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S&P To Open At New Record High As Commodities Rise, China Trade Disappoints
by Tyler Durden
Aug 8, 2016 6:29 AM
The meltup continues with the S&P500 set to open at new all time highs as futures rise 0.2% overnight, with European, Asian stocks higher, as job data pushed MSCI Asia Pacific Index towards highest close since Aug. 2015. Germany, U.K. economic data seen positive, with dollar, oil rising, and gold declining.
Global equities advanced with commodities and emerging markets on speculation the U.S. economy is strong enough to sustain growth while only triggering a gradual increase in interest rates; that said we have seen that narrative many times before and so far at least the market still refuses to price in a full rate hike for 2016, opting instead to have its record high market cake while "eating" the Fed's ongoing inability to hike.
Despite some speculation that the Fed may hike in December (certainly not in September ahead of the presidential election), over the weekend Fed board member Jerome Powell warned that America is trapped in a prolonged period of subdued growth that requires lower official rates than initially expected, the Financial Times reported.
Still, today's action suggests that the S&P's next stop is likely 2,200 despite ongoing please by Goldman for clients to sell stocks for the next 3 months, and really for the next year as Goldman sees the market going nowhere over the next 265 days. “There’s a positive follow-through from Friday’s payroll numbers as it shows strength in the U.S. economy,” said Michael Hewson, a market analyst at CMC Markets in London.
The MSCI All-Country World Index climbed 0.4% in early trading. The Index was headed for its highest close in almost a year, extending Friday’s advance that was spurred by a strong seasonally-adjusted payrolls report. Ignored amid the euphoria was the latest Chinese trade data which showed China's exports and imports fell more than expected in July in a rocky start to the third quarter, pointing to further weakness in global demand in the aftermath of Britain's decision to leave the European Union. Imports fell 12.5 percent from a year earlier, the biggest decline since February and suggesting China's domestic demand may be faltering despite a flurry of measures to stimulate economic growth. Exports fell 4.4 percent on-year, the General Administration of Customs said on Monday, while adding that it expects pressure on shipments likely will start to ease in October. That resulted in a trade surplus of $52.31 billion in July, the biggest since January, versus June's $48.11 billion. China's imports have now declined for 21 straight months, while exports have fallen for 12 of 13 months, helping to drag economic growth to its slowest in a quarter of a century.
As BBG summarizes the key market events, investment-grade corporate credit risk fell to the lowest in about a year. The pound dropped and U.K. government bonds rose as the Bank of England begins its latest round of quantitative easing. Thailand’s shares gained after voters backed a new constitution, while South Korean assets were buoyed by a debt-rating upgrade. Crude traded above $42 a barrel, the highest in two weeks, and aluminum advanced.
The Stoxx Europe 600 Index rose 0.2 percent, taking its three-day rebound to 2 percent in another low volume session. The number of shares changing hands on the Stoxx 600 was 37 percent below the 30-day average. A gauge of banks led gains, with Barclays Plc adding 3.3 percent after Exane BNP Paribas upgraded the U.K. lender to outperform, similar to buy, from neutral. BHP Billiton Ltd. and Anglo American Plc climbed 3.4 percent, pushing miners higher as commodity prices increased. PostNL NV surged 12 percent after the Dutch mail-delivery company forecast a resumption of dividend payments in 2017. Mediobanca SpA gained 3.2 percent after La Stampa reported that French investor Vincent Bollore may increase his 7.9 percent stake in the Italian investment bank to as much as 23 percent. Airbus Group SE fell 0.9 percent after saying that the the U.K. Serious Fraud Office has opened a criminal investigation into allegations of fraud, bribery and corruption relating to some of the planemaker’s third-party consultants.
S&P 500 futures added 0.2 % after the U.S. gauge hit an all-time high. Nasdaq 100 contracts also rose 0.3 percent. The Nasdaq Composite Index closed at a record Friday for the first time in a year.
