Following a ghastly week for stocks, the momentum algos were desperate for something, anything to ignite some upward momentum and stop the collapse which last week pushed the DJIA into the red for the year: they got it overnight with the previously reported bailout of Portugal's Banco Espirito Santo, where the foreplay finally ended and after the Portuguese Central Bank finally realized that the bank is insolvent and that no more private investors will "recapitalize" it further, finally bailed it out, sticking the stock and the subs into a bad bank runoff entity, while preserving the senior bonds. So much for Europe's much vaunted bail in regime and spreading of pain across asset classes. At least the depositors did not get Cyprused, for now.
Aside from the main overnight news of the BES bailout, stocks traded mixed in Europe, with the German DAX index underperforming where Adidas (-1.6%) remained under pressure as investors continued to fret over the Russian sanctions, while analysts at Berenberg downgraded the company to sell from buy. In terms of other notable stock movers, HSBC (+2.8%) shares briefly slumped after the bank reported pretax down 12% vs. Exp. down 10%. Focus in the US will be on earnings by AIG, Marathon Oil, Cardinal Health and Pioneer Natural Resources. Bunds recovered from a lower open and moved into positive territory, as the somewhat cautious sentiment amid concerns over the implication of Russian sanctions on profitability of EU majors, together with risks associated with the looming risk events weighed on sentiment. Nevertheless, PO/GE 10y spread tightened aggressively this morning after it was announced that Banco Espirito Santo is to be split into ‘good’ and ‘bad’ banks in a EUR 4.9bln rescue package that wipes out equity and subordinated debt holders, but protects taxpayers and senior creditors.
There is far less macro and economic news on this week's calendar which means the usual geopolitical tensions points: Russia, Gaza, ISIS, as well as the spread of the Ebola epidemic, and of course, speculation on what the Fed may or may not do, will drive risk in the coming days.
The earnings calendar winds down in the US although we still have 73 S&P 500 companies lined up this week. AIG, Walt Disney and News Corp are some of the notable ones. In Europe we have 69 companies reporting with some of the major financial services group (HSBC, Unicredit, Standard Chartered, ING) expected to report. In the US about 360 S&P 500 companies have reported so far with the EPS beat:miss ratio standing solid at 77%:23% although sales performance has been bit more subdued at 65%:35%. European earnings are still coming through but so far EPS beat:miss are running at a more balanced 55%:45% whilst sales revenue are less impressive at 45%:54%. Our usual earnings season tracker updated in the PDF.
*Bulletin Headline Summary from RanSquawk and Bloomberg:*
· Bund futures remain bid into the North American cross over, despite initially gapping lower, as the DAX continues to be sold as participant confidence ebbs
· Treasuries little changed, 10Y notes holding just below 2.50% level; Bank of Portugal said it will take control of Banco Espirito Santo’s assets and deposit-taking operations by transferring them to a new company.
· While Banco Espirito senior bondholders and depositors were left unscathed, sub debt holders face losses as regulators try to avoid leaving taxpayers on the hook for losses caused by failed lenders
· Investors may be underestimating the pace at which the Fed will raise interest rates over the next two years, said Richmond Fed president Jeffrey Lacker
· A Chinese central bank loan that’s almost the size of the U.S. bailout of AIG has spurred speculation that policy makers have adopted a new form of monetary easing to shore up growth
· China’s non-manufacturing PMI fell to 54.2 in July from a previously reported 55.0 in June
· The spread of Ebola in Liberia threatens to erase the economic progress the West African nation has made since the end of the civil war in 2003, Vice President Joseph Boakai said
· The outbreak has killed more than 800 in Sierra Leone, Liberia and Guinea, threatens to spiral out of control
· Militants from Islamic State took control of two oil fields and some predominantly Kurdish towns in northern Iraq following clashes, according to the Northern Oil Co.
