Fra zerohedge:
The only news that matters to algos today is whether Janet Yellen will include the word “patient” in the FOMC statement as a hint of a June rate hike, even though the phrase “international developments” is far more important in a world in which everyone (such as the 25 or so central banks who have cut rates in the past 80 days) is now scrambling to export deflation to everyone else. And with carbon-based traders recuperating from St. Patrick’s day, few will notice that the oil tumble continues as WTI touches new 6 year highs after yesterday’s shocking 10MM+ API build, and is now openly eyeing a collapse into the $30s. Just as nobody will notice that even as futures in the US and European stocks are looking a little hungover ahead of the Fed and perhaps on the latest bout of anti-austerity out of Europe, the China levitation has gone full retard, with the SHCOMP up another 2.1% yesterday and now in full-blown parabolic mode as shadow bankers dump all their funds into stocks in hopes of making up for losses due to regulatory intervention.
Unlike recent price action, the USD-index has also fell victim to the lack of overall price action with many participants firmly awaiting the FOMC statement and summary of economic projections and whether the Fed will drop the widely-watched ‘patient’ phrase. The biggest mover this morning has been GBP which was weighed on by the already discussed UK employment data and BoE minutes. In antipodean currencies, NZD has continued to be weighed on by yesterday’s particularly disappointing GDT auction and wider than expected trade deficit overnight. Finally, commodity related currencies including AUD and CAD have also been weighed on by the fall in energy and iron prices.
European equities have seen a relatively directionless start to the session with opening broad-based gains trimmed after the DAX made a technical break back below 12,000. Once again the FTSE 100 has bucked the trend and leads the way higher for Europe, this time with outperformance in Standard Chartered shares after positive broker moves at Barclays and Bernstein. Nonetheless, European equities have failed to capitalise from the positive sentiment seen overnight for Chinese equities amid expectations of further easing with macro newsflow relatively muted for Europe ahead of upcoming key risk events. Gilts trade 50 ticks higher following a miss in expectations for UK wage data (3M/Y 1.8% vs. Exp. 2.2%) and BoE minutes which revealed a 9-0 vote as expected but warned the stronger GBP could lead inflation to be lower for longer. This also comes ahead of the UK budget statement which is expected to see Gilt issuance at GBP 140bln from the 2014/15 total of GBP 125.9bln.
Chinese bourses outperformed amid expectations of further easing measures after February property prices fell at a record pace (New Home Prices -5.7% Y/Y vs. Prev. -5.1%). Shanghai Comp (+2.1%) rose to its highest level since May’08 while the Hang Seng (+0.9%) climbed to its best level in over a week. Nikkei 225 (+0.6%) swung between gains and losses while the ASX 200 (flat) was the session’s laggard weighed on by miners after iron ore fell to a record low. JGBs rallied with the curve notably flatter following today’s JPY 1.2trl 20yr auction, which despite a lower than prev. b/c and the widest tail since Nov’14, attracted a higher than prev. average price.
Israeli PM Benjamin Netanyahu claimed victory in Israel’s election after exit polls put him ahead of his centre-left rivals with a hard rightward shift in which he abandoned a commitment to negotiate a Palestinian state. (RTRS)
In the commodity complex, today has been another one of losses so far for energy prices with WTI and Brent both feeling the squeeze from the latest API data which showed a build in oil stockpiles against a previous drawdown (+10.5mln vs. Prev. -404K). Of note, a close today at USD 42.82 or lower would drive prices back into a bear market (20% decline from this year’s peak). Elsewhere, given the lack of direction in the USD-index and lack of metals specific newsflow, both spot gold and spot silver trade relatively unchanged for the session. Overnight, Dalian Iron ore futures fell nearly 4% to a contract low after China’s property prices declined for the 9th consecutive month and also at a faster pace, while sentiment in China’s steel sector remains subdued with China also said to be seeking policies to reduce surplus steel capacity.
In summary: European stocks little changed after giving up earlier gains, Asian stocks rise ahead of Fed policy decision. U.S. stocks index futures also gain, dollar weakens against the euro. BOE Says U.K. Strength, Divergent Policy Could Boost Pound. Netanyahu Sweeps Aside Herzog’s Challenge to Win Israel Vote. Inditex Sales Growth Accelerates as Zara Owner Adds Stores. ECB Besieged by Protests as Draghi Fetes New $1.4b Tower.