The Bloomberg Commodity Index rose as much as 0.4 percent to the highest since Aug. 1 as West Texas Intermediate crude oil gained 1.3 percent to $42.34 a barrel, amid speculation OPEC may once again consider to halt supply at its upcoming September meeting.
Market Snapshot
BoJ Summary of Opinions for July 28th and 29th meeting stated that the economy has continued a moderate economy trend and that Japan's economy has maintained its resilience. The Summary of Opinions added that the government stimulus package is expected to be extremely large in scale which will considerably support growth and inflation, while it showed the board was divided regarding limits to monetary easing.
Top Asian News
In commodities, the Bloomberg Commodity Index rose as much as 0.4 percent to the highest since Aug. 1 as West Texas Intermediate crude oil gained 1.3 percent to $42.34 a barrel. Copper climbed 0.6 percent in London, aluminum was up 0.7 percent and nickel headed for the highest close in a year. Gold fell 0.4 percent extending Friday’s losses. The prospect of higher U.S. interest rates dim the appeal of the precious metals versus yield-paying assets. Soybeans climbed as much as 1.5 percent in Chicago amid strong demand for U.S. exports. Wheat also advanced amid concern about the outlook for European crops.
Aside from a 10am update on Labor Market Conditions, an index which the market focuses on when it's good and ignores when flashing a warning sign, there is nothing on the US calendar.
* * *
Bulletin Headline Summary From RanSquawk and Bloomberg
DB's Jim Reid concludes the overnight wrap
The US economy is refusing to conform to any traditional path at the moment as Friday's strong payrolls (255k vs. 180k expected; 292k previous) added to the confusing mix of data we've seen of late. A reminder that the previous Friday confirmed that at the end of H2, real and nominal YoY GDP had slipped to 1.2% and 2.4% respectively, the latter at levels not seen since the end of the Great Recession. Without nominal growth there's a cap on how much delevering the global economic can achieve and also a cap on earnings growth. However the strong employment numbers bring the 3 and 6 month average back up to 190k and 189k after oscillating around the 150k mark recently. This is still below the 2014 and 2015 average of 251k and 229k but healthier than it was. Our view that the US labour market is appearing late cycle is looking less clever than it did 2 months ago. Since then the US economy has added 547k jobs!!
However we would share DB's Joe Lavorgna's view that the upshot of strong labour market growth and weak GDP growth is depressed productivity. Maybe we'll get more evidence backing this up tomorrow with the preliminary US Q2 productivity report (+0.5% vs. -0.6%). Also out is the unit labor costs number (+2.0% vs. +4.5%) and the concern is that weak productivity growth implies that the ULC at these levels will continue to impact profit margins. If companies try to protect margins they could still reduce labour demand and the late cycle labour hypothesis could remain intact. Interestingly Joe thinks current-quarter real GDP is only likely to be at 1.2% which is way below say the Atlanta Fed GDPNow of 3.8%. If Joe is correct these themes aren't going to go away.
What the job report does do is wake the Fed Funds up from its stupor. Before the payroll number September and December probability (based on Bloomberg) was at 18% and 20% respectively. They now sit at 26% and 47%. Before the number to get a higher than 50% probability you needed to stretch out to December 2017. Now it's March 2017. We've long felt that the Fed would struggle to raise rates in this cycle (we've been wrong once last December) and still think they'll find it very tough to go any further. However as the Fed want to raise rates and as we've repeatedly got close to more hikes, it's never made sense to price it as low as markets have of late. Janet Yellen's Jackson Holes's speech on August 26th will now be a bit more interesting.
Markets liked the number as we're still at a point where growth fears outweigh interest rate rising fears for now. The S&P500 (+0.86%) and the NASDAQ (+1.06%) rose to all time highs. In Europe the effects of US data appeared to build on the BoE’s aggressive policy package from the previous day as the STOXX (+1.05%) and the FTSE (+0.79%) continued to gain on Friday. It was a good day for European banks as well (STOXX Banks +2.21%) which were the second best performing sector in Europe.
