchange said they will raise the margin requirement for crude oil futures to 10% from 7%, effective Nov 28th. In metals, gold (+0.2%) is higher as the yellow metal moves conversely to USD actions, while silver (+1.0%) outperforms with markets gearing up for the FOMC minutes release later this week. Elsewhere, base metals hover near last-week’s lows with the global growth slowdown weighing on investors’ minds. Expected data include Dallas Fed Manufacturing Outlook. StoneCo is among companies reporting earnings Market Snapshot
S&P500 futures up 1.3% to 2,663.25
STOXX Europe 600 up 1.2% to 358.30
MXAP up 0.5% to 151.35
MXAPJ up 1% to 485.39
Nikkei up 0.8% to 21,812.00
Topix up 0.2% to 1,632.20
Hang Seng Index up 1.7% to 26,376.18
Shanghai Composite down 0.1% to 2,575.81
Sensex up 1% to 35,332.84
Australia S&P/ASX 200 down 0.8% to 5,671.57
Kospi up 1.2% to 2,083.02
German 10Y yield rose 1.9 bps to 0.359%
Euro up 0.4% to $1.1380
Italian 10Y yield fell 4.6 bps to 3.036%
Spanish 10Y yield fell 3.0 bps to 1.602%
Brent futures up 1.8% to $59.85/bbl
Gold spot up 0.3% to $1,227.10
U.S. Dollar Index down 0.3% to 96.68
Top Overnight News
Theresa May will begin selling her Brexit agreement to skeptical politicians in Britain on Monday with a warning that “there is not a better deal available.” Macron’s fish fight offers May a glimpse of Brexit battles ahead
The British Parliament will probably reject May’s Brexit deal, but then approve it on a second attempt amid market pressure, according to UBS Wealth Management’s chief economist Paul Donovan. He reckons that prediction is now the consensus view in financial markets
Deputy Premier Matteo Salvini signaled a new openness to change Italy’s budget deficit target for next year. Asked whether a 2.4 percent target is set in stone, Salvini told newswire AdnKronos: “I think nobody is fixated on this, if there is a budget which makes the country grow, it could be 2.2 percent or 2.6 percent”
Switzerland overwhelmingly rejected a plan that could have caused a worsening of relations with the European Union by forcing the government in Bern to renegotiate international treaties
Oil traded below $51 a barrel on concerns record output by Saudi Arabia may exacerbate a supply glut, and as President Donald Trump continues to call for lower prices
Russia fired on Ukrainian warships and injured some of their crew members, marking a dramatic renewal of tensions between the ex-Soviet neighbors near the peninsula of Crimea that President Vladimir Putin annexed four years ago
ECB Chief Economist Peter Praet said the end of the institution’s bond-buying program this year doesn’t mean policy is being tightened, as he pointed to “increasingly noticeable” headwinds for the economy
Asian equities began the week mostly positive as stock markets picked themselves up from the Thanksgiving holiday lull, but with upside capped amid the ongoing commodity rout. ASX 200 (-0.8%) and Nikkei 225 (+0.8%) were mixed with Australia dampened by losses in miners after the broad weakness across energy and metals in which crude slipped nearly 8% on Friday, while the Japanese benchmark was propped up by favourable currency moves. Elsewhere, Hang Seng (+1.8%) and Shanghai Comp. (-0.1%) conformed to the broad rebound in sentiment, but with the mainland less decisive as Chinese commodity prices followed suit to their global peers in which Dalian iron ore futures dropped around 6% at the open and China oil futures hit limit down. Finally, 10yr JGBs saw mild gains amid the BoJ’s presence in the market for JPY 680bln of JGBs in the belly to super-long end and which coincided with a decline in the Japanese 10yr and 20yr yields to their lowest in 3 months. Top Asian News - Kuroda: BOJ Can Shrink Balance Sheet at Suitable Pace at Exit - Hong Kong’s Hottest IPOs Bring Worst Returns to Investors - Asia-Based Macro Hedge Funds Stumble in October Amid Sell-Off - Hong Kong Stocks Rise on Expectations Fed May Slow Rate Hikes - Japan Life Insurers Cut Dollar Hedges Below 50%: Deutsche Bank European equities started the week on the front foot (Eurostoxx 50 +1.1%) following the upbeat performance experienced over in Asia, with moves exacerbated as US participants re-enter the market following the long Thanksgiving weekend. Italy’s FTSE MIB (+2.8%) largely outperforms its peers as Italian Banks benefit from the positive BTP price action amid reports via government sources that the country’s coalition government are discussing reducing the 2019 deficit target to 2.0%-2.1% from 2.4%. In turn hinting that Italy are willing to be flexible on the budget after the European Commission rejected it earlier this month. Italian PM Conte and Deputy PM Salvini have since declined to comment on specific numbers. As such, Ubi Banca (+5.9%), Unicredit (+5.9%), Bper Banca (+5.7%), Banco BPM (+5.1%) and Intesa Sanpaolo (+5.1%) all rest at the top of the Italian benchmark. Elsewhere, UK banks have also received a lift after the European Council endorsed UK PM May’s Brexit deal, which still has to pass through parliament, with Dec 10th, 11th, or 12th touted as the possible dates for a meaningful vote, hence RBS (+2.6%) and HSBC (+2.6%) and Barclays (+2.6%) shares are higher. In terms of sectors financials are largely outperforming amid Brexit and Italian budget developments, whilst consumer staples underperform. Looking at stock specifics, Melrose (-5.0%) shares dropped after Sky News reported that the company is weighing options for GKN Powder Metallurgy division with a “low-ball” offer valuing the business at GBP 1.6bln, below analyst expectations. On the flip side Eurofins Scientific rose to the top of the Stoxx 600 after the company confirmed their guidance. Top European News
Russian Assets Retreat as Ukraine Tension Adds to Sanctions Risk
Greece’s Eurobank Plots Revival in $8 Billion Bad-Loan Sale
Vectura Plunges After Asthma-Device Failure Raises Concern
Saint-Gobain to Sell German Building Unit in Post-Sika Overhaul
In FX, the Usd and DXY have drifted down from highs amidst the all the above (Yen aside of course), with the DXY holding just above 96.500 vs a whisker over 97.00 at one stage and nearest tech support and resistance coming in at 96.318 and 97.055 respectively.
AUD/NZD/CAD- A broad risk revival and commodity comeback of sorts has lifted the Antipodean Dollars alongside their Canadian counterpart that is benefiting from the recovery in oil prices especially. Aud/Usd is firmly back above 0.7250, while the Kiwi has managed to climb over 0.6800, albeit only just after a knee-jerk downturn in wake of weaker than forecast NZ Q3 retail sales overnight and ahead of trade data later today. Meanwhile, the Loonie has pared losses from 1.3200+ to circa 1.3190-85, but may struggle to get beyond 1.3180 where heavy supply is reported. Note also, a major US bank has entered a long Usd/Cad position at 1.3192, targeting 1.3450 with a 1.3075 stop.
EUR- Also encouraged by the aforementioned upturn in risk appetite, but the single currency has appreciated independently on the latest Italian budget headlines indicating that the coalition Government may be ready to revise the 2019 deficit target, and significantly from 2.4% to 2.1% ore even 2%. This, ahead of a meeting in Rome tonight where Finance Minister Tria is expected to lay out several compromises for top officials to consider. EuUsd has bounced towards 1.1400 vs the low 1.1300 area, but not quite as far as its 30 DMA at 1.1394.
GBP- The Pound has derived some support from official EU approval for the Brexit withdrawal agreement, with Cable back above 1.2800 and trying to clear 1.2850, but not convincingly as UK PM May begins the arduous task of selling the deal to her party and parliament before a meaningful vote on December 12 (or perhaps 1-2 days earlier if the roadshow goes well).
JPY- The G10 loser and underperformer as safe-haven demand/flows wane and Usd/Jpy clears 113.00 with a bit more vigour to a 113.35 peak and fleetingly, but not sustainably thus far, a 50% Fib at 113.25.
