Futures Dragged Down By Stronger Yen

Futures Dragged Down By Stronger Yen

After surging yesterday for no reason whatsoever because as we explained on several occasions, there were no surprises in the Tuesday BOJ statement, and the doubling and extension of its loan facilities was implicit and factored into the doubling of its monetary policy (as goldman explained quite well), both the Nikkei and the USDJPY has been forced to revert, with the latter all important carry funding pair back to 102 and in danger of sliding lower, as a result ES is now below yesterday’s lows. Which is why the 102 USDJPY “invisible hand” tractor beam will be all important today especially if the market finally starts paying attention to the proxy civil war that has gripped the Ukraine.

Stocks traded lower, albeit in a relatively range-bound range this morning, with the Spanish IBEX-35 underperforming. Banking names remained under pressure, with focus still on yesterday’s reports that Spanish banks’ bad loans marked a fresh record, together with comments by ECB’s Weidmann, who said that sovereign debt purchases would constrain the central bank via political pressure. Similar view was also echoed by ECB’s Nowotny, who said that government bond buying US Fed-style would be difficult to do under ECB’s mandate.

Much of the focus this morning has been on UK related macroeconomic events, with the release of the latest jobs report, which showed an uptick in the ILO Unemployment Rate, coinciding with the MPC minutes which revealed that Carney did not ask MPC to vote on new forward guidance policy. As a result, GBP came under broad based selling pressure, with Bunds and USTs also dragged higher by consequent rally by Gilts. Going forward, market participants will get to digest the release of the latest housing data from the US, FOMC minutes, as well as the API inventories report after the closing bell on Wall Street.

US Event Calendar

  • 7:00am: MBA Mortgage Applications, Feb. 14, est. -2.0%
  • 8:30am: Bureau of Labor Statistics issues redesigned PPI; PPI m/m, Jan., est. 0.1% (prior 0.1%); PPI Ex Food and Energy m/m, Jan., est. 0.1% (prior 0.0%)
  • 8:30am: Housing Starts, Jan., est. 950k (prior 999k); Housing Starts m/m, Jan., est. -4.9% (prior -9.8%); Building Permits, Jan., est. 975k (prior 986k, revised 991k); Building Permits m/m, Jan., est. -1.6% (prior -3%, revised -2.6%)
  • 12:15pm: Fed’s Lockhart speaks on economy in Macon, Ga.
  • 1:00pm: Fed’s Bullard speaks in Washington
  • 2:00pm: Fed releases minutes from Jan. 28-29 FOMC Meeting
  • 7:00pm: Fed’s Williams speaks on economy in New York Supply
  • 11:00am: POMO – Fed to inject only $1b-$1.25b into Singapore Private Wealth accounts

Bulletin news summary from Bloomberg and RanSquawk

  • GBP underperformed its peers following the release of worse than expected ILO Unemployment Rate, while the minutes showed that Carney did not ask MPC to vote on new forward guidance policy on Feb. 6…
  • Bunds moved off the best levels of the session after Buba failed to get bids for maximum target at its 2024 Bund auction…
  • ECB’s Nowotny says that government bond buying US Fed-style would be difficult to do under ECB’s mandate
    Treasuries gain for a second day, 10Y leads, with yield at lowest in a week; FOMC minutes and discussion of QE tapering in focus, especially as recent economic data has disappointed.
  • Britain’s unemployment rate rose to 7.2% in 4Q, first increase since February of last year, from 7.1% in 3Q
  • Germany failed to get bids for maximum target at auction of 10Y bunds; received EU4.33b, max target EU5b; percentage retained by Bundesbank jumped to 24%, highest since  Sept. 2012
  • The Fed approved new standards for foreign banks that will require the biggest to hold more capital in the U.S., joining other countries in erecting walls around domestic financial systems
  • Clashes in Ukraine between police and anti-government activists killed at least 25 people and left hundreds injured in the bloodiest episode of the country’s three- month standoff
  • A JPMorgan employee fell to his death from the roof of Chater House, the investment bank’s Asia-Pacific headquarters in Hong Kong
  • China reduced its holdings of U.S. Treasury debt in December by the most in two years as the Fed announced plans to slow asset purchases
  • Sovereign yields mostly lower. EU peripheral spreads wider. Asian stocks mixed; Nikkei -0.5%, Shanghai +1.1%. European stocks fall, U.S. stock-index futures decline. WTI crude higher, gold and copper lower

Asian Headlines

The Nikkei 225 underperformed its peers amid touted profit taking following yesterday’s gains, with JGBs finishing in minor positive territory as a result. Of note, good sized swaps receiving was noted in 5s, which was said to haven been linked to yesterday’s decision by the BoJ to allow banks to borrow from the central bank at a 0.10% fixed rate for four years. (IFR)

UBS see no hard landing or financial crisis in China this year, as firming exports and recovering consumption should offset slower investment in infrastructure. (BBG)

EU & UK Headlines

ILO Unemployment Rate (Dec) 3M 7.2% vs Exp. 7.1% (Prev. 7.1%)

UK Jobless Claims Change (Jan) M/M -27.6K vs. Exp. -20.0K (Prev. -24.0k, Prev. -27.7K)

BoE February minutes showed MPC voted 9-0 to leave rates and bond purchases unchanged. Carney did not ask MPC to vote on new forward guidance policy on Feb. 6.

ECB’s Weidmann said sovereign debt purchases would constrain the central bank via political pressure. (FAZ)

This follows the German constitutional court’s ruling on the OMT, stating that bond-buying may exceed the ECB’s mandate.