The risk-on sentiment was also evident in credit markets as iTraxx Main and Crossover spreads tightened by -2bps and -8bps respectively on Friday, ending the week tighter by -1bps and -2bps after widening earlier in the week. iTraxx Fin Senior and Sub also tightened by -4bp and -14bps on Friday. In the US we saw CDX IG and HY follow suit, tightening by roughly -2bps and -8bps on Friday, with both ending the week roughly -1bp tighter.
At the other end of the risk spectrum, German and US 10Y yields rose by +3bps and +9bps respectively in the broader risk on move, thus ending the week +5bps and +14bps higher.
Asia has started the week well with the Nikkei +1.95%, the Hang Seng +1.25% and the Shanghai Comp +0.25% as we type. It's interesting that last August markets were shook from their holidays by China's stealth devaluation and fears over fx reserves. Over the weekend the latest reserve numbers were out and unlike last year they were a bit of a non event and in-line with expectations at $3.2Tn. This morning the latest trade numbers were out and in dollar terms exports fell slightly more than expected (-4.4% vs -3.5% YoY expected). Meanwhile imports fell much more than forecast (-12.5% vs -7%). This perhaps talks to the still tepid global economy and the weaker Yuan that originally stemmed from last August's shenanigans.
This morning we published our latest HY monthly taking a look back on a month of strength for credit markets in the aftermath of the Brexit vote in the UK. GBP HY remains a notable underperformer and we question whether it therefore provides a relative opportunity. We provide some analysis looking at the performance relative to other parts of the credit market as well as assessing the main sources of weakness within the market. We also assess whether the latest actions by the BoE could provide some support for GBP HY For data completeness the other US numbers on Friday showed the unemployment rate holding steady at 4.9% and marginally missing expectations (4.8% expected). Wage growth also marginally beat expectations as hourly earnings grew +0.3% mom (vs. +0.2% expected; +0.1% previous) while the work week extended marginally as well. The trade balance number was weak and saw the deficit widen more than expected to a near one-year high in June (-44.5b vs. -43.0b expected; -41.0b previous).
Friday was fairly quiet in terms of data out of Europe. We saw German factory orders data for June fall into negative territory (-0.4% mom vs. +0.5% expected; +0.1% previous) and thus miss estimates for a third consecutive month. Much of the drag was created by Euro Area orders and demand for investment goods falling by -8.5% and -13.6% mom respectively. Over in France we saw trade deficit widen by less than expected (-3.44bn vs. -3.9bn expected; -2.717bn previous). In the UK we saw house prices slide more than expected in July (-1.0% mom vs. -0.2% expected; +1.2% previous) which could be a sign of Brexit weighing on markets.
Turning over to the week ahead now. It’s a quiet start to the week today with data due in Europe limited to Germany industrial production, France business sentiment data and Euro area investor confidence. In the US this afternoon there’s nothing of note. We kick off in China on Tuesday where the July inflation report will be worth watching. In Europe we’ll get industrial and manufacturing production numbers in the UK covering June, along with Germany trade data. In the US on Tuesday we’ve got the NFIB small business optimism reading for June, Q2 nonfarm productivity and unit labour costs, wholesale inventories and trade sales and finally the IBD/TIPP economic optimism reading. In Asia on Wednesday we’re due to get the latest machine orders and PPI data in Japan. Over in Europe there’s more industrial production data due out, this time from France, while in the US the June JOLTS job opening report and July Monthly Budget Statement is due. It’s another fairly quiet day on Thursday with France and Italy CPI highlighting the morning session, while initial jobless claims and the import price index reading are the only releases on the other side of the pond. Things finally pick up on Friday with a busy end to the week. Firstly in China we’ll get the industrial production, retail sales and fixed asset investment data for July. Turning to Europe we’ll firstly get Germany CPI for July and Q2 GDP, followed by France wage data and then Euro area industrial production for June and also Q2 GDP. It’s a bumper session in the US too with July retail sales data, last month’s PPI report, June business inventories and finally the first estimate of the University of Michigan consumer sentiment reading.