In commodities, WTI (+1.1%) and Brent (+1.8%) are retracing recent losses as the USD eases from highs and market risk- sentiment improves after the complex plummeted almost 8% on Friday amid concerns of a supply glut and lower January oil demand. This comes as Saudi Arabia reported that crude production stands at an all time high at 11.1-11.3mln BPD. WTI flirts with the USD 51.00/bbl handle while Brent hovers around USD 60.00/bbl in early European trade, with traders keeping an eye on any hints to next year’s oil production from OPEC+ countries, with the Dec 6th meeting looming. However, we may get some sort of direction just before December with the Saudi Crown Prince and Russian president meeting on the side lines of the G20 summit this coming weekend. Furthermore, some traders are noting that hedge funds haven’t been this pessimistic in regard to global oil prices for almost three years. Finally, Shanghai International energy Exchange said they will raise the margin requirement for crude oil futures to 10% from 7%, effective Nov 28th. In the metals complex, gold (+0.2%) is higher as the yellow metal moves conversely to USD actions, while silver (+1.0%) outperforms with markets gearing up for the FOMC minutes release later this week. Elsewhere, base metals hover near last-week’s lows with the global growth slowdown weighing on investors’ minds. On today's calendar, it's a fairly quiet start to the week for data on Monday with the Chicago Fed's October National activity index and the Dallas Fed's November manufacturing activity index. Away from the data, it's a busy day for central bank speak, with the ECB's Draghi, Praet, Nowotny and Coeure all speaking at different times along with the BoE's Carney and former Fed Governor Greenspan. US Event Calendar
8:30am: Chicago Fed Nat Activity Index, est. 0.2, prior 0.2
10:30am: Dallas Fed Manf. Activity, est. 24.5, prior 29.4
DB's Jim Reid concludes the overnight wrap. Yesterday marked a month until Christmas and there’s a lot to resolve before we can overeat, drink too much, watch bad TV and argue with our families. In terms of major events, in reverse order we have a FOMC meeting on December 19th (will we be debating an imminent pause by then?), the ECB equivalent on the 13th (surely QE to end... but the recent data...), the House of Commons vote on the Brexit WA likely earlier that week (and all the associated consequences), a big OPEC meeting on December 6th (after a 31% slump in 7 weeks since the peak), and a crucial G20 meeting in Buenos Aires this weekend where US/China trade stands at a major fork in the road with the ramifications likely to be significant for years to come. We will also learn more about the future relationship between the EC and Italy over the next month so plenty of opportunity for the financial world to look very different over Turkey and Xmas pudding than it does today - for better or for worse. As for this week the G20 meeting on Friday and Saturday looms over us and headlines will start as leaders start to gather in Buenos Aires from today onwards. To be honest the G20 overall is a sideshow to the sideline meeting between US President Trump and Chinese President Xi Jingping to discuss trade. Recent comments (per Bloomberg) from White House economic advisor Kudlow have been mixed, however Kudlow has said that Trump is trying to “inject a note of optimism into trade talks with China” while Trump himself has been reported as saying that “China wants to have a deal”, suggesting that the President has been siding with the more pro-free trade advisers in the White House recently. Since then, the news that China hawk Navarro will not be attending the meeting also lends some support to the view of possible progress at the meeting. That being said, it’s still extremely difficult to predict the outcome but expect plenty of headlines and hints through this week. Elsewhere Fed Chair Powell’s speech at the Economic Club of New York on Wednesday evening which will likely be closely watched in light of what has been greater discussion in recent weeks from officials on downside risks to the outlook and softer inflation. In addition to that, Vice-Chair Clarida speaks tomorrow and will be closely watched in light of his dovish remarks 10 days which seemed to signal a notable repricing of Fed expectations. The FOMC minutes on Thursday may be a touch backward looking but are always interesting. The data highlights are US PCE (Thursday) and European flash inflation (Thursday/Friday). Watch out for Black Friday and Cyber Monday sales data as well for a barometer on the consumer. In terms of weekend news, seeing a Sunday EU leaders summit brought back memories of the crisis years and fraught midnight statements. However yesterday’s Brexit summit saw EU leaders sign off the Withdrawal Agreement in 38 minutes and before lunch! Many quipped on social media that for EU leaders to sign it off that quickly it must be a bad deal for the UK. Joking aside we are at a crossroads as European leaders yesterday warned that there was no better deal on offer. However the Parliamentary arithmetic still points to this deal being firmly rejected in the House of Commons. Interestingly PM May refused to answer a question on ruling out resigning if her deal failed to pass. It seems all outcomes are possible here. Personally I can’t help thinking that a second referendum is getting closer and closer to being the most likely of 3 or 4 outcomes. However whether that’s a good or bad idea I cant help worry that the unintended consequence of this if “remain” win is that British politics will be thrown into chaos for many years. Interestingly the Brexit referendum in 2016 led to the general election in 2017 seeing the two mainstream parties (Conservatives and Labour) with their largest combined support for several decades as UKIP saw their vote collapse. This is in sharp contrast to the other big three EU countries. France saw both established parties fail to make it into the second round of the election last year for their first time in 60 years of the current set-up. Germany has seen the ruling CDU and CSU at their lowest levels of support over a similar period and in Italy as we know we now have two populist parties in Government. If the UK votes a second time to stay in the EU then we could see a renewed surge in support for UKIP or maybe even more extremist parties. So whatever the outcome it does feel a bit like “whack-a-mole” with unintended consequences from all sides. Asian markets have started the week on a positive footing with the Nikkei (+0.57%), Hang Seng (+1.69%), Shanghai Comp (+0.29%) and Kospi (+1.16%) all up. Elsewhere, futures on the S&P 500 (+0.45%) are pointing towards a positive start and oil prices are showing signs of stabilizing (WTI prices up +1.03% and Brent +1.62%) this morning. In terms of data releases, Japan’s preliminary November manufacturing PMI softened to 51.8 from 52.9 in the previous month. Elsewhere in a sign of escalating geo-political tensions Ukraine’s Navy said that Russian warships opened fire on Sunday on a group of its military vessels in neutral waters near the peninsula of Crimea while adding that three of its ships were captured by the Russian military. The UN Security Council is all set to hold an emergency meeting at 11 a.m. today in New York to discuss the situation. The Russian ruble is down -0.57% in early trade this morning. In other news, Italy’s Deputy Premier Matteo Salvini has showed willingness to change next year’s budget deficit target in an interview with newswire AndKronos where he said nobody is fixated on 2.4% deficit target. He said “if there is a budget which makes the country grow, it could be 2.2 percent or 2.6 percent.” In the meantime, Repubblica reported over the weekend that the EC President Juncker has told Italian Premier Conte that spending cuts of €6bn-7bn may be sufficient to trim Italy’s planned 2019 deficit. This indicates that both the sides are now showing some openness to find some common ground. Italian Deputy Premiers Salvini and Di Maio are due to meet Italian Prime Minister Giuseppe Conte to discuss the budget this evening. Elsewhere, the PBoC’s Deputy Govenor Zhu Hexin said over the weekend that the PBoC will increase the oversight of financial holding companies due to an increasing number of risks to their operations with potential measures likely to include implementing stricter controls on market access and closer supervision of sources of funding and capital-adequacy ratios, amongst others. Focus on Friday centered on preliminary November PMI data from Europe, which continued to point to softening macro momentum. The composite euro area PMI printed down -0.7pts at 52.4, compared to consensus expectations for 53.0. The German figure was 52.2, as the manufacturing index fell -0.6pts to 51.6 and services declined -1.4pts to 53.3. Somewhat worryingly, the readings indicated softening external demand (new export orders down -1pt to 46.6) and internal demand (services dropping faster than manufacturing). French figures came in slightly stronger, with the composite index at 54.0, actually +0.1pts higher than expected. We won’t get the Italian readings until December 3 and 5, but our economists estimate that the non-core countries must be down around -0.5pts on average, indicating that the slowdown from October is not completely transitory. Given the US Thanksgiving holiday (US markets were open on Friday but trading volumes were thin and exchanges closed early), the European data drove price action. An MNI article said that the ECB may change its assessment of the balance of risks to its economic outlook, raising the potential spectre of an extension to QE beyond December. The euro shed -0.58% to trade -0.68% lower on the week, and German Bunds rallied -3.0bps (-2.7bps on the week). European equities ended the week lower with the Stoxx 600 down -1.04% (though it rallied +0.40% on Friday, boosted by the weaker euro). Other risk markets ended the weak lower, as oil continued to slide, with Brent crude oil down -11.92% (-6.07% Friday) to $58.80 on the combination of the strong supply outlook and the softer demand data. Credit continued to be pressured, with HY CDX indexes widening +17.2bps and +17.0bps in the US and Europe, respectively on the week. Emerging market equities shed -2.84% (-1.17% Friday), with Chinese bourses underperforming as the Shanghai Composite retreated -3.72% (-2.49% Friday). As mentioned, US markets lacked major drivers, but the S&P 500 still ended the week -2.54% (-0.66% Friday) and the FANG index underperformed -6.67% (-1.47% Friday). The dollar rallied +0.47% (+0.21% Friday) as Treasuries rallied -2.4bps on the week (all of which came on Friday) It's a fairly quiet start to the week for data on Monday. In Europe, we get Germany's November IFO survey, while in the US, we get the Chicago Fed's October National activity index and the Dallas Fed's November manufacturing activity index. Away from the data, it's a busy day for central bank speak, with the ECB's Draghi, Praet, Nowotny and Coeure all speaking at different times along with the BoE's Carney and former Fed Governor Greenspan.
