Global Markets Unchanged As Obama Pause Does Not Bring Levitation; Apple Crumbles
Despite earlier comments from Obama on Tuesday night, who called for a pause in authorizing military strikes on Syria, which led to another drop in crude prices overnight, the drop has since reversed and both WTI and Brent Crude contracts are trading in the green. Whether this is the result of a note by Goldman analysts who noted that the Brent crude sell-off was overdone and that they see no improvement regarding the conflict in Libya which is constraining oil production, or because Russia is once again throwing hurdles in the international process to force Syrian disarmament, is unknown.
The lack of any key catalysts and no USDJPY levitation, led to most global markets unchanged, and futures currently trading sideways.Stocks traded higher in Europe this morning, with the Italian benchmark stock index outperforming after the Italian Senate Committee adjourned the debate on Berlusconi to September 12th. In spite of higher stocks, as well as supply from Germany today and Italy on Thursday, Bunds remained better bid on the back of reinvestment flow from Germany where EUR 17.26bln coupon & redemption is to be repaid this week. Looking elsewhere, even though last night Apple failed to spark enthusiasm after the company unveiled two new iPhones, the 5S and new not so cheap model the 5C, ARM Holdings shares in London surged by almost 5% after it was reported that co.’s 64-bit technology is featured in the new 5S model.
What is not trading sideways is Apple which is down over 2% to just over $480 as all hopes of a China Mobile deal fall apart, coupled with pervasive critical panning of the new iPhones which, aside for the commodity version, is just the old iPhone with an extension that allows the NSA's new fingerprint database to be filled in record time.
While there are no major macroeconomic releases scheduled for the US trading half of the session, there are two major bond issues hitting the market, with a $21 billion 10Y note auction at 1 pm, and the Verizon 8 part deal which may be as high as $49 billion also expected to price later today.
Overnight news bulletin from Bloomberg and Ran
- US President Obama called for a pause in authorizing military strikes on Syria.
- Treasuries