Away from the data there’s no Central Bank speak to highlight, while earnings season winds down. In the US just 23 S&P 500 companies will report including Allergen (today), Walt Disney (Tuesday) and Macy’s and Kohl’s (both Thursday). In fact 88% of the index has now reported. In Europe Deutsche Telekom and Zurich Insurance report.
http://www.zerohedge.com/news/2016-...high-commodities-rise-china-trade-disappoints
by Tyler Durden
Aug 8, 2016 6:29 AM
The meltup continues with the S&P500 set to open at new all time highs as futures rise 0.2% overnight, with European, Asian stocks higher, as job data pushed MSCI Asia Pacific Index towards highest close since Aug. 2015. Germany, U.K. economic data seen positive, with dollar, oil rising, and gold declining.
Global equities advanced with commodities and emerging markets on speculation the U.S. economy is strong enough to sustain growth while only triggering a gradual increase in interest rates; that said we have seen that narrative many times before and so far at least the market still refuses to price in a full rate hike for 2016, opting instead to have its record high market cake while "eating" the Fed's ongoing inability to hike.
Despite some speculation that the Fed may hike in December (certainly not in September ahead of the presidential election), over the weekend Fed board member Jerome Powell warned that America is trapped in a prolonged period of subdued growth that requires lower official rates than initially expected, the Financial Times reported.
Still, today's action suggests that the S&P's next stop is likely 2,200 despite ongoing please by Goldman for clients to sell stocks for the next 3 months, and really for the next year as Goldman sees the market going nowhere over the next 265 days. “There’s a positive follow-through from Friday’s payroll numbers as it shows strength in the U.S. economy,” said Michael Hewson, a market analyst at CMC Markets in London.
The MSCI All-Country World Index climbed 0.4% in early trading. The Index was headed for its highest close in almost a year, extending Friday’s advance that was spurred by a strong seasonally-adjusted payrolls report. Ignored amid the euphoria was the latest Chinese trade data which showed China's exports and imports fell more than expected in July in a rocky start to the third quarter, pointing to further weakness in global demand in the aftermath of Britain's decision to leave the European Union. Imports fell 12.5 percent from a year earlier, the biggest decline since February and suggesting China's domestic demand may be faltering despite a flurry of measures to stimulate economic growth. Exports fell 4.4 percent on-year, the General Administration of Customs said on Monday, while adding that it expects pressure on shipments likely will start to ease in October. That resulted in a trade surplus of $52.31 billion in July, the biggest since January, versus June's $48.11 billion. China's imports have now declined for 21 straight months, while exports have fallen for 12 of 13 months, helping to drag economic growth to its slowest in a quarter of a century.
As BBG summarizes the key market events, investment-grade corporate credit risk fell to the lowest in about a year. The pound dropped and U.K. government bonds rose as the Bank of England begins its latest round of quantitative easing. Thailand’s shares gained after voters backed a new constitution, while South Korean assets were buoyed by a debt-rating upgrade. Crude traded above $42 a barrel, the highest in two weeks, and aluminum advanced.
The Stoxx Europe 600 Index rose 0.2 percent, taking its three-day rebound to 2 percent in another low volume session. The number of shares changing hands on the Stoxx 600 was 37 percent below the 30-day average. A gauge of banks led gains, with Barclays Plc adding 3.3 percent after Exane BNP Paribas upgraded the U.K. lender to outperform, similar to buy, from neutral. BHP Billiton Ltd. and Anglo American Plc climbed 3.4 percent, pushing miners higher as commodity prices increased. PostNL NV surged 12 percent after the Dutch mail-delivery company forecast a resumption of dividend payments in 2017. Mediobanca SpA gained 3.2 percent after La Stampa reported that French investor Vincent Bollore may increase his 7.9 percent stake in the Italian investment bank to as much as 23 percent. Airbus Group SE fell 0.9 percent after saying that the the U.K. Serious Fraud Office has opened a criminal investigation into allegations of fraud, bribery and corruption relating to some of the planemaker’s third-party consultants.