Global Markets Slide In Thin Trading, Pound Soars On Post-Brexit Agreement
S&P futures slumped into the red, following a drop in European stocks while Asian shares traded mixed in a subdued day of trading thanks to Thanksgiving holiday; the big moves were in FX where the pound jumped, the euro strengthened and the dollar slumped after a draft deal on post-Brexit ties was tentatively agreed. US cash markets may be closed, but futures are open, and overnight the Emini slumped to Wednesday's session lows before rebounding modestly. Europe’s bourses dropped back into the red on Thursday as investor worries mounted about slowing global growth in the face of rising U.S. interest rates and trade tensions. The Stoxx Europe 600 Index dropped as much as 0.9%, giving up much of Wednesday’s gains as almost every sector fell, led by basic resources and banking shares. The biggest decliners include BAT -1.9%, Total -1.1%, HSBC -1%, AstraZeneca -1.1%, although trading volumes were lethargic. Italy was under pressure in both stock and bond markets as sparring resumed over its budget plans. Some disappointing big-name earnings added to the gloom. Europe’s tech sector lost another 1.2 percent, but it wasn’t the worst performer. Banks were 1.6 percent weaker and mining companies and other resources firms were down nearly 2 percent and approaching a one-month low, reflecting the bitter Sino-U.S. trade war, encouraging investors to take money off the table before U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, meet in Argentina next week. The pound soared, rising sharply above 1.29 and gilts fell as a draft Brexit deal pointing to deep ties between the U.K. and European Union as well as a solution to the Irish border question was agreed at a “political level,” according to the EU. Enthusiasm was dented however after Reutrers reproted that Spain will vote against the current Brexit draft proposal because of a lack of clarity on Gibraltar. Earlier, Asian indexes swung between gains and losses before turning higher, with Japanese stocks getting an end-of-session boost on a report about a possible government rebate. MSCI’s broadest index of Asia-Pacific shares outside Japan had ended little changed after recovering from an initial wobble. The index has managed to hold up so far in November after three straight monthly declines, but is on track for its worst annual performance since 2011. Japan’s Nikkei had finished almost 0.7 percent higher but Chinese shares closed 0.4 percent in the red. “Investors are still wary about whether they’ll see further lows, given none of the issues that drove the recent correction have dissipated,” said Shane Oliver, Sydney-based head of investment strategy at AMP. Trading volumes in the region were also depressed. Singapore became the latest to warn about the potential impact on Thursday. The city state is considered as a bellwether for international trade. “Risks in the global economy are tilted to the downside,” said Loh Khum Yean, Singapore’s permanent secretary for trade and industry. Elsewhere, Bitcoin steadied, emerging-market assets were broadly stable and gold nudged upward. Treasuries didn’t trade because of the U.S. holiday. In commodities, China-sensitive metals like copper fell and oil prices reversed early gains, although they were still above one-year lows touched earlier this week. U.S. crude futures were last down 8 cents at $54.55 a barrel after hitting a one-year low of $52.77 on Tuesday. Brent eased 15 cents to $63.33, off Tuesday’s low of $61.71. The US is closed today for Thanksgiving holiday. Top Overnight News from Bloomberg
E.U., U.K. see free-trade area and deep regulatory cooperation; state "determination" to replace backstop: Draft
U.K. and European negotiators are working through the night to hammer out the final part of the Brexit deal as Theresa May fights to keep a crunch summit on Sunday on track. After meeting EU Commission President Jean-Claude Juncker Wednesday, PM Theresa May announced that she will return to Brussels for last minute talks on Saturday, just a day before EU leaders are due to sign off on the deal. That wasn’t expected: Brexit update
Technology stocks rose Wednesday, posting a partial rebound from a bruising three-day decline, though analysts said further volatility and losses are likely
Federal Reserve Chairman Jerome Powell and his colleagues are likely to turn more wary about marching interest rates higher after delivering a widely anticipated quarter percentage-point increase in December. Fed may pause cycle of rate hikes as early as spring: MNI
The Republican chairman of the U.S. Senate committee overseeing trade rebuffed a call by a dozen GOP senators to vote on a revised a U.S.-Canada-Mexico trade agreement this year, a move that likely will doom their effort
U.S. consumers will be hit hard if President Donald Trump goes ahead with tariffs on the remaining imports from China, worth about $260 billion in 2017. That’s because China has an "exceptionally large" market share in goods that have so far escaped the tariffs, according to Deutsche Bank AG. They note that 93 percent of U.S. laptop imports came from China in 2017 while 80 percent of mobile phone imports came from China
Italy PM Conte confident spread will narrow; acting responsibly on budget; Italy’s Di Maio sees margins for dialogue with EU; infringement procedure would be unfair; Salvini/Di Maio say won’t change a comma on budget: Repubblica
BTP Italia total placement closed at EU2.16b: Treasury
WSJ: Apple to offer Japan carriers discount to up iPhone XR sales
DB's Jim Reid concludes the overnight wrap Happy Thanksgiving to all our US readers. Apparently Americans will consume up to 4,500 calories each over the course of today, although I read that us Brits consume around 7,000 on Xmas Day so our friends stateside are lightweights. For those working in financial markets both these numbers might be eclipsed this year after the stresses of the last couple of weeks. However, ahead of the holiday, there were some healthier markets yesterday to raise a glass to. In addition to that, we ran the numbers yesterday and the Friday after Thanksgiving has seen a ratio of positive to negative days for the S&P 500 of just under 2 to 1. This long-term daily average is 1.13 to 1. Anyway, back to the present, where the rout which plagued just about every risk asset on Tuesday reversed to some degree yesterday with the NASDAQ (+0.92%), S&P 500 (+0.31%) and NYSE FANG (+0.51%) all closing higher. These indexes pared their peak intraday gains (S&P 500 up just over 1% at highs) though amid thin afternoon liquidity ahead of today's US holiday. The DOW closed flat, while in Europe the STOXX 600 (+1.14%) and DAX (+1.61%) both rallied before the US dipped after Europe went home. HY spreads in the US and Europe were both around -7bps tighter, and WTI and Brent rallied +1.97% and +1.34% respectively. The climb for oil was fairly steady during the day helped partly by a drop in the latest API inventories data and also President Trump’s early morning tweet in which he thanked Saudi Arabia for lower oil prices. Inventories data out of the EIA later in the session didn’t really move the dial. There were seemingly a few reasons for the turn in sentiment. One was the decent rally for BTPs, where two- and 10-year yields fell -23.3bps and -14.6bps respectively, for their best day in over a month. As expected, the European Commission rejected the latest Italian draft 2019 plan, with Commissioner Moscovici warning against Italy adopting free-rider behaviour in comments with the press. The EC confirmed that they are not yet opening the EDP but suggested that they see this as the path which is opening ahead. Moscovici confirmed yesterday that Italy will have two weeks to answer queries put forward by the EC. After that, the EC will have to make the decision whether or not to recommend opening an EDP to the Eurogroup. The hope for Italy might be that Moscovici sounded willing to keep a dialogue open, rather than shutting the door completely. Our economists rightly noted that the ball is now back with Italy. On that, Deputy PM Salvini initially said yesterday that the Government is open to a dialogue on spending revisions but wouldn’t stretch to discussing the budget deficit or pension reform. A potential sign of compromise appeared to be enough for the market though with the FTSE MIB also climbing +1.41% and an index of Italian banks up +2.35%, both snapping a five-day losing run. Also attracting some interest yesterday was an MNI article quoting ‘senior Fed sources’ as suggesting that the Fed is considering a pause in hiking rates and may also consider ending its tightening cycle as soon as spring next year. The article went on to say that Fed officials appear to be converging around 3% for the neutral rate and that policymakers see inflation as peaking around the current 2% level before falling lower. A couple of comments are worth making on this. The first is that MNI isn’t seen as the most reliable source for Fed news, and the second is that this story broadly repeats commentary we have already heard from Clarida and Powell in recent days. So not particularly groundbreaking in our view. Treasuries didn’t move much on the article and 10y yields ended flat, while two-year yields sold off +1.0bps by the close of play and the Dollar index edged down -0.11%. Overnight Asian markets are mixed in thin trading due to today’s Thanksgiving holiday in the US and a holiday in Japan tomorrow. The Nikkei (+0.61%) and Hang Seng (+0.06%) are up while the Shanghai Comp (-0.55%) and Kospi (-0.39%) are down. Elsewhere, crude oil prices both WTI and Brent are down c. -0.35% this morning. On the data front, Japan’s October CPI printed in line with consensus at +1.4% yoy and core at +1.0% yoy while core-core CPI stood at +0.4% yoy. Yesterday’s Brexit newsflow was fairly thin on the ground again, though Prime Minister May did meet with EU Commission President Juncker in Brussels. The two leaders made "good progress" according to a spokesman. More talks are planned for Saturday which is cutting it fine for Sunday’s summit, especially with some reports (BBC) suggesting that Friday is the key deadline to have things ready for the summit. Negotiators are working through the night to hammer out more on the agreement. Earlier in the session Gilt yields rose +1.3bps and the pound traded -0.09% weaker, as markets remain in a holding pattern ahead of the EU summit and the eventual UK Parliament vote, which is due sometime over next few weeks. Meanwhile, the latest in the trade debate was the announcement by the WTO yesterday that they intend to launch a dispute investigation into the US allegations about China continuing a state-backed campaign of IP and technology theft. A decision is expected next year. In Germany Economy Minister Altmaier also announced that Germany planned to increase regulatory barriers to foreign investors by the end of this year, in effect making it harder for Chinese companies to launch takeovers of German companies. All this before the G20 meeting in just over a week now which will include a meeting between Trump and Xi Jinping on the sidelines. On that the FT reported yesterday that the draft communique made no explicit comment on fighting protectionism – language which has in essence been a mainstay of the statement since 2008. The OECD released updated macroeconomic forecasts yesterday, and revised down its global growth projection for 2019 -0.4pp to 3.5% from the last May edition. The forecast for euro area growth was revised down -0.3pp to 1.8%, the US down -0.1pp to 2.7%, and China down -0.1pp to 6.3%. In their first projections for 2020, the OECD expects global growth to remain steady as faster growth in most EMs balances a further slowdown in developed markets and China. It was a busy day for US economic data ahead of the Thanksgiving holiday, headlined by somewhat soft durable goods orders which fell -4.4% mom, the sharpest drop in over a year. Durables ex-transportation were soft as well, up +0.1% mom versus the expected +0.4%. Core capital goods orders were flat after a revised -0.5% mom drop in September. Our economists had highlighted their expectations for capex to slow over the medium term, so this data does not change their baseline forecasts. Separately, initial jobless claims ticked higher to 224,000 from 216,000 last week, which presents some downside risks to the November nonfarm payrolls report due two weeks from Friday. Finally, the University of Michigan consumer sentiment index moderated slightly to 97.5, though 5-10 year inflation expectations ticked up to 2.6% from 2.4%, matching their highest level since March 2016. As far as the day ahead is concerned, with it being a holiday in the US and markets subsequently closed, we’re extremely sparse on data releases with November confidence indicators in France and the November consumer confidence print for the Euro Area the only readings of note. That being said it’s a packed day for the ECB with Angeloni, Weidmann, Knot, Visco and Mersch all due to speak. The ECB’s October meeting minutes are also out today with Italian Finance Minister Tria due to face questions in the Upper House this afternoon.The BoE’s Saunders then speaks tonight.
