Futures Fade For Second Day In A Row

For the second consecutive day futures have drifted lower following a drubbing in the Nikkei which was down nearly 3% to just above 14K (time to start talking about the failure of Abenomics again despite National CPI posting the first positive print of 0.2% in forever and rising at the fastest pace in 5 years) and the Shanghai Composite which dropped to just above 2000 once again, after PBOC governor Zhou saying that China has big economic downward pressure and further reiterated prudent monetary policy will be pursued. This is despite Hilsenrath's latest puff piece which pushed the market into the green in yesterday's last hour of trading and despite initial optimism which saw stocks open higher following forecast-beating EU earnings gradually easing and heading into the North American open stocks are now little changed. It may be up to the WSJ mouhtpiece to provide today's 3pm catalyst to BTFATH, or else it will be up to the circular and HFT-early released UMichigan confidence index to surge/plunge in order to push stocks on any red flashing news is good news.

The news highlights bulletin via Bloomberg:

  • Treasuries headed for weekly loss as traders look to next week’s FOMC meeting for clues on potential Fed tapering of asset purchases. BOE, ECB also meet next week, with U.S. payrolls on Friday.

  • Fed to formalize tapering bias in next week’s statement, BNP said yesterday; Treasury trading suggests confidence is waning in Fed’s ability to manage tapering, GMP said

  • China ordered more than 1,400 companies in 19 industries to cut excess production capacity this year, part of efforts to shift toward slower, more-sustainable economic growth

  • Local-government financing vehicles need to repay a record amount of debt this year, prompting Moody’s to warn Premier Li Keqiang may set an example by allowing China’s first onshore bond default

  • Japan consumer prices rose the most since 2008 in June, an early sign that the world’s third-biggest economy may be starting to shake off 15 years of deflation

  • A group of Democratic senators will send the White House a letter today calling for Fed Vice Chairman Janet Yellen to succeed Bernanke as head of the central bank

  • Four Russians and a Ukrainian were charged in what prosecutors called the largest hacking and data breach scheme in U.S. history, stealing more that 160m credit card numbers, according to the U.S. attorney in New Jersey

  • Sovereign yields mixed; Greek bonds gains. Asian stocks mostly lower; Nikkei -2.97%. European indexes mixed. U.S. stock index futures drop. WTI crude, gold, copper fall

More from RanSquawk

Stocks traded higher in Europe this morning, with the French benchmark equity index outperforming following a number of consensus beating corporate earnings report releases. The sentiment was also supported by the latest article from the prolific Fed watcher Jon Hilsenrath who wrote that the Fed is on track to keep its USD 85bln-a-month program in place at its policy meeting next week. Furthermore, Fed officials  could discuss lowering the threshold for jobless rate and introducing a lower band for inflation at "perhaps 1.5%". Bernanke has previously said it will only raise short-term interest rates if the unemployment target falls below 6.5% and if inflation moves above 2.5%. Consequent USD weakness supported EUR/USD and GBP/USD in Europe this morning, while USD/JPY trended lower and looks set to make a test on the 100DMA line of 98.42.

There was little in terms of EU specific commentary, but it was reported that Euro finance officials approved Greek EUR 2.5bln aid payment, which follows on from reports yesterday that the country has passed the final of 22 requirements needed in order to receive their next aid tranche. Going forward, market participants will get to digest the release of the final U. Michigan survey and earnings report releases from AbbVie and AON.

Asian Headlines

Japanese National CPI (Jun) Y/Y 0.2% vs. Exp. 0.1% (Prev. -0.3%) - fastest pace in five years

- National CPI Ex Food, Energy (Jun) Y/Y -0.2% vs. Exp. -0.3% (Prev. -0.4%)

PBOC governor Zhou said that China has big economic downward pressure and further reiterated prudent monetary policy will be pursued.

EU & UK Headlines

Greek EUR 2.5bln aid payment approved by Euro finance officials, which follows on from reports yesterday that the country has passed the final of 22 requirements needed in order to receive their next aid tranche.

Goldman Sachs ends recommendation to sell 5y French bonds vs. German bonds, citing demand for Euro government rated A- and higher. However, analysts continue to favour long positions in 10y Italian BTPs vs. French OATs.

Italian business lobby Confindustria sees Italy industrial output down 1% in Q2.

Barclays prelim month-end extensions for Pan Euro agg. at +0.11yrs

Barclays prelim month-end extensions for UK at +0.04yrs

US Headlines

As a reminder, Fed watcher Jon Hilsenrath wrote that the Federal Reserve is on track to keep its USD 85bln a-month program in place at its policy meeting next week, but officials will debate changes to the way the central bank describes its plans for the program and for short-term interest rates. Mr Bernanke suggested at his June press conference that the Fed might lower that 6.5% threshold for unemployment which was set in September. Such a move would drive home to markets that short-term interest rates will be low for a long time.

Barclays prelim month-end extensions for US Treasuries at +0.06yrs


Stocks traded higher in Europe this morning, with the French benchmark equity index outperforming following a number of consensus beating corporate earnings report releases. The move higher was led basic materials and utilities sectors, with LVMH trading up 5% following earnings update and Air France also posting solid gains after the company said it expects to be profitable in 2013.


EUR/USD and GBP/USD benefited from a weaker USD, with the USD OIS 1y/1y rate falling back to post Bernanke's semi-annual testimony lows after the widely followed Fed watcher Hilsenrath suggested that the Fed is on track to keep its USD 85bln-a-month program in place at its policy meeting next week. Consequent USD weakness ensured that USD/ JPY trended lower, though it lacked the momentum to make a convincing test on the 100DMA line of 98.42.