S&P 500 futures added 0.2 % after the U.S. gauge hit an all-time high. Nasdaq 100 contracts also rose 0.3 percent. The Nasdaq Composite Index closed at a record Friday for the first time in a year.
The Bloomberg Commodity Index rose as much as 0.4 percent to the highest since Aug. 1 as West Texas Intermediate crude oil gained 1.3 percent to $42.34 a barrel, amid speculation OPEC may once again consider to halt supply at its upcoming September meeting.
Market Snapshot
- S&P 500 futures up 0.3% to 2182
- Stoxx 600 up 0.2% to 342
- FTSE 100 up 0.2% to 6806
- DAX up 0.9% to 10462
- German 10Yr yield up 1bp to -0.06%
- Italian 10Yr yield up 2bps to 1.15%
- Spanish 10Yr yield up 1bp to 1.03%
- S&P GSCI Index up 0.9% to 345.2
- MSCI Asia Pacific up 1.3% to 138
- Nikkei 225 up 2.4% to 16651
- Hang Seng up 1.6% to 22495
- Shanghai Composite up 0.9% to 3004
- S&P/ASX 200 up 0.7% to 5538
- US 10-yr yield down 1bp to 1.58%
- Dollar Index up 0.12% to 96.31
- WTI Crude futures up 1.2% to $42.31
- Brent Futures up 1% to $44.73
- Gold spot down 0.4% to $1,331
- Silver spot down 0.2% to $19.68
- Delta Grounds Planes ‘Nationwide’ After Computer System Crashes: Responding to complaints from passengers on Twitter starting at 4am EST, Delta said it was experiencing a system outage “nationwide.”
- Wal-Mart’s Jet.com Deal Said to Hinge on Keeping Founder: Cos. trying to agree to $3b deal as soon as today that will require Jet founder Marc Lore to head retailer’s online division for several years.
- Steinhoff to Acquire Mattress Firm for About $2.4b: Steinhoff offered $64/share in cash, more than double Friday’s $29.74 closing price for Houston-based Mattress Firm.
- Apple Said to Buy AI Startup Turi for About $200m: Turi helps developers create, manage software & services that use a form of AI called machine learning.
- Google Self-Driving Car Research Head Chris Urmson Leaves: Under his watch, Google vehicles racked up 1.8 million miles of driving.
- Buffett Sees Redemption of Wrigley Pref Stake With 5% Div.: Half of investment in Wrigleys can be redeemed over 90-day period starting Oct. 6.
- NBC Olympic Audience at Opening Drops 35% vs London 2012: Broadcast was viewed by ~26.5m people; preliminary audience rating of 17.2 dropped vs London’s initial rating of 23.0
- ‘Suicide Squad’ Opens at No. 1 Film as Fans Ignore Critics: New superhero movie starring Will Smith, Margot Robbie collected est. $135.1m in U.S. and Canada: ComScore.
- Hacked Bitcoin Exchange Users to Lose 36%, to Receive Tokens: To compensate its customers, Bitfinex said users will receive tokens that may later be redeemed or exchanged for shares in its parent co.
- Southwest Airlines Board Tells Unions CEO Not Going Anywhere: Unions said CEO, COO should go due to flight disruptions caused by aging computer systems, too-narrow focus on cutting costs, stock buybacks rather than upgrading reservation system.
- Trump to Propose Moratorium on New Financial Regulations: Donald Trump will propose a temporary moratorium on new financial regulations in an economic speech Monday in Detroit; Clinton Plans Economic Speech Thursday to Counter Trump’s
- China Foreign-Currency Reserves Stabilized at $3.2t: Reserves edged down by $4.1b to $3.2t, PBOC said in statement Sunday; was in line with median estimate of economists surveyed by Bloomberg.