Nervous Traders Drag US Futures, World Stocks Lower Ahead Of G-20
US equity futures, European and Asian stocks all dropped as nervous investors looked ahead skeptically to a much anticipated meeting between the American and Chinese presidents that could decide the course of the trade war. US Treasury yields dropped and the dollar gained amid a flutter of risk-off sentiment across the globe. The G20 Summit kicks off today in Buenos Aires, and while the main event will be the Trump-Xi "dinner of the decade" on Saturday, headline risk is high for the entire event. Market participants have every reason to be nervous: heading into the meeting neither side has expressed a willingness to make concession, making the outcome highly uncertain. Ahead of his Saturday meeting with Xi, Trump said Thursday he’s very close to “doing something” with China as officials work on the contours of a deal that may delay ramping up tariffs on the Asian country in January. Any sign of a trade truce could take the edge off a rampant greenback and boost risk assets including emerging-market currencies and stocks. Goldman Sachs, however, said an escalation of tensions is the most likely outcome. Citi agrees and notes that even a positive statement will likely be faded promptly by markets because as Citi notes, "any material break in the trade war impasse is difficult to achieve, and so any positive response on Monday may ultimately be short-lived." US equity futures were down 0.5%, following weakness in Europe where the Stoxx Europe 600 Index dropped to session lows, falling as much as 0.6% and trimming its weekly gains following a raft of disappointing macro data. Revised data showed Italy’s economy contracted 0.1% q/q in 3Q; German Oct. adjusted retail sales dropped -0.3% m/m; missing estimates of +0.4%. Euro-area inflation slipped to 2% in November from a year earlier, matching estimates, while the core reading unexpectedly dropped to 1%. Germany’s DAX (-0.6%) felt the burden of falling auto names after Daimler (-2.7%) was downgraded to sell at HSBC, in turn moving the likes of Volkswagen (-1.1%) and BMW (-1.8%) lower in sympathy. Sector wise, consumer discretionary (weighed by auto names) lags, closely followed by financials as Morgan Stanley downgraded the EU banking sector, while Deutsche bank (-3.0%) shares hit an all time low as the bank feels the brunt of a double whammy from the aforementioned downgrade alongside a second day of raids amid the money laundering probe. Earlier in the session, Asian stocks traded mixed amid a cautious global risk tone with shares gaining in Tokyo, slipping in Seoul and slumping in Sydney, while rebounding in Shanghai and Hong Kong ahead of the US-China showdown at the G20 and as participants digested disappointing Chinese PMI data. ASX 200 (-1.6%) and Nikkei 225 (+0.4%) initially followed suit to the lacklustre lead from their counterparts stateside with Australia the underperformer on broad weakness in which nearly all sectors declined, while Japanese exporters were hampered by recent flows into the JPY before staging a late recovery. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (+0.8%) were initially indecisive due to trade uncertainty amid a ‘hot and cold’ stance by US President Trump who stated he is close to doing something on trade with China but is unsure if he wants to, while reports noted that White House Trade Adviser and ‘China hawk’ Navarro is back on the guest list for the Trump-Xi dinner tomorrow evening. Furthermore, the latest Chinese PMI data left much to be desired as both Official Manufacturing and Non-Manufacturing PMIs missed expectations with the former at its lowest since June 2016. The indices closed higher on the day, however. In FX, the dollar rebounded sharply from yesterday's losses, rising against most G-10 peers in a muted trading session; Treasury yields edged lower while the yen was steady as investors refrained from taking risks ahead of this weekend’s meeting between U.S. President Donald Trump and China’s Xi Jinping. The euro slipped to a day low, holding below the 1.14 handle, after London came into the market. The Norwegian krone crept lower after oil prices resumed their slump, while retail sales contracted in October, missing estimates and unemployment rose in November; DNB finds it likely that Norges Bank will adjust down its rate path in December. The pound remained under pressure, drifting downward as U.K. Prime Minister Theresa May continued efforts to win backers for her Brexit deal. Emerging-market equities and currencies dipped. Finally, Korea’s won held on to this week’s losses as Friday’s interest rate increase did little to assuage concern surrounding the economy. WTI crude was dragged back under $51 a barrel, on track for the biggest monthly drop in a decade. The euro weakened after data showed inflation in the common-currency region easing. Looking at this weekend's key event, Guggenheim's Scott Minerd told Bloomberg TV that “I wouldn’t be surprised at the end of this weekend if the U.S. and China didn’t announce a concord that basically sat down a path to help resolve the trade frictions. I don’t think that out of the meeting there’s going to come much substance, but there will be a sort of set of principles that will be established to start the process of bringing an end to the trade war.” Economic data include MNI Chicago Business Barometer. Market Snapshot
S&P500 futures down 0.4% to 2,734.00
STOXX Europe 600 down 0.5% to 356.33
MSCI Asia down 0.2% to 153.44
MSCI Asia ex Japan down 0.4% to 490.93
Nikkei up 0.4% to 22,351.06
Topix up 0.5% to 1,667.45
Hang Seng Index up 0.2% to 26,506.75
Shanghai Composite up 0.8% to 2,588.19
Sensex up 0.05% to 36,186.77
Australia S&P/ASX 200 down 1.6% to 5,667.16
Kospi down 0.8% to 2,096.86
German 10Y yield fell 0.9 bps to 0.312%
Euro down 0.2% to $1.1374
Brent Futures down 1.1% to $58.88/bbl
Italian 10Y yield fell 5.1 bps to 2.837%
Spanish 10Y yield fell 0.2 bps to 1.506%
Brent futures down 1.1% to $58.88/bbl
Gold spot down 0.2% to $1,221.86
U.S. Dollar Index up 0.2% to 97.00
Top Overnight News
Federal Reserve officials have stepped off a predictable path of interest-rate increases and are signaling to investors a hard truth about relying on increasingly contradictory economic data: There are no easy answers anymore.