· Israel held its fire in parts of the Gaza Strip to allow for humanitarian relief as violence defied diplomatic efforts to end four weeks of conflict
· Sovereign yields mostly lower. Euro Stoxx Banks gains 1.2% after sliding 3.4% last week. Asian and European equities mixed, U.S. stock futures rise. WTI crude, gold and copper little changed
· Chinese equities shrug off a six-month low in non-manufacturing PMI as hopes for reform of state-owned enterprises send the Shanghai Composite and the Hang Seng Index higher
· Today’s calendar is relatively quiet ahead of a slew of central bank decisions (BoE, ECB, RBA, BoJ) all due later this week
*US Event Calendar*
· 9:45am: ISM New York, July (prior 60.5) Supply
· *11:00am POMO: Fed to purchase $950m-$1.15b notes in 2036-2044 sector*
· 11:00am: U.S. announces plans for auction of 4W bills
· 11:30am: U.S. to sell $28b 3M bills, $25b 6M bills
*FIXED INCOME *
Bunds recovered from a lower open and moved into positive territory, as the somewhat cautious sentiment amid concerns over the implication of Russian sanctions on profitability of EU majors, together with risks associated with the looming risk events weighed on sentiment. Nevertheless, PO/GE 10y spread tightened aggressively this morning after it was announced that Banco Espirito Santo is to be split into ‘good’ and ‘bad’ banks in a EUR 4.9bln rescue package that wipes out equity and subordinated debt holders, but protects taxpayers and senior creditors.
*EQUITIES *
Stocks traded mixed in Europe, with the German DAX index underperforming where Adidas (-1.6%) remained under pressure as investors continued to fret over the Russian sanctions, while analysts at Berenberg downgraded the company to sell from buy. In terms of other notable stock movers, HSBC (+2.8%) shares briefly slumped after the bank reported pretax down 12% vs. Exp. down 10%. Focus in the US will be on earnings by AIG, Marathon Oil, Cardinal Health and Pioneer Natural Resources.
*FX *
There was little in terms of tier-1 macroeconomic releases in morning, with only the latest UK Construction PMI data for market participants to digest, which came in broadly in line with exp. The report noted that British house building accelerated last month at the fastest rate since November 2003 and construction activity grew for the 15th successive month. Nevertheless, both EUR/USD and GBP/USD remained range-bound, given the lack of fundamental news flow to drive the price action and as market participants remained on the side-lines ahead of a slew of risk events
*COMMODITIES*
Gold has traded sideways overnight and through the European session, though off last week’s NFP-inspired highs, yet remaining above the USD 1290 level as the tensions in the Eastern European and the Middle East keep prices elevated. The energy complex trades rangbeound yet off its lows, as markets factor out effect of Coffeeville, which saw the complex sell off last week.
* * *
*DB's Jim Reid concludes the overnight recap:*
Clearly the sell-off also partly has its roots in Geopolitics and the Argentinian default but while we were in QE infinity mode these events would have been easier to shrug off. However as the market runs out of the extreme liquidity and attention now shifts towards when the Fed will lift rates we might have entered a new period of higher volatility. Our view is that the Fed will have to err on the side of caution when lifting rates but that the market will now likely be more sensitive to data and Fed speak and we'll have regular tension between the hawks and the doves with the doves eventually winning out but not without turbulence and a fight.
As we've published a few times we thought what we're now seeing in markets might happen in the autumn but now it’s happened earlier we don't think its worth chasing it wider at these weaker levels. Our feeling is that markets will be stronger by the end of August even if we still might not start the month well.
One of the recent reactions for markets has been the BES story, and according to the FT, late on Sunday a EUR4.9bn bailout plan was announced by Portugal’s central bank. This will see the bank restructured into a ‘good’ and ‘bad’ bank. The move would see a small Portuguese bank rescue fund acquire BES’s healthy assets and the fund will be bolstered by EU and IMF loans left over from Portugal’s international bailout. The WSJ noted that depositors and senior bondholders will be spared from any losses while the bank’s subordinated creditors and current shareholders will be in line for losses. In the world of credit all eyes will be on how iTraxx Financial Senior, Sub and Main respond to the news. Senior holders across markets should be relieved as again policy makers have been reluctant to impose losses on them.
For now the developments appear to be well absorbed by markets overnight. Indeed most risk indicators are firmer in Asia with the S&P 500 Futures (+0.3%), the Shanghai Composite (+1.1%), Indonesia CDS (-7bps), and the AUD (+0.1%) all higher as we type.
Recapping the data flow on Friday, payrolls (209k v 230k consensus) were modestly weaker-than-expected. Likewise Private payrolls (+198k v 227k consensus) were also softer. Joe LaVorgna thinks this means Yellen will keep a dovish script when she keynotes the Jackson Hole conference later this month. The latest data also allows monetary policymakers more breathing room with respect to the timing of the first Fed funds rate hike, as market participants in recent days had been bringing rate hikes forward. Away from jobs the manufacturing data was firm though with a better-than-expected July ISM manufacturing index (57.1 v 56.0 expected) on Friday. Whilst the S&P 500 (-0.29%) closed a touch lower on Friday, Treasury bulls were probably encouraged by the softness in payrolls. The 10yr rallied 7bp rally to 2.49% with the curve also bull steepening led by outperformance at the front end.