BoJ Summary of Opinions for July 28th and 29th meeting stated that the economy has continued a moderate economy trend and that Japan's economy has maintained its resilience. The Summary of Opinions added that the government stimulus package is expected to be extremely large in scale which will considerably support growth and inflation, while it showed the board was divided regarding limits to monetary easing.
Top Asian News
- China Exports Remain Subdued as Import Drop Fuels Demand Concern: Imports drop 12.5% in dollar terms
- South Korea’s Credit Rating Raised One Level to AA by S&P: Won gains, bonds pare back losses after S&P’s upgrade
- Goldman Hails Modi Triumph as August Jinx Threatens Rupee Rally: Goldman says rupee among its top EM picks for carry returns
- DBS 2Q Net Income Falls on S$150m Swiber Group Charge: 2Q net income down 6% y/y to S$1.05b, est. S$1.07b
- Hostile Raid on China Developer Flashes Shadow-Banking Warnings: Baoneng using risky AMP structures to amass 25% of Vanke stock
- Japan’s Emperor Signals Readiness to Step Down in Video Address: Abdication would require change in Imperial House Law
- Top European News
- Airbus Says U.K. Fraud Office Starts Criminal Bribery Probe: Co. had flagged in 2016 “misstatements and omissions” involving outside contractors in some export financing applications, found through an internal probe.
- Vinci to Acquire Lamsac, Pex From Invepar in EU1.5b Deal: Co. agreed to buy Lima toll-road operator Lamsac and its PEX electronic-toll operator from Brazilian owner Investimentos & Participacoes em Infraestrutura SA.
- Denmark Pursues Brexit Concessions as Politics Trumps Economics: Danish PM Lars Loekke Rasmussen dead-set on forcing an escape from having to foot welfare bill for EU workers, a key feature of the bloc’s freedom of movement principle.
- Bank of France Sees Economy Gaining Momentum in 3Q: GDP to rise 0.3% in 3Q, Bank of France said Monday.
- U.K. Consumers’ Brexit Anxiety Temporarily Quelled by Summer Sun: Consumers spent more on new clothes, meals out, day trips in July, according to card transaction data analyzed by Visa, Markit.
In commodities, the Bloomberg Commodity Index rose as much as 0.4 percent to the highest since Aug. 1 as West Texas Intermediate crude oil gained 1.3 percent to $42.34 a barrel. Copper climbed 0.6 percent in London, aluminum was up 0.7 percent and nickel headed for the highest close in a year. Gold fell 0.4 percent extending Friday’s losses. The prospect of higher U.S. interest rates dim the appeal of the precious metals versus yield-paying assets. Soybeans climbed as much as 1.5 percent in Chicago amid strong demand for U.S. exports. Wheat also advanced amid concern about the outlook for European crops.
Aside from a 10am update on Labor Market Conditions, an index which the market focuses on when it's good and ignores when flashing a warning sign, there is nothing on the US calendar.
* * *
Bulletin Headline Summary From RanSquawk and Bloomberg
- European and Asian equities have started the week on the front-foot in a continuation of the moves seen since last week's BoE announcement and NFP release
- In FX, Monday trade has proved to be a quiet one again, exacerbated by the lack of drivers in the form of data or major events/news over the weekend
- Looking ahead, there is little in the way of key economic releases or notable speakers
- Treasuries on the long-end rally in overnight trading along with global equities and oil while gold drops in what some call a “positive follow-through” from Friday’s better than expected payroll report.