Waning year-end demand for the U.S. currency is leading to a decline in dollar-funding costs for Japanese and European investors
Gold may be turning the corner as prices head for the first back-to-back monthly gain since January, holdings in exchange-traded funds expand, and investors reappraise the metal’s prospects in 2019 amid speculation the Federal Reserve will pause its tightening cycle
The sequence in which the ECB will take its next policy moves “has pretty much been communicated. It’s more about the timing of the various elements,” Estonian central banker Ardo Hansson says in interview with Financial Times
The first official reading of China’s economy in November showed the manufacturing PMI on the brink of contraction. New export orders contracted for a sixth month while the non-manufacturing gauge, reflecting activity in the construction and services sectors, expanded but at a slower pace
Asian stocks traded mixed amid a cautious global risk tone ahead of the US-China showdown at the G20 and as participants digested disappointing Chinese PMI data. ASX 200 (-1.6%) and Nikkei 225 (+0.4%) initially followed suit to the lacklustre lead from their counterparts stateside with Australia the underperformer on broad weakness in which nearly all sectors declined, while Japanese exporters were hampered by recent flows into the JPY before staging a late recovery. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (+0.8%) were initially indecisive due to trade uncertainty amid a ‘hot and cold’ stance by US President Trump who stated he is close to doing something on trade with China but is unsure if he wants to, while reports noted that White House Trade Adviser and ‘China hawk’ Navarro is back on the guest list for the Trump-Xi dinner tomorrow evening. Furthermore, the latest Chinese PMI data left much to be desired as both Official Manufacturing and Non-Manufacturing PMIs missed expectations with the former at its lowest since June 2016. The indices closed higher on the day, however. Finally, 10yr JGB traded lacklustre after having failed to benefit from the risk averse tone in Japan and BoJ’s presence in the bond market, as prices marginally pulled back from recent gains which had seen long-term yields hit their lowest levels since the beginning of August. Top Asian News - China’s Worsening Economy Adds Pressure on Xi Heading to G-20 - BOJ Governor Kuroda’s Latest Pay Raise Falls Short - Meitu Sinks on Concern Data Privacy Warning Will Worsen Losses - Evergrande Leads China Developer Rally; Rhb Cites Policy Hopes Major European indices are lower across the board (Eurostoxx 50 -0.3%) after the region gave up opening gains amid trade jitters heading the US-Sino showdown at the G20 Summit. UK’s FTSE 100 (-0.7%) underperforms peers as heavyweight miners are pressured by the price action in the base metals complex, while Germany’s DAX (-0.6%) feels the burden of falling auto names after Daimler (-2.7%) was downgraded to sell at HSBC, in turn moving the likes of Volkswagen (-1.1%) and BMW (-1.8%) lower in sympathy. Sector wise, consumer discretionary (weighed by auto names) lags, closely followed by financials as Morgan Stanley downgraded the EU banking sector, while Deutsche bank (-3.0%) shares hit an all time low as the bank feels the brunt of a double whammy from the aforementioned downgrade alongside a second day of raids amid the money laundering probe. In terms of stock specifics, Altice (+8.0%) rose to the top of the Stoxx 600 (-0.5%) after the company sold its 49.9% stake in SFR GTTH for EUR 1.8bln, while Faurecia (-7.1%) is the worst performer in Europe amid a downgrade. Top European News
Bayer Gains as Analysts Applaud Surprise Measures: Street Wrap
The London Housing Market Is Worse Than It Looks. Here’s Why
Italian Jobless Rate Jumps With More Reentering Labor Market
SocGen Seeks to Tap African Growth and Shrug Off Europe Woes
Europe Auto Stocks Drop as China, Trade Prompt PT Cuts at HSBC
In FX, the Greenback remains off pre-Powell highs in wake of the latest FOMC minutes that effectively affirm a shift in the approach towards forward guidance that may start in December after a final rate hike this year, with less pre-set indications and more flexibility to take on board incoming data. However, the Buck is ahead vs all G10 counterparts bar the Kiwi that is benefiting from favourable cross-winds, with the index edging just over 97.000 again. EUR - The single currency has been more volatile than most ahead of the looming G20 Summit and month end, with more spikes vs the Pound through 0.8900 around fixes due to ongoing/residual RHS interest, but another failure at 1.1400 vs the Usd on round number offers and option expiry flows as circa 1.6 bn roll off between the big figure and 1.1410 at the NY cut. Moreover, some Usd12.6 bn SOMA-related Dollar demand coincides with the final trading day of November, and this usually weighs most heavily on EuUsd vs potential bids at 1.1350 where another 1.6bn expiries reside. AUD/CAD - Also underperforming vs the Greenback, with the Aud bearing the brunt of a weaker than forecast Chinese manufacturing PMI overnight ahead of the Trump-Xi meeting on Saturday, and struggling top keep hold of 0.7300 as the Aud/Nzd cross pivots 1.0650 and the Kiwi remains within striking distance of its 200 DMA (0.6870). Meanwhile, the Loonie is back below 1.3300 as crude prices resume their slide amidst reports from Russia suggesting that OPEC+ are content with current levels, which have also piled more pressure on the Rub for obvious reasons. In commodities, WTI (-1.4%) and Brent (-1.0%) lost the USD 51/bbl and USD 60/bbl handles respectively with sentiment deteriorating as the G20 Summit goes underway, where participants will be looking out for leaks in regard to any potential supply change discussed by key policy makers. Meanwhile, ahead of the Dec 6th OPEC meeting, Russian Energy Ministry stated that OPEC and non-OPEC producers are comfortable with the current oil price, while the country’s Energy Minister Novak said Russia plans to maintain the average oil output level until year-end. Note: yesterday he said Russia proposes an output cut for next year. In the metals complex, gold (-0.2%) erodes post-Powell gains and remains in the November range of USD 1200-1240/oz as the yellow metal mirrors the rising USD, with traders noting a clean break above the top of the range could result in further bullish action. Copper (-0.3%) trade lower amid the cautious risk tone ahead of the Trump-Xi G20 showdown, with moves to the downside exacerbated by the disappointing Chinese manufacturing PMIs overnight. Elsewhere, Shanghai aluminium prices declined to their lowest level in over two years to print their third consecutive monthly decline amid oversupply fused with downbeat Chinese PMIs.
US Event Calendar
9am: Fed’s Williams Speaks on Global Economy at G30 in New York
9:45am: Chicago Purchasing Manager, est. 58.5, prior 58.4
DB's Jim Reid concludes the overnight wrap As I peer into the distance toward s snow-covered mountain tops, the last day of November is now upon us and all of a sudden we’re into the final countdown to year-end, my Xmas ski trip, and thus the likelihood of getting reacquainted with my knee surgeon sometime early next year. We noted at the start of this week that there are still a few big events for markets to get past before we can call it a year and the first of those starts today and continues into the weekend with the G20 meeting in Buenos Aires. The G20 overall is a sideshow to the main event, which is the meeting between US President Trump and Chinese President Xi Jingping. Will the two leaders strike a truce and thus a grand bargain on trade or will talks hit another snag? It would take a brave man to predict the outcome and it does feel like messages have been fairly mixed in recent days despite some optimism from the US side, especially from Trump’s economic advisor Kudlow, that a deal can be made. Yesterday, the Wall Street Journal reported that the two sides are approaching a deal, possibly to include suspension of any new US tariffs through next spring in exchange for discussions and the lifting of restrictions on US agriculture and energy exports. On the other hand, the President told the very same newspaper earlier this week that it is “highly unlikely” that the next tranche of tariffs, set to take effect on Jan 1, will be delayed. Yesterday’s Reuters headline quoting Trump as saying that he is “close to doing something with China, but he doesn’t know if he wants to do it” perhaps sums up the state of play nicely. Interestingly, the South China Morning Post reported that the White House trade policy adviser, Peter Navarro – who is a known China hawk – is now scheduled to attend the dinner between Trump and Xi having initially been left out. US Trade Representative Lighthizer is still due to attend. So all to play for and something for everyone in the pre-show headlines. As for timing, the meeting between Trump and Xi is due to take place Saturday evening at some point over dinner, however the exact timing is uncertain. Another potentially interesting meeting on the agenda was that between Trump and Russian President Putin. However, after the Kremlin confirmed yesterday that the meeting was to go ahead tomorrow, President Trump instead said that he had cancelled the meeting, tweeting yesterday that his decision was “based on the fact that the ships and sailors have not been returned to Ukraine from Russia”. In any case, the tensions between Russia and the Ukraine should also be a focal point along with the trade war, while the presence of the Saudi Crown Prince could also be another talking point. The event has no shortage of AListers however with Japan’s Abe, Germany’s Merkel, France’s Macron, UK’s May, EC’s Juncker, EU’s Tusk, Italy’s Conte, and Turkey’s Erdogan among the leaders attending so there’s the potential for plenty of newsflow this weekend. As for markets, well the strong three-day winning run for US equities came to an end last night with the S&P 500 (-0.22%), DOW (-0.11%) and NASDAQ (-0.25%) all finishing slightly in the red. As has been the trend recently, tech led the decliners with the NYSE FANG index down -1.13% with Apple (-0.77%) down for the sixth time in the last eight sessions. It was hard to know if the slight riskoff was some pessimism ahead of the G20 or reaction to the news that Trump’s former lawyer Michael Cohen had pleaded guilty to a new federal charge and also agreed to cooperate with Robert Mueller. Prior to this, Europe had opened strongly, benefiting from the dovish Powell halo effect, though ultimately the moves faded. The STOXX 600 pared gains of as much as +0.75% to close +0.20% and the DAX erased gains of +0.93% to close flat. This morning in Asia markets are off to a mixed start with the Nikkei (+0.33%), Hang Seng (+0.69%) and Shanghai Comp (+0.23%) all up while the Kospi (-0.26%) is down. In terms of overnight data, China’s official November composite PMI continued to soften at 52.8 (vs. 53.1 last month) as both manufacturing (50.0 vs. 50.2 expected) and non-manufacturing PMIs (at 53.4 vs. 53.8 expected) missed expectations. In the details of the manufacturing PMI, new export orders (at 47.0) printed below 50 for the 6th month in a row with new orders also continuing to soften sequentially with the current reading at 50.4 (vs. 50.8 in last month and 53.8 back in May). Japan’s preliminary October industrial production stood at +2.9% mom (vs. +1.2% mom expected) - the highest since January 2015. Elsewhere, futures on S&P 500 (-0.17%) are pointing towards a slightly softer start. The BoJ is also set to release its monthly bond-buying plan for December at 5:00 pm Tokyo time (8:00 am BST) today which is likely to be closely watched for any possible tweaks as the BoJ tries to boost trading in JGBs. The minutes from the November FOMC meeting were released yesterday evening, but didn’t change the debate much, especially when compared to the market-moving comments from Chair Powell earlier this week. The minutes said that many Committee members may want to change the “further gradual increases” language in the