Following a roller coaster data week in the US last week we have the usual post-payrolls lull in the coming days. The focus this week will probably turn to Europe with the ECB's and BoE's policy meetings on Thursday being the key highlights. In terms of the ECB, Mark Wall and Gilles Moec believe the current growth and inflation picture leaves the ECB room to pause and reflect. Nevertheless an outlook of prolonged low inflation means the ECB will maintain its conditional dovish stance. We expect the ECB to repeat the message that should the June 5th announcements (in particular the TLTRO) not have the desired effect of stimulating growth, lending and inflation, the ECB is prepared to implement an ABS purchasing scheme. However, Mark and Gilles do not see ECB making a call on this call till H1 2015. Turning to the BOE, consensus expects rates to be left unchanged although George Buckley now expects the first rate hike to be delivered in Nov this year (vs previous view of May 2015) following the recent comments by Carney.
In terms of the data flow, the main focus in Europe will likely be the services PMI and retail sales tomorrow followed by Italy's Q2 flash GDP on Wednesday. Those aside we will also get German factory orders (Wed), UK and Italian Industrial Production (Wed), German and UK trade data (Fri), and French IP (Fri). On the other side of the pond, we will get the ISM services and factory orders tomorrow, US trade data on Wednesday, the usual jobless claims on Thursday, and wholesale inventories on Friday. Away from the West, we will get the final HSBC China Services PMI for July tomorrow and Chinese Trade data on Friday. The BoJ will begin its two day meeting on Thursday.
The earnings calendar winds down in the US although we still have 73 S&P 500 companies lined up this week. AIG, Walt Disney and News Corp are some of the notable ones. In Europe we have 69 companies reporting with some of the major financial services group (HSBC, Unicredit, Standard Chartered, ING) expected to report. In the US about 360 S&P 500 companies have reported so far with the EPS beat:miss ratio standing solid at 77%:23% although sales performance has been bit more subdued at 65%:35%. European earnings are still coming through but so far EPS beat:miss are running at a more balanced 55%:45% whilst sales revenue are less impressive at 45%:54%. Our usual earnings season tracker updated in the PDF. Reported by Zero Hedge 2 hours ago.
Aside from the main overnight news of the BES bailout, stocks traded mixed in Europe, with the German DAX index underperforming where Adidas (-1.6%) remained under pressure as investors continued to fret over the Russian sanctions, while analysts at Berenberg downgraded the company to sell from buy. In terms of other notable stock movers, HSBC (+2.8%) shares briefly slumped after the bank reported pretax down 12% vs. Exp. down 10%. Focus in the US will be on earnings by AIG, Marathon Oil, Cardinal Health and Pioneer Natural Resources. Bunds recovered from a lower open and moved into positive territory, as the somewhat cautious sentiment amid concerns over the implication of Russian sanctions on profitability of EU majors, together with risks associated with the looming risk events weighed on sentiment. Nevertheless, PO/GE 10y spread tightened aggressively this morning after it was announced that Banco Espirito Santo is to be split into ‘good’ and ‘bad’ banks in a EUR 4.9bln rescue package that wipes out equity and subordinated debt holders, but protects taxpayers and senior creditors.
There is far less macro and economic news on this week's calendar which means the usual geopolitical tensions points: Russia, Gaza, ISIS, as well as the spread of the Ebola epidemic, and of course, speculation on what the Fed may or may not do, will drive risk in the coming days.
The earnings calendar winds down in the US although we still have 73 S&P 500 companies lined up this week. AIG, Walt Disney and News Corp are some of the notable ones. In Europe we have 69 companies reporting with some of the major financial services group (HSBC, Unicredit, Standard Chartered, ING) expected to report. In the US about 360 S&P 500 companies have reported so far with the EPS beat:miss ratio standing solid at 77%:23% although sales performance has been bit more subdued at 65%:35%. European earnings are still coming through but so far EPS beat:miss are running at a more balanced 55%:45% whilst sales revenue are less impressive at 45%:54%. Our usual earnings season tracker updated in the PDF.