- China’s exports remained sluggish last month, signaling tepid global demand, while deteriorating imports raise concern domestic conditions may be weakening anew
- Treasury benchmark 10Y note yields held close to a four- month high versus their G7 peers after U.S. employers added more jobs than economists forecast. The spread widened to 111bp on Friday, the most since late March
- Last month, yields on U.S. 10Y notes turned negative for Japanese buyers who pay to eliminate currency fluctuations from their returns, something that hasn’t happened since the financial crisis. It’s even worse for euro-based investors
- Warren Buffett just took another step to simplify Berkshire Hathaway’s stockpile of derivatives by paying $195 million in July to wind down the last contract in which it provided protection against losses on bonds
- German industrial production increased 0.8% m/m in June, signaling that Europe’s largest economy gained momentum ahead of the U.K.’s Brexit vote
- South Korea’s credit rating was increased one level by Standard & Poor’s, which cited the nation’s steady economic performance, sound fiscal position and flexible fiscal and monetary policies for the improvement
- The Hong Kong-based bitcoin exchange that lost about $71 million to hackers said it is beginning to bring its system back online, after telling users they will lose 36% of their deposits
- 10am: Labor Market Conditions Index Change, July (prior -1.9)
DB's Jim Reid concludes the overnight wrap
The US economy is refusing to conform to any traditional path at the moment as Friday's strong payrolls (255k vs. 180k expected; 292k previous) added to the confusing mix of data we've seen of late. A reminder that the previous Friday confirmed that at the end of H2, real and nominal YoY GDP had slipped to 1.2% and 2.4% respectively, the latter at levels not seen since the end of the Great Recession. Without nominal growth there's a cap on how much delevering the global economic can achieve and also a cap on earnings growth. However the strong employment numbers bring the 3 and 6 month average back up to 190k and 189k after oscillating around the 150k mark recently. This is still below the 2014 and 2015 average of 251k and 229k but healthier than it was. Our view that the US labour market is appearing late cycle is looking less clever than it did 2 months ago. Since then the US economy has added 547k jobs!!
However we would share DB's Joe Lavorgna's view that the upshot of strong labour market growth and weak GDP growth is depressed productivity. Maybe we'll get more evidence backing this up tomorrow with the preliminary US Q2 productivity report (+0.5% vs. -0.6%). Also out is the unit labor costs number (+2.0% vs. +4.5%) and the concern is that weak productivity growth implies that the ULC at these levels will continue to impact profit margins. If companies try to protect margins they could still reduce labour demand and the late cycle labour hypothesis could remain intact. Interestingly Joe thinks current-quarter real GDP is only likely to be at 1.2% which is way below say the Atlanta Fed GDPNow of 3.8%. If Joe is correct these themes aren't going to go away.
What the job report does do is wake the Fed Funds up from its stupor. Before the payroll number September and December probability (based on Bloomberg) was at 18% and 20% respectively. They now sit at 26% and 47%. Before the number to get a higher than 50% probability you needed to stretch out to December 2017. Now it's March 2017. We've long felt that the Fed would struggle to raise rates in this cycle (we've been wrong once last December) and still think they'll find it very tough to go any further. However as the Fed want to raise rates and as we've repeatedly got close to more hikes, it's never made sense to price it as low as markets have of late. Janet Yellen's Jackson Holes's speech on August 26th will now be a bit more interesting.
Markets liked the number as we're still at a point where growth fears outweigh interest rate rising fears for now. The S&P500 (+0.86%) and the NASDAQ (+1.06%) rose to all time highs. In Europe the effects of US data appeared to build on the BoE’s aggressive policy package from the previous day as the STOXX (+1.05%) and the FTSE (+0.79%) continued to gain on Friday. It was a good day for European banks as well (STOXX Banks +2.21%) which were the second best performing sector in Europe.
The risk-on sentiment was also evident in credit markets as iTraxx Main and Crossover spreads tightened by -2bps and -8bps respectively on Friday, ending the week tighter by -1bps and -2bps after widening earlier in the week. iTraxx Fin Senior and Sub also tightened by -4bp and -14bps on Friday. In the US we saw CDX IG and HY follow suit, tightening by roughly -2bps and -8bps on Friday, with both ending the week roughly -1bp tighter.
At the other end of the risk spectrum, German and US 10Y yields rose by +3bps and +9bps respectively in the broader risk on move, thus ending the week +5bps and +14bps higher.