policy statement to something that “places greater emphasis on the evaluation of incoming data.” This confirms the renewed emphasis on data dependency that Powell and Clarida pushed this week. The minutes also signaled that a technical adjustment to the rate setting framework would likely be needed at the December meeting, i.e. raising the IOER rate only 20bps rather than the full 25bps in order to keep the effective federal funds rate near the middle of the target range. There were several notable landmarks in markets elsewhere yesterday. The first was the 10-year Treasury briefly passing below 3% - touching an intraday low of 2.995% - for first time since September 18th and WTI oil passing below $50 – hitting a low of $49.41 - for the first time since October 9th last year. To be fair both rebounded off the lows. Ten-year Treasuries ended the day at 3.026% (still down -3.3bps on the day) while WTI made a full reversal to finish the session back above $51 (+2.11%), which is roughly where it’s trading this morning. That rebound appeared to be helped by a Reuters report suggesting that both Russia and Saudi Arabia were discussing the details behind a cut in production. The rally for Treasuries was given an added boost by yesterday’s data in the US. The highlight was the soft core PCE print for October (+0.1024% vs. +0.2% expected) which resulted in the annual rate falling by one-tenth from an already downwardly-revised +1.94% yoy to +1.77% yoy, the lowest since February. On the back of a dovish Powell on Wednesday, that data was perhaps more fuel to the fire for the dovish camp and could drive more talk of a pause in the Fed’s tightening cycle. It’s worth noting that the healthcare component of the data was soft and that there could be some seasonality in this data so that is something to keep in mind. The other interesting data point in the US yesterday was the weekly initial jobless claims print, which jumped 10k to 234k (vs. 220k expected) and the highest in six months. The four-week moving average is now at 223k and the highest since July. There was some talk that the Thanksgiving Holiday may have had an impact on the data, however a persistent uptick in the jobless claims data would definitely be food for thought looking ahead. So worth setting a calendar reminder for this print over the next two Thursdays after a long period where the number has been no more than a mild distraction to lunch or breakfast depending on where you are in the world. Over in Italy, the Government and the European Commission continued to trade barbs, with Conte saying that they “are not indifferent to the reaction of financial markets [but] we can’t back away from the core promises we made to Italians.” There still seems to be movement toward a budget deficit of 2.2% of GDP rather than 2.4%, but Commission VP Dombrovskis said that would be an insufficient cut. Italian Deputy Premier Salvini said that the Italian government is not considering lowering the budget deficit below 2.2% while adding that “if there is a saving we won’t leave the money there unspent, we will invest it for other spending.” Still, the Italian press reported that the EU could give Italy more time before instigating the Excessive Deficit Procedure, i.e. delaying the decision till February 2019. This helped BTPs rally -5.2bps despite tepid demand as the Treasury auctioned 4.25 billion euros of debt across the 10- and 5-year tenors. On Brexit, we didn’t get a lot of new information yesterday but the pound nevertheless traded -0.35% weaker versus the dollar. EU Chief Negotiator Barnier said that discussions are over and that the current Withdrawal Agreement is the only possible Brexit deal. DUP Leader Foster reiterated her opposition to the deal, saying that there exists a better option. It’s hard to square those two views, which explains where there is so much uncertainty ahead of next month’s Parliamentary vote. Interesting it looks like we’ll have a live televised debate with May Vs Corbyn on primetime TV on Sunday 9th December. The problem is that May has agreed to have it on the BBC whereas Corbyn is leaning towards ITV as he didn’t want it to clash with the finale of “I’m a celebrity get me out of here”. It rather sums up the process at the moment. Overnight, on her way to the G-20 summit, UK PM May said that national divisions over Brexit will widen if lawmakers fail to back her plans in the parliamentary vote next month while adding that there are no alternatives to her current deal as she ruled out another referendum and said Britain won’t be in a Customs Union with the EU and dismissed the Norway option. She also reiterated that she won’t resign in the event of her Brexit deal getting rejected by the UK Parliament. Coming back to inflation, there was also some disappointment in the German HICP reading which came in at a below market +0.1% mom (vs. +0.2% expected) – and so pushing the annual rate down two tenths to +2.2% yoy. A reminder that we get the broader Euro Area reading today in addition to country level reports from France and Italy. Apart from the inflation and jobless claims prints, the US also released personal income and personal spending data, which both surprised to the upside and supported the narrative of continued labour market strength for now. Income rose +0.5% mom, the fastest pace since January, while spending rose +0.6%, fastest since March. The housing market continued to show signs of slowing, as home sales fell -2.6% mom, their sixth consecutive decline. That’s the longest such streak since 2014. In terms of the day ahead, as mentioned at the top the G20 Leaders Summit officially gets underway and continues into the weekend, so expect headlines throughout. As for data, shortly after this hits your emails this morning we’ll get November Nationwide house price data in the UK and October German retail sales numbers. Not long after that we get the preliminary November CPI reading for France before the aforementioned Euro Area reading. In the US the only release scheduled is the November Chicago PMI, which is expected to largely hold steady around October’s level. Away from the data we’re finishing the week with two more ECB speakers, with Mersch and Coeure speaking at separate events. Finally the Fed’s Williams will speak this afternoon on the “Global Economy” at an event in New York.
Futures Slide After US-China APEC Clash, Apple Production Cuts
After a dramatic end to the APEC summit in Papua New Guniea which concluded in disarray, without agreement on a joint communique for the first time in its history amid the escalating rivalry between the United States and China, U.S. index futures initially traded sharply lower as investors digested signs that America-China trade tensions are set to persist, however they staged a modest rebound around the time Europe opened, and have traded mixed since amid subdued volumes as a holiday-shortened week begins in the US. Last Friday, US stocks jumped after President Trump said that he might not impose more tariffs on Chinese goods after Beijing sent a list of measures it was willing to take to resolve trade tensions. However, tensions between the two superpowers were clearly on display at the APEC meeting over the weekend where Vice President Mike Pence said in a blunt speech that there would be no end to U.S. tariffs on $250 billion of Chinese goods until China changed its ways. “The comments from Trump were seen as offering a glimmer of hope that further tariff action could be held in abeyance,” said NAB’s head of FX strategy, Ray Attrill. “The exchange of barbs between Pence and Chinese President Xi Jinping in PNG on the weekend continues to suggest this is unlikely.” US Futures were also pressured following a report by the WSJ that Apple has cut iPhone production, creating turmoil for suppliers and sending AAPL stock 1.6% lower and pressuring Nasdaq futures. Yet while early sentiment was downbeat following the APEC fiasco, US futures staged a rebound as shares in both Europe and Asia rose while Treasuries declined, the dollar faded an initial move higher as traders focused on the Fed’s new-found concerns over the global economy, and the pound advanced amid speculation that the worst may be over for Theresa May, since the potential for a vote of no confidence in May may be losing traction: the Sun reported that 42 lawmakers have sent letters of no confidence to Graham Brady, 6 more are needed to trigger a leadership challenge Asia took a while to warm up but made a strong finish, with the Shanghai Composite closing 0.9% and Japan's Nikkei 0.7% higher, helping Europe start the week off strong too as a 1 percent jump in mining, tech and bank stocks helped traders shrug off last week’s Brexit woes. At the same time, stocks fell in Australia and New Zealand, where the Aussie and kiwi currencies dropped after U.S. Vice President Mike Pence attacked China at the weekend APEC summit. Telecommunications and construction shares pushed Europe's Stoxx 600 Index higher, along with stocks in Italy, where Deputy Premier Luigi Di Maio said the government is ready for dialog with the European Commission over the country’s budget, which however seems just more semantics as Italy refused to concede to European budget demands. Meanwhile, in addition to confusion over trade, the outlook for U.S. interest rates was also uncertain. While Federal Reserve policymakers are still signaling rate increases ahead, they also sounded more concerned about a potential global slowdown, leading markets to suspect the tightening cycle may not have much further to run and Morgan Stanley to write that "We Sense A Shift In Tone From The Fed." Goldman Sachs also chimed in, saying it expected the pace of U.S. economic growth to slow toward the global average next year. The bank now sees a broad dollar decline next year, and revised its long-standing bearish view on the Japanese yen and tipped Latin American currencies, the Swedish krona, the Canadian, Australian and New Zealand dollars and the Israeli shekel to rise. “We see several changes to the global economic backdrop which, combined with a few negative medium-run factors, point to more downside than upside to the broad dollar in 2019,” Goldman economists said in an outlook report. Goldman's bearish tilt will focus attention on an appearance by New York Fed President John Williams later on Monday to see if he echoes the same theme. As Reuters notes, investors have already cut odds of further hikes, with a December move now priced at 73%, down from over 90%. Futures imply rates around 2.74% for the end of next year, compared to 2.93% early this month. As a result, yields on 10-year Treasurys declined to 3.08 percent, from a recent top of 3.25 percent while the currency market saw the dollar fade early gains while the pound rebounded from sharp losses last week as Theresa May prepared to appeal to business leaders to help deliver her Brexit deal as the premier fights almost insurmountable Parliamentary opposition. May said on Sunday that toppling her would risk delaying Brexit as she faces the possibility of a leadership challenge from within her own party. With both pro-EU and pro-Brexit lawmakers unhappy with the draft agreement, it is not clear that she will be able to win the backing of parliament, increasing the risk that Britain will leave the EU without a deal. Elsewhere, the Australian and New Zealand dollars held on to their declines after Mike Pence's attack on China this weekend fueled concern Sino-U.S. trade tensions will worsen; the yen neared a month-to-date high on the risk-aversion, onshore yuan weakened for the first time in five days. Treasuries slipped while European bonds were mixed, with core notes slipping and peripherals rising led by Italy. In the U.S., trading activity may be thinned before the Thanksgiving holiday later this week. In commodity markets, gold found support from the drop in the dollar and held at $1,1220.19. Oil prices suffered their sixth straight week of losses last week, but climbed toward $57 a barrel in New York on Monday. Bitcoin dropped further below $6,000, at one point touching a one-year intraday low.