*Bulletin Headline Summary from RanSquawk and Bloomberg:*
· Bund futures remain bid into the North American cross over, despite initially gapping lower, as the DAX continues to be sold as participant confidence ebbs
· Treasuries little changed, 10Y notes holding just below 2.50% level; Bank of Portugal said it will take control of Banco Espirito Santo’s assets and deposit-taking operations by transferring them to a new company.
· While Banco Espirito senior bondholders and depositors were left unscathed, sub debt holders face losses as regulators try to avoid leaving taxpayers on the hook for losses caused by failed lenders
· Investors may be underestimating the pace at which the Fed will raise interest rates over the next two years, said Richmond Fed president Jeffrey Lacker
· A Chinese central bank loan that’s almost the size of the U.S. bailout of AIG has spurred speculation that policy makers have adopted a new form of monetary easing to shore up growth
· China’s non-manufacturing PMI fell to 54.2 in July from a previously reported 55.0 in June
· The spread of Ebola in Liberia threatens to erase the economic progress the West African nation has made since the end of the civil war in 2003, Vice President Joseph Boakai said
· The outbreak has killed more than 800 in Sierra Leone, Liberia and Guinea, threatens to spiral out of control
· Militants from Islamic State took control of two oil fields and some predominantly Kurdish towns in northern Iraq following clashes, according to the Northern Oil Co.
· Israel held its fire in parts of the Gaza Strip to allow for humanitarian relief as violence defied diplomatic efforts to end four weeks of conflict
· Sovereign yields mostly lower. Euro Stoxx Banks gains 1.2% after sliding 3.4% last week. Asian and European equities mixed, U.S. stock futures rise. WTI crude, gold and copper little changed
· Chinese equities shrug off a six-month low in non-manufacturing PMI as hopes for reform of state-owned enterprises send the Shanghai Composite and the Hang Seng Index higher
· Today’s calendar is relatively quiet ahead of a slew of central bank decisions (BoE, ECB, RBA, BoJ) all due later this week
*US Event Calendar*
· 9:45am: ISM New York, July (prior 60.5) Supply
· *11:00am POMO: Fed to purchase $950m-$1.15b notes in 2036-2044 sector*
· 11:00am: U.S. announces plans for auction of 4W bills
· 11:30am: U.S. to sell $28b 3M bills, $25b 6M bills
*FIXED INCOME *
Bunds recovered from a lower open and moved into positive territory, as the somewhat cautious sentiment amid concerns over the implication of Russian sanctions on profitability of EU majors, together with risks associated with the looming risk events weighed on sentiment. Nevertheless, PO/GE 10y spread tightened aggressively this morning after it was announced that Banco Espirito Santo is to be split into ‘good’ and ‘bad’ banks in a EUR 4.9bln rescue package that wipes out equity and subordinated debt holders, but protects taxpayers and senior creditors.
*EQUITIES *
Stocks traded mixed in Europe, with the German DAX index underperforming where Adidas (-1.6%) remained under pressure as investors continued to fret over the Russian sanctions, while analysts at Berenberg downgraded the company to sell from buy. In terms of other notable stock movers, HSBC (+2.8%) shares briefly slumped after the bank reported pretax down 12% vs. Exp. down 10%. Focus in the US will be on earnings by AIG, Marathon Oil, Cardinal Health and Pioneer Natural Resources.
*FX *
There was little in terms of tier-1 macroeconomic releases in morning, with only the latest UK Construction PMI data for market participants to digest, which came in broadly in line with exp. The report noted that British house building accelerated last month at the fastest rate since November 2003 and construction activity grew for the 15th successive month. Nevertheless, both EUR/USD and GBP/USD remained range-bound, given the lack of fundamental news flow to drive the price action and as market participants remained on the side-lines ahead of a slew of risk events
*COMMODITIES*
Gold has traded sideways overnight and through the European session, though off last week’s NFP-inspired highs, yet remaining above the USD 1290 level as the tensions in the Eastern European and the Middle East keep prices elevated. The energy complex trades rangbeound yet off its lows, as markets factor out effect of Coffeeville, which saw the complex sell off last week.
* * *
*DB's Jim Reid concludes the overnight recap:*
Clearly the sell-off also partly has its roots in Geopolitics and the Argentinian default but while we were in QE infinity mode these events would have been easier to shrug off. However as the market runs out of the extreme liquidity and attention now shifts towards when the Fed will lift rates we might have entered a new period of higher volatility. Our view is that the Fed will have to err on the side of caution when lifting rates but that the market will now likely be more sensitive to data and Fed speak and we'll have regular tension between the hawks and the doves with the doves eventually winning out but not without turbulence and a fight.