ECB’s Nowotny says need unanimity to agree non-sterilisation of SMP bond purchases and are getting close to that. He also added that government bond buying US Fed-style would be difficult to do under ECB’s mandate. (RTRS/BBG)

Bunds failed to sustain upward traction and moved off high after Buba failed to get bids for maximum target at its 2024 Bund auction. In terms of the bidding data: b/c 1.1 (Prev. 1.8) and avg. yield 1.64% (Prev. 1.77%),
retention 24.1% (Prev. 16.5%).

US Headlines

President Obama’s proposal to raise the minimum wage to $10.10 per hour would cost 500,000 jobs in 2016, according to a report released Tuesday by the nonpartisan Congressional Budget Office. (The Hill)


The release of an encouraging earnings report by Credit Agricole, which outperformed in France, failed to support other financials in Europe, with the sector under performing on a broader EU-wide breakdown. On the other hand, utilities traded in the green, as the cautious sentiment buoyed investor demand for high dividend yielding stocks.


Combination of worse than expected macroeconomic releases from the UK, as well as expiring options between 1.660-50 levels meant that GBP has underperformed its peers this morning. Elsewhere, touted profit taking following yesterday’s sharp gains, together with somewhat cautious sentiment saw EUR/JPY and USD/JPY trend lower this morning.


India may cut their gold import duty by between 2% and 4%. (WSJ)

Morgan Stanley said that China iron ore demand is seen picking up, maintaining its forecasts, whilst seeing a surplus in H2, and suggested not to panic over China iron ore stockpiles. (BBG)

Libyan PM Ali Zaidan commented that Libya reached an agreement to end stand-off with militia, without providing any further details. (BBG)

Iraq has resumed crude exports via the Turkish port of Ceyhan, as the pipeline has been repaired, with oil flow to return to normal at 300,000-325,000 bpd today. (BBG)

* * *

We conclude with the overnight recap from Db’s Jim Reid

Policy expectations ahead of the National People’s Congress on the 5th March is spurring a move higher in Chinese stocks. The Shanghai Composite is just over 1% higher as we  type and is over 5% higher since trading resumed after the Chinese New Year holiday. Looking across our screens this morning, the performance across Asian equity markets have been a bit weaker elsewhere. The KOSPI (-0.4%) and the Nikkei (-0.8%) are both lower. Gains in the JPY is probably weighing on the latter but in reality there could be also some profit taking following yesterday’s 3% rally.

Elsewhere, the markets in Australia (+0.2%) and Indonesia (+0.4%) are both higher. In FX land, the RMB is at its weakest in two months after the PBOC reduced its daily fixing by 0.05% to 6.1103. Treasuries are little changed overnight with the 10yrs hovering around 2.70%.

On the M&A front, the board of Peugeot yesterday approved a EUR3bn capital raising exercise. The plan would see Chinese state-owned Dongfeng Motor become one of PSA’s largest shareholders. Both Dongfeng and the French government will pay c.EUR800m for a 14% stake each in the company. Staying on the corporate theme, Tesla shares closed at a record high of nearly $204/share amid reports of a 2013 meeting held between Tesla’s CEO and Apple’s head of M&A. A potential takeover, a strategic partnership on batteries (a common area of focus for both companies), or a potential new product category such as accelerating hybrid and electric vehicles are all ideas that have been floated by various media outlets previously/overnight. Certainly an interesting story to follow if anything comes out of it. In the meantime, Tesla’s Q4 results briefing today will be interesting.

After the recent rally back in risk around the globe it feels like we’re now entering no mans land where the market is waiting for answers that may not be available for a while. In particular the US data is in limbo while the polar vortex and associated storms pass through. US data was again weak yesterday (see below) but there is very little historical context to try to assess the impact of the weather. We suspect that some of the weakness relative to expectations is part of a multi-year structural issue but we won’t know for a few weeks.

Briefly recapping yesterday’s data flow, it was certainly disappointing for the market to see the weakness in both housing and manufacturing. The NY Fed Empire Manufacturing survey fell more than expected to 4.48 from 12.51. Broad-based weaknesses were evident across new orders, shipments and employment although outlook indicators showed improvement. The NAHB Housing Market index fell to 46 from 56 in January while the consensus was looking for a steady month in February. Joe LaVorgna noted that all three subcomponents of the housing data fell, as did all four regions of the country: current conditions (51 vs. 62), prospective buyers (54 vs. 60), buyer traffic (31 vs. 40); Northeast (33 vs. 41), Midwest (50 vs. 59), South (46 vs. 53) and West (57 vs. 71). The weather has certainly dampened builders sentiment but trying to work out how much is near impossible.

The data picture yesterday was also fairly subdued on the other side of the pond. Germany’s ZEW survey expectations index fell more than expected (55.7 v 61.5). In the UK, headline CPI (+1.9% v +2.0% yoy expected) were softer than expected with core inflation down to its lowest reading (+1.6% yoy v +1.9% expected) since mid-2009. Overall it was an uninspiring day for European and US equity markets yesterday with the S&P 500 up by 0.12% and the Stoxx600 closing flat on the day.

Looking ahead to today, we have housing starts/permits in the US as well as the PPI reading for January. On Fed activities, the FOMC minutes of the last meeting is due today while Lockhart and Bullard are scheduled to speak. In Europe the BoE meeting minutes in the UK will probably be the main focal point.

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