Bulletin Headline Summary from RanSquawk and Bloomberg
- FTSE 100 leads the way higher following positive broker moves for Standard Chartered while Europe trades modestly lower ahead of key risk events
- GBP lower and Gilts higher following a miss in expectations for UK wage data and BoE minutes which warned the stronger GBP could lead inflation to be lower for longer
- Treasuries gain as market awaits Fed statement and updated Summary of Economic Projections at 2pm ET, Yellen press conference at 2:30pm; FOMC seen dropping reference to “patient,” moving closer to rate increase.
- Bank of England policy makers said the continued strength of the U.K. economy could strengthen the pound further and increase the chance that low inflation will persist
- U.K. unemployment fell to its lowest level in more than six years and real pay growth accelerated in a boost for Chancellor of the Exchequer George Osborne as he prepares to announce his final budget before the election
- Oil extended losses from a six-year low with U.S. government data projected to show crude stockpiles rose to a fresh record
- China’s home prices dropped in more cities last month as an economic slowdown weighed on demand even after the government removed property curbs and reduced borrowing costs
- Japan’s $1.1t GPIF and its smaller peers almost doubled net sales of JGBs to JPY5.56b ($46b) in 4Q, the most in BOJ figures dating back to 1998, and bought an unprecedented JPY2.39t of foreign stocks and bonds
- IMF officials told their euro-area colleagues that Greece is the most unhelpful client their organization has dealt with in its 70-year history, according to two people familiar with the talks
- Anti-austerity protesters seeking to spoil the inauguration of the ECB’s new headquarters in Frankfurt set several cars alight and left a trail of destruction across the city in clashes with police before the opening ceremony at 11 a.m.
- Kaisa Group Holdings Ltd., the Chinese developer tied to a graft probe that’s trying to restructure its debt, will likely miss deadlines Wednesday and Thursday on bond coupons, a person familiar with the matter said
- Iran’s Foreign Minister Mohammad Javad Zarif signaled that talks over his country’s nuclear program are unlikely to reach an agreement this week, even as the two sides said unmistakable progress had been made
- Sovereign 10Y yields mixed; EU peripheral yields higher. Asian stocks gain, European stocks mostly lower, U.S. equity-index futures steady. Crude and copper slide, gold declines
Market Wrap
- S&P 500 futures little changed at 2067.2
- Stoxx Europe 600 little changed at 397.36
- US 10Y yield down 2bps to 2.03%
- German 10Y yield down 2bps to 0.26%
- MSCI Asia Pacific up 0.6% to 145.68
- Gold spot down 0.2% to $1147.71/oz
- Asian stocks gain, led by the Shanghai Composite.
- Nikkei 225 up 0.55%, Hang Seng up 0.91%, Kospi down 0.07%, Shanghai Composite up 2.13%, ASX up 0%, Sensex down 0.29%; MSCI Asia Pacific up 0.6% to 145.68
- Euro up 0.1% to $1.0612
- Dollar Index little changed at 99.55
- Italian 10Y yield up 8bps to 1.35%
- Spanish 10Y yield up 7bps to 1.32%
- 3m Euribor/OIS little changed at 10.28bps
- S&P GSCI index down 0.6% to 384.49
- Brent futures down 0.7% to $53.16/bbl, WTI futures down 2.5% to $42.39/bbl
- LME 3m copper down 2% to $5667.5/MT
- LME 3m nickel down 0.7% to $13630/MT
- Wheat futures up 0.1% to $504.25/bu
US Event Summary
- 7:00am: MBA Mortgage Applications, March (prior -1.3%) Central Banks
- 6:00am: ECB’s Draghi speaks in Frankfurt
- 2:00pm: FOMC Rate Decision
- 2:30pm: Yellen holds post-FOMC news conference
DB’s Jim Reid as usual wraps up the wrap up
It is looking increasingly likely that the ‘patience’ language will be removed today in order to give more flexibility, but we expect that the Fed will want to stress data dependency as to if and when they raise rates. The updated economic and financial projections could well offer some clues on potential timing whilst it’s likely that the dot plots will take up a decent amount of attention. Can the profile of expected hikes ahead really stay this high given current inflation trends and other central bank actions? We remain sceptical as to whether the Fed will be able to raise rates this year but we probably won’t know too much about whether we’ll be right or wrong from this meeting.
The official DB view from Peter Hooper is that he expects the key development to be either the removal or substantial modification of the ‘patient’ language. Peter thinks that the Fed will move fully into a data-dependent mode and that although June will be open for liftoff, it’s not necessarily the most likely date and that the rate of ascent after liftoff will likely be cautious and dependent on data and also on how the market and economy responds. So an interesting meeting ahead.