S&P500 futures down 0.2% to 2,738.50
STOXX Europe 600 up 0.5% to 359.37
MXAP up 0.4% to 152.43
MXAPJ up 0.2% to 488.43
Nikkei up 0.7% to 21,821.16
Topix up 0.5% to 1,637.61
Hang Seng Index up 0.7% to 26,372.00
Shanghai Composite up 0.9% to 2,703.51
Sensex up 0.9% to 35,758.30
Australia S&P/ASX 200 down 0.6% to 5,693.66
Kospi up 0.4% to 2,100.56
German 10Y yield rose 2.4 bps to 0.391%
Euro up 0.04% to $1.1419
Italian 10Y yield unchanged at 3.119%
Spanish 10Y yield fell 0.4 bps to 1.632%
Brent futures up 0.4% to $67.05/bbl
Gold spot down 0.3% to $1,219.37
U.S. Dollar Index down 0.1% to 96.41
Top Overnight News from Bloomberg:
Theresa May will appeal to business leaders to help deliver her Brexit deal, as she fights almost insurmountable opposition in Parliament and a possible leadership challenge. You do the math: Can May get her Brexit deal through Parliament?
Vice President Mike Pence sharpened U.S. attacks on China during a week of summits that ended Sunday, most notably with a call for nations to avoid loans that would leave them indebted to Beijing
An Asia- Pacific summit ended in tumult after the U.S. and China failed to agree on language in a final statement, the latest sign that a trade war between the world’s biggest economies won’t end anytime soon
The European Central Bank shouldn’t rush to spell out how long it plans to reinvest proceeds from bonds maturing under its asset-purchases program, said French policy maker Francois Villeroy de Galhau
President Donald Trump said he wouldn’t stop acting Attorney General Matthew Whitaker if he curtails special counsel Robert Mueller’s investigation into possible collusion by Trump campaign officials with Russian interference in the 2016 presidential election
U.K. house asking prices fell from a year earlier for the first time since 2011, led by declines in London and among the most expensive properties.
President Donald Trump said Saudi Crown Prince Mohammed bin Salman has denied to him perhaps five times any role in the killing of journalist Jamal Khashoggi, and the U.S. may never know whether he was involved in the murder
Trump’s famously opaque business will face a bracing new reality next year when House Democrats hit it with a flurry of subpoenas for the first time
The European Central Bank shouldn’t rush to spell out how long it plans to reinvest proceeds from bonds maturing under its asset-purchases program, said French policy maker Francois Villeroy de Galhau
The European Union is hammering out the first bloc-wide rules to prevent foreign investments from threatening national security, as Chinese acquisitions foster political unease
Hedge funds’ wagers against West Texas Intermediate and Brent crude soared for a seventh straight week, the longest global short-selling streak in data going back to 2011
Asian equity markets began the week somewhat cautious on lingering trade concerns and after disunity at the APEC summit over the weekend which failed to agree on a joint communique for the first time in history due to US-China tensions. ASX 200 (-0.6%) and Nikkei 225 (+0.6%) traded mixed in which nearly all of Australia’s sectors were in the red aside from miners, while Nikkei 225 was positive as participants digested mixed trade data which showed a jump in imports. Elsewhere, Hang Seng (+0.7%) and Shanghai Comp (+0.9%) were choppy amid trade-related uncertainty following the verbal jabs between US and China in which Chinese President Xi warned that countries which embraced protectionism were doomed to fail and US Vice President Pence later commented the US could more than double the tariffs imposed on Chinese goods. Finally, 10yr JGBs futures rose to match the YTD high as they tracked the recent upside in T-notes and with the BoJ also present in the market for JPY 800bln of JGBs in the belly to the short-end of the curve. APEC summit ended without an agreement on a joint communique for the first time in its history after China refused to sign amid US-China tensions, while there had been comments from Chinese President Xi Jinping that countries which embraced protectionism were "doomed to failure" and US Vice President Pence later commented that he was prepared to "more than double" the tariffs imposed on Chinese goods. Top Asian News - China’s Ping An Buys Stake in German Fintech Incubator Finleap - Japan Bank Shares Fall Most in Month After U.S. Yields Drop - Asian Markets Come out of Their Torpor as Stock Gains Accelerate - An Accountant Stirs Debate as India Central Bank Board Meets Major European indices are in the green, with the outperforming FTSE MIB (+1.1%) bolstered by news that Luigi Gubitosi has been appointed as the new CEO of Telecom Italia (+4.3%). The SMI (-0.2%) gave up initial gains and is lagging its peers, weighed on Swatch (-4.0%) and Richemont (-1.4%) following unfavourable price outlook for both by Bank of America Merill Lynch. Sectors are mostly all in the green, with outperformance in telecom names, while energy names are lower given pullback in oil prices in recent trade and consumer discretionary names are weighed on by Renault (-7.0%), with the company shares extending losses following reports that Nissan’s boss has been arrested in Japan regarding allegations of financial violations. Renault shares are hit given the Renault-Nissan-Mitsubishi alliance. Elsewhere, BPost (-5.7%) shares are hit following a downgrade at HSBC, while Tele2 (+1.8%), are near the top of the Stoxx 600 after being upgraded at Berenberg. Top European News
Villeroy Sees No Need to Define Reinvestments Length in December
U.K. Housing Woes Deepen With First Asking-Price Drop Since 2011
EU Set to Tighten Rules on Foreign Investment to Fend Off China
New Telecom Italia Boss Deepens Activist Shareholder’s Clout
In FX, the Greenback has regained some composure following its downturn at the end of last week amidst soft US data and cautious if not concerned or outright dovish Fed rhetoric (Clarida conscious about contagion from slower global growth, Kaplan envisaging headwinds from rising debt and Harker opposed to a December rate hike), but the DXY remains capped below a key Fib level (96.590) and the Dollar overall is mixed vs major counterparts.
NZD/AUD/CAD- All on the back foot against their US peer and underperforming other G10 currencies, with the Kiwi retreating below 0.6850 and undermined by cross flows as Aud/Nzd rebounds further from recent lows towards 1.0700 and Aud/Usd holds above 0.7300 in wake of last week’s strong Aussie jobs data.
GBP- The Pound has derived some comfort, or is simply just relieved that the Tory uprising and challenge to UK PM May has not reached the minimum level required to trigger a no confidence vote and adding another potential spanner in the Brexit works. However, the situation remains far from stable and certain given that Parliament still has to vote on the Withdrawal Agreement and the room for further renegotiation with the EU looks limited at best ahead of Sunday’s Summit and more meetings planned in the run up to try and sound out whether there is scope to tweak elements of the draft. Cable has tested and marginally breached last Friday’s peak at 1.2877, but far from convincingly amidst supply ahead of 1.2900, and with the 21 DMA also representing formidable tech resistance just above the big figure (1.2918-20). Meanwhile, EuGbp has not pulled back too far below 0.8900, as the single currency holds firm in its own right.
EM- The Rand has made an encouraging start to the week, with a break through 14.0000 vs the Usd exposing recent peaks and momentum to re-test 13.8700 ahead of 13.6000 (50% Fib).