EIA says world energy consumption will rise 56% in the next three decades, driven by growth in developing nations such as China and India., with the two Asian countries accounting for half of the increase.

Enbridge says it is to build a USD 1.3bln extension to the Woodland pipeline to serve the Imperial Oil and ExxonMobil Kearl oil sands project.

IMF said that Turkey gold reserves are down 120,000 ounces and that Germany sold 25,000 ounces in June.

The IMF added that Guatemala and Mexico also cut their gold holdings, whilst Ukraine, Azerbaijan and Kazakhstan bought gold in June.

China infrastructure investment growth is to accelerate, according to State Council Development Research Centre's Zhang. Zhang added that exports growth is to recover and that CNY appreciation is to slow.


* * *

SocGen's Macro FX recap:

Equity trading volume has been higher than the 30-day average on only two days so far this month which is another way of saying that participation and liquidity are low and a poor indication of underlying price action. The looming FOMC meeting next week could be an excuse for nearly the first three-day stretch of losses for the Dow Industrials since 12 June, but you can't get around the bounce back in core yields. Yields have reversed more than half of the drop from the July highs which given the overall second-tier nature of US macro data released this week, is a reminder that the bond market's shift since early May is a structural one. Yields haven't slipped dramatically overnight either after suggestions that the Fed message may be fine-tuned next week to guide market expectations.

In its Article IV Consultation with the euro area published yesterday, the IMF applauded the “substantial collective actions” which have caused extreme market stresses to subside. In order to counter ongoing downside growth risks, the IMF recommended as a first priority to focus on initiatives to revive credit, a point which has received plenty of attention at recent EU summits but on which progress has been slow (eg the banking union among other topics). The abysmal M3 data from the ECB published yesterday for June highlighted the depth of the problem. Five years since the start of the crisis, the rate of contraction in private sector lending in the euro area is still accelerating and it reached -1.8% yoy in June. In spite of the stronger PMIs released this week, there is no reason to get carried away and the ECB will spare no effort to remind us next week that any exit from stimulus is distant. The latest ECB quarterly Bank Lending Survey (BLS) published on Wednesday showed the net decline in demand for loans across “all loan categories” is expected to continue. Another 25bp cut in the refi rate is not ruled out and the chatter of negative deposit rates is never far away. Having loosened ABS collateral rules may not be the last action and more unconventional stimulus may soon be on its way as excess liquidity falls towards EUR200bln. Even if the message of the FOMC next week may be tweaked (WSJ link), for now, it is only the Fed among the main central banks that is considering doing less, not the BoJ, ECB or BoE. That should still keep the USD better bid in August.

* * *

Finally, here is the full DB overnight recap:

Despite the positive finish to the US session yesterday, Asian markets have traded with mixed tone this morning. In Japan, better than expected CPI numbers have failed to prevent the Nikkei (-2.5%) from putting in its worst performance in more than a month. National CPI increased 0.2%yoy in the month of June (versus expectations of 0.1%) which is the highest print in a year. Excluding fresh food, CPI rose 0.4% (vs 0.3% expected) which is the highest reading since late 2008, boosting hopes that deflationary pressures are easing. Indeed, Japan economy minister Amari said overnight that price increases are occurring amid a consumption-driven economic recovery which is “not solely reliant on exports as before”. The 1% fall in dollar-yen that we saw yesterday and 0.5% fall overnight is weighing on Japanese exporters’ stocks this morning.

In China, equities are poised to finish lower for the third consecutive day (Shanghai Comp -0.8%). The PBoC’s governor reiterated that the nation will continue with its “prudent monetary policy” stance but will aim to improve access to credit for small and medium sized enterprises. Staying in China, it was reported that the company behind plans to build the world’s tallest skyscraper in the city of Changsha has experienced delays in getting the necessary government approvals. The project is generating some attention with domestic media labeling the project as an example of “wasteful” investment while others are noting concern about the “pre-fab” modular design. The company aims to finish construction on the 838 metre building in just seven months after breaking ground last Saturday (South China  Morning Post). S&P500 futures are +0.25% and 10yr USTs are unchanged at 2.57% as we type.

On the earnings front, yesterday was the busiest day for both the US and European reporting calendars this quarter in terms of the number of corporates who reported. Overall, of the 55 S&P500 companies who reported over the last 24 hours, 70% of companies beat EPS estimates (consistent with what we’ve seen this season) but revenue beats were just a little over 50% (which is about 10ppt lower than what we’ve seen to date). In Europe, this season’s EPS beat currently stands at 49% (of 102 companies), below the long-term average of 57% while the Revenue beat at 55% (of 111 companies) ranks slightly below the long-term average of 59% according to DB’s equity strategists. Amongst the interesting management commentaries made yesterday was one from LVMH, owner of Louis Vuitton and Christian Dior luxury labels. The company said it saw revenue growth of 9% in Q2, accelerating from 7% in Q1, with good demand momentum in the US and Asia while Europe “continues to grow”. This is somewhat at odds with other companies who’ve reported faltering demand outside of the North American markets in Q2. Credit Suisse, one of the first of the major European i-banks to report, announced better than expected earnings on strength in the private bank and the equities franchise. European financials (+0.02%) were the best performing sector in the Stoxx600 (-0.4%) yesterday.

Looking at the calendar for today, it looks like we have a quieter end to the week, as we wait for what is shaping up to be a big few days for US macro next week. Today’s data highlights are German retail sales for June, French consumer confidence and the final UofMichigan consumer confidence reading for July. Total SA, Anglo American and Air France-KLM are amongst companies reporting today.

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