Peter also thinks that when Yellen is inevitably asked about the dollar, she will likely say that they will be monitoring developments in that area as well as others, but without expressing serious concern. He thinks that while there are limits to how far and how fast the Fed will be comfortable with seeing the dollar go, those limits have not been reached yet.
Ahead of this big event it’s been a reasonably quiet 24 hours news-flow wise yesterday with markets a touch weaker. The S&P 500 continues to trade between gains and losses having finished -0.33% lower at the end of the session. The Dollar was little changed at the close with the broader DXY finishing +0.02% and the US Treasury curve flattening with 2y yields 2.2bps higher and 10y and 30y yields falling 2.1bps and 4.2bps respectively. Data continues to disappoint after yesterday’s housing starts posted a significant weather-related downside miss. The -17.0% mom reading for February was below market expectations of -2.4% and was the largest monthly decline since February 2011. The weather impact was made more obvious given the contrast to the building permits data which rose +3.0% mom (vs. +0.5% expected) in February. As well as a further fall for the US economic surprise index – extending its 6-year low – the Atlanta Fed GDPNow forecast ticked down once more to 0.3% for Q1 from 0.6% previously. The latest revision comes following the weaker industrial production numbers out on Monday.
Commodity markets also took another leg lower yesterday. WTI finished -0.96% and has in fact traded some 2% lower overnight taking it to $42.74/bbl. Brent closed 0.80% weaker yesterday. It was a softer day for Gold also (notwithstanding Tony Hadley’s appreciation of it) with it closing 0.45% at $1,149/oz – the lowest level since November last year. The weakness in oil is clearly being seen in the US breakevens with the 10y now down at 1.653% (a six week low) having touched 1.88% earlier this month.
Before this in Europe, it was a weaker day for risk assets as the Stoxx (-0.71%) and DAX (-1.54%) closed back below the 400 and 12,000 level respectively and Crossover ended 7bps wider. It was another soft day for the bond market also. 10y yields in France (+2.0bps) and Germany (+0.3bps) finished wider and yields in the periphery sold off some 7-9bps. The move yesterday now takes Italian and Spanish 10y yields 23bps and 21bps off Thursday’s intraday low in yields now. The Euro meanwhile strengthened for the second successive day versus the Dollar to finish 0.27% higher at $1.0597.
With news flow relatively quiet, much of the focus was on what was a mixed German ZEW survey. The March current situations print rose an impressive 9.6pts to 55.1pts (and ahead of expectations of 52.0) – which was the highest since July last year. The survey expectations printed well below consensus however at 54.8 (versus 59.4), although was still up from the February reading of 53.0. Elsewhere we got the final February CPI reading for the Euro-area which delivered no real surprises. The headline print was unchanged at -0.3% yoy while the core reading was revised up a touch to +0.7% yoy (from +0.6%).
Despite lagging most major European equity markets year-to-date, the FTSE (+0.49%) enjoyed a better day yesterday ahead of the Budget due out around lunch time today. DB’s George Buckley does not expect much material alteration to the fiscal plans announced three months ago. However, given that the Budget is the last before the general election of May 7th, George notes that it would not be a surprise to hear the Chancellor make much of the continued recovery and the rise in earnings growth and at the same time laud previously announced policies to raise the personal income tax allowance and cut stamp duty for most home transactions. The positive news on the public finances will likely allow the Chancellor to provide some modest electoral sweeteners more than anything else.
Onto the latest in Greece, the government will today look to auction around €1bn in T-Bills to cover Friday’s maturity. According to Reuters, yesterday’s call between Greece and Euro-area deputy finance ministers ended in something of a frustrating state with Greece refusing to update on its reform progress and instead signalled that the talks should be moved to this Thursday’s EU summit. Despite an agreement from Greece to start talks on implementing reform measures, we are yet to hear of any significant progress. The two-day EU summit, which begins tomorrow, appears to be the next key date in the ongoing Greece saga.
In terms of the early morning trading in Asia, bourses are largely in the green with the Hang Seng (+1.08%), Shanghai Composite (+1.28%) and Nikkei (+0.46%) all firmer. The latter in particular helped by better than expected trade data out of Japan which showed a shrinking trade deficit last month supported by a strong exports (+2.4% yoy vs. +0.3% expected) print in particular. Treasuries are more or less unchanged heading into this morning and the Dollar (+0.1%) is trading in a tight range.
Taking a look at today’s calendar, as well as the Budget in the UK this morning we’ve also got the release of the BoE minutes and various employment indicators including unemployment, the claimant count and weekly earnings. Elsewhere in Europe we have trade data for the Euro-area. With no other data releases in the US, focus this afternoon will of course be on the outcome of the FOMC.