In commodities, Brent (+0.5%) and WTI (+0.1%) are in positive territory, albeit off highs, following market expectations that Saudi Arabia will steer OPEC and Russia to cut oil supply. Meanwhile, Russian Energy Minister Novak said the country is planning to sign an output agreement with OPEC at their December 6th meeting in Vienna. Overnight gains in the complex were driven by reports that Saudi is said to want oil prices around USD 80.00/bbl. Elsewhere, Iranian President Rouhani emerged on state TV and stated that the US has failed to reduce Iran’s oil exports to zero and Iran will continue to sell their crude. Conversely, Gold (-0.2%) prices fell this morning, with traders citing profit taking from last week’s gains, while Palladium is nearing parity with gold as an all-time high of USD 1185.4/oz was hit on Friday. Separately, copper is lower following tension between the US and China at the APEC summit which ended without an agreement on a joint communique for the first time in its history. It's a fairly quiet start to the week on Monday with the only data of note being the Euro Area and the November NAHB housing market index reading in the US. Away from that, the Fed's Williams is due to speak in the afternoon, while BoJ Governor Kuroda, Bank of France Governor Villeroy de Galhau and his predecessor, Noyer, will all speak at the Europlace Financial Forum. Euro Area finance ministers are also due to gather in Brussels to seek to make progress on Franco-German plans to shore up the currency union. US Event Calendar
10am: NAHB Housing Market Index, est. 67, prior 68
10:45am: Fed’s Williams Speaks in Moderated Q&Ain the Bronx
DB's Jim Reid concludes the overnight wrap Brexit was left in a bit of phoney war this weekend. We’re no closer to a leadership contest for Mrs May but it could still happen at any point. The Sun -citing their “extensive investigation” - has concluded that 42 lawmakers have sent letters of no-confidence in the PM (48 needed). Overall though more Conservative MPs are disliking the deal - and will vote against it - than will ask for a leadership battle in our opinion. The consensus that is forming amongst the Conservative MPs who dislike the Withdrawal Agreement is that it can be improved upon. This time next week we will have just had the Sunday EU summit to sign off their side of the deal but its not clear how meaningful tweaks could be made before this and before the agreement goes before UK Parliament in the next 2-3 weeks. The only thing that could be fleshed out is more on the future relationship between the UK and Europe as Mrs May travels to Brussels this week to try to progress on this. That might appease some MPs but likely not enough to help the vote pass. As such my personal view is that May stays on as leader, the EU offer no concession, the vote doesn’t get through Parliament and then the fun and games start. The UK may go back to Europe and ask for specific concessions at this point or we may end up with a path towards a hard Brexit or a second referendum. Quite binary options. For the EU maybe the gamble is to offer nothing and assume the UK Parliament eventually offers a second referendum and voters eventually decide to stay. This increases the risk of a cliff-edge hard Brexit but also one where no Brexit happens at all. This story has a lot of legs left in it. There was lots in the press this weekend about Brexit but interestingly for me as a credit strategist by day, there was also a fair bit of negative press about credit with some of the more sensational articles suggesting that credit could soon blow up financial markets due to (amongst other things) the weight of US BBBs about to swamp the HY market, record levels of Cov-lite issuance and due to record high US corporate leverage. For us there needs to some perspective. We have been on the underweight side of credit all year, more weighted to a US underweight of late but that’s been more of a valuation play than over too much concerns about immediate credit quality. The US economy remains strong and credit deterioration is likely to remain idiosyncratic until it rolls over. At that point we will have big problems though and last week’s activity made us more confident liquidity will be bad when the cycle turns as we moved a fairly large amount on nervousness as much as anything else. GE, PG&E, plunging oil and the factors discussed above provided a jolt but we don’t think this is enough for now to impact the economy so credit will probably stabilise. However once there is actual broad economic weakness, this last week will be a dress rehearsal for the problems ahead and there will be little two-way activity with spreads gapping wider. However that’s for further down the cycle. For now credit’s main problem has been it hadn’t responded enough to the pick up in vol. The good news is that this is starting to catch-up and correct. Last week, EU non-fin. IG spread widened by 13bps and HY by 45bps while those on US IG by 14bps and HY by 49bps. Big moves relative to a small down week in equities. Looking ahead to the highlights for this week, I’d imagine if you’re in the US this will revolve around family, friends and perhaps Turkey as you sit down for Thanksgiving on Thursday. Outside of that we get the flash PMIs around the globe on Friday which in a period of nervousness about the global growth outlook will be scrutinised in thin post holiday trading. Black Friday will also mark the start of Xmas shopping season for retailers. Also worth noting is the European Commission's opinions on the budget plans of the Euro Area countries on Wednesday. While the EC formally has three weeks to provide an opinion on Italy's new fiscal plan following their budget resubmission last week, it's possible that they will issue this for Italy alongside this and thus kick starting the EDP process. This morning in Asia, markets have kicked off the week on a positive note with the Nikkei (+0.48%), Hang Seng (+0.40%) and Shanghai Comp (+0.22%) all up along with most Asian markets. Elsewhere, futures on S&P 500 (-0.33%) are pointing towards a weaker start. In terms of overnight data releases, the UK Rightmove house prices index fell -0.2% yoy (-1.7% mom), first dip since 2011, led by declines in London (-2.4% yoy). Japan’s October adjusted trade balance stood at –JPY 302.7bn (vs. –JPY 48.3bn) as growth in imports (+19.9% yoy vs. +14.1% yoy expected) outpaced the growth in exports (+8.2% yoy vs. +8.9% yoy expected). In other news, the US Vice President Pence delivered some sharp rhetoric on China over the weekend where he called upon countries to avoid taking debt from China as that would leave them indebted to China. He also added that the US wasn’t in a rush to end the trade war and would “not change course until China changes its ways.” Elsewhere, the APEC summit ended in disarray on Sunday after the US and China failed to agree on a joint statement, reflecting tensions due to the ongoing trade war. This is the first time since the summit began in 1993 that no joint statement was issued. Looking back briefly now to last week before we focus on the full day-byday week ahead. Friday was an eventful day for market-moving rhetoric from policymakers, highlighted by Fed Vice Chair Clarida and President Trump. First, the dollar shed -0.52% after Clarida discussed the global economy and said there “is some evidence it’s slowing.” Two-year treasury yields rallied -3.8bps (-11.0bps on the week) and the market removed 6bps of Fed hikes through the end of next year (priced out a total of 16bps on the week). This came despite Clarida’s other remarks, which emphasised the strong US economy and his support for moving policy to a “neutral” level, consistent with the FOMC’s projections. Later in the session, Chicago Fed President Evans said that he too wants to move policy to neutral, and then another 50bps or so beyond that level. Later on Friday, President Trump injected optimism on the trade policy front by telling reporters that China wants to make a deal and that he may not institute further tariffs. China has apparently offered a list of potential concessions, which could prove to be the basis of a trade deal at the 30 November G20 summit. Even though unnamed White House sources subsequently tried to soften expectations, the market rallied with the S&P 500 up +0.22% (-1.31% on the week). The DOW and Russell 2000 closed -2.22% and -1.42% on the week, though they both rallied on the President’s comments as well (+0.22% and +0.49% on Friday, respectively). After Pence’s weekend comments we should probably discount some of the above optimism. Other markets were already closed when President Trump’s comments boosted sentiment. The STOXX 600 closed the week -2.20% (-0.20% on Friday), while UK equities outperformed marginally, with the FTSE 100 shedding only -1.29% on the week (-0.34% Friday). This reflected the weaker pound, which retreated -1.13% versus the dollar (+0.41% Friday) and -1.83% versus the euro (its worst such week since July 2017, and -0.38% on Friday). Asian equities were mixed, with the Shanghai Composite advancing +3.09% (+0.41% Friday) on trade optimism and the Nikkei down -2.56% (-0.57% Friday). German Bunds rallied -4.0bps last week, while peripheral spreads widened slightly with Italy leading the way. BTPs sold off +8.8bps (flat on Friday) as the government continued to escalate its confrontation with the European Commission. It's a fairly quiet start to the week on Monday with the only data of note being September construction output data for the Euro Area and the November NAHB housing market index reading in the US. Away from that, the Fed's Williams is due to speak in the afternoon, while BoJ Governor Kuroda, Bank of France Governor Villeroy de Galhau and his predecessor, Noyer, will all speak at the Europlace Financial Forum. Euro Area finance ministers are also due to gather in Brussels to seek to make progress on Franco-German plans to shore up the currency union.
The HSBC platform is a rare example of blockchain technology being put to practical use by a major bank. Last month the London-based lender said it had processed FX trades worth $250 billion on ... Margin call/Force-sale: Portfolio margin ratio Action; 105%-less than 120%. Margin call alert through SMS to remind you to cover the excess. If your portfolio margin ratio has maintained between the range of 105% to less than 120% for over 90 calendar days, your stock holdings will be force-sold without prior notice. HSBC’s FX&M Principal Dealing Activities and Services ... Where HSBC has trading interest from multiple sources (including from within HSBC itself), ... any firm or indicative price quoted by HSBC to a client is an “all-in” price, inclusive of any margin applied to the price at which HSBC may be able to transact in the market, whether the ... HSBC has entered the margin FX trading arena with the launch of an online service to retail traders in Hong Kong. The UK-headquartered lender, also the largest bank in Hong Kong, says the new Margin FX Trading Services platform was developed through a partnership with online currency trading company Oanda Corp. FX Order Watch Trading Services is exclusively provided to HSBC Premier and HSBC Advance customers only. HSBC Global Transfers is an instant transfer to self-named or third-party overseas HSBC accounts exclusively available to HSBC Jade, Premier and Advance customers. It is free of charge to Jade and Premier customers exclusively.
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