Asia has started the week well with the Nikkei +1.95%, the Hang Seng +1.25% and the Shanghai Comp +0.25% as we type. It's interesting that last August markets were shook from their holidays by China's stealth devaluation and fears over fx reserves. Over the weekend the latest reserve numbers were out and unlike last year they were a bit of a non event and in-line with expectations at $3.2Tn. This morning the latest trade numbers were out and in dollar terms exports fell slightly more than expected (-4.4% vs -3.5% YoY expected). Meanwhile imports fell much more than forecast (-12.5% vs -7%). This perhaps talks to the still tepid global economy and the weaker Yuan that originally stemmed from last August's shenanigans.
This morning we published our latest HY monthly taking a look back on a month of strength for credit markets in the aftermath of the Brexit vote in the UK. GBP HY remains a notable underperformer and we question whether it therefore provides a relative opportunity. We provide some analysis looking at the performance relative to other parts of the credit market as well as assessing the main sources of weakness within the market. We also assess whether the latest actions by the BoE could provide some support for GBP HY For data completeness the other US numbers on Friday showed the unemployment rate holding steady at 4.9% and marginally missing expectations (4.8% expected). Wage growth also marginally beat expectations as hourly earnings grew +0.3% mom (vs. +0.2% expected; +0.1% previous) while the work week extended marginally as well. The trade balance number was weak and saw the deficit widen more than expected to a near one-year high in June (-44.5b vs. -43.0b expected; -41.0b previous).
Friday was fairly quiet in terms of data out of Europe. We saw German factory orders data for June fall into negative territory (-0.4% mom vs. +0.5% expected; +0.1% previous) and thus miss estimates for a third consecutive month. Much of the drag was created by Euro Area orders and demand for investment goods falling by -8.5% and -13.6% mom respectively. Over in France we saw trade deficit widen by less than expected (-3.44bn vs. -3.9bn expected; -2.717bn previous). In the UK we saw house prices slide more than expected in July (-1.0% mom vs. -0.2% expected; +1.2% previous) which could be a sign of Brexit weighing on markets.
Turning over to the week ahead now. It’s a quiet start to the week today with data due in Europe limited to Germany industrial production, France business sentiment data and Euro area investor confidence. In the US this afternoon there’s nothing of note. We kick off in China on Tuesday where the July inflation report will be worth watching. In Europe we’ll get industrial and manufacturing production numbers in the UK covering June, along with Germany trade data. In the US on Tuesday we’ve got the NFIB small business optimism reading for June, Q2 nonfarm productivity and unit labour costs, wholesale inventories and trade sales and finally the IBD/TIPP economic optimism reading. In Asia on Wednesday we’re due to get the latest machine orders and PPI data in Japan. Over in Europe there’s more industrial production data due out, this time from France, while in the US the June JOLTS job opening report and July Monthly Budget Statement is due. It’s another fairly quiet day on Thursday with France and Italy CPI highlighting the morning session, while initial jobless claims and the import price index reading are the only releases on the other side of the pond. Things finally pick up on Friday with a busy end to the week. Firstly in China we’ll get the industrial production, retail sales and fixed asset investment data for July. Turning to Europe we’ll firstly get Germany CPI for July and Q2 GDP, followed by France wage data and then Euro area industrial production for June and also Q2 GDP. It’s a bumper session in the US too with July retail sales data, last month’s PPI report, June business inventories and finally the first estimate of the University of Michigan consumer sentiment reading.
Away from the data there’s no Central Bank speak to highlight, while earnings season winds down. In the US just 23 S&P 500 companies will report including Allergen (today), Walt Disney (Tuesday) and Macy’s and Kohl’s (both Thursday). In fact 88% of the index has now reported. In Europe Deutsche Telekom and Zurich Insurance report.
http://www.zerohedge.com/news/2016-...high-commodities-rise-china-trade-disappoints