As we've published a few times we thought what we're now seeing in markets might happen in the autumn but now it’s happened earlier we don't think its worth chasing it wider at these weaker levels. Our feeling is that markets will be stronger by the end of August even if we still might not start the month well.
One of the recent reactions for markets has been the BES story, and according to the FT, late on Sunday a EUR4.9bn bailout plan was announced by Portugal’s central bank. This will see the bank restructured into a ‘good’ and ‘bad’ bank. The move would see a small Portuguese bank rescue fund acquire BES’s healthy assets and the fund will be bolstered by EU and IMF loans left over from Portugal’s international bailout. The WSJ noted that depositors and senior bondholders will be spared from any losses while the bank’s subordinated creditors and current shareholders will be in line for losses. In the world of credit all eyes will be on how iTraxx Financial Senior, Sub and Main respond to the news. Senior holders across markets should be relieved as again policy makers have been reluctant to impose losses on them.
For now the developments appear to be well absorbed by markets overnight. Indeed most risk indicators are firmer in Asia with the S&P 500 Futures (+0.3%), the Shanghai Composite (+1.1%), Indonesia CDS (-7bps), and the AUD (+0.1%) all higher as we type.
Recapping the data flow on Friday, payrolls (209k v 230k consensus) were modestly weaker-than-expected. Likewise Private payrolls (+198k v 227k consensus) were also softer. Joe LaVorgna thinks this means Yellen will keep a dovish script when she keynotes the Jackson Hole conference later this month. The latest data also allows monetary policymakers more breathing room with respect to the timing of the first Fed funds rate hike, as market participants in recent days had been bringing rate hikes forward. Away from jobs the manufacturing data was firm though with a better-than-expected July ISM manufacturing index (57.1 v 56.0 expected) on Friday. Whilst the S&P 500 (-0.29%) closed a touch lower on Friday, Treasury bulls were probably encouraged by the softness in payrolls. The 10yr rallied 7bp rally to 2.49% with the curve also bull steepening led by outperformance at the front end.
Following a roller coaster data week in the US last week we have the usual post-payrolls lull in the coming days. The focus this week will probably turn to Europe with the ECB's and BoE's policy meetings on Thursday being the key highlights. In terms of the ECB, Mark Wall and Gilles Moec believe the current growth and inflation picture leaves the ECB room to pause and reflect. Nevertheless an outlook of prolonged low inflation means the ECB will maintain its conditional dovish stance. We expect the ECB to repeat the message that should the June 5th announcements (in particular the TLTRO) not have the desired effect of stimulating growth, lending and inflation, the ECB is prepared to implement an ABS purchasing scheme. However, Mark and Gilles do not see ECB making a call on this call till H1 2015. Turning to the BOE, consensus expects rates to be left unchanged although George Buckley now expects the first rate hike to be delivered in Nov this year (vs previous view of May 2015) following the recent comments by Carney.
In terms of the data flow, the main focus in Europe will likely be the services PMI and retail sales tomorrow followed by Italy's Q2 flash GDP on Wednesday. Those aside we will also get German factory orders (Wed), UK and Italian Industrial Production (Wed), German and UK trade data (Fri), and French IP (Fri). On the other side of the pond, we will get the ISM services and factory orders tomorrow, US trade data on Wednesday, the usual jobless claims on Thursday, and wholesale inventories on Friday. Away from the West, we will get the final HSBC China Services PMI for July tomorrow and Chinese Trade data on Friday. The BoJ will begin its two day meeting on Thursday.
The earnings calendar winds down in the US although we still have 73 S&P 500 companies lined up this week. AIG, Walt Disney and News Corp are some of the notable ones. In Europe we have 69 companies reporting with some of the major financial services group (HSBC, Unicredit, Standard Chartered, ING) expected to report. In the US about 360 S&P 500 companies have reported so far with the EPS beat:miss ratio standing solid at 77%:23% although sales performance has been bit more subdued at 65%:35%. European earnings are still coming through but so far EPS beat:miss are running at a more balanced 55%:45% whilst sales revenue are less impressive at 45%:54%. Our usual earnings season tracker updated in the PDF. Reported by Zero Hedge 2 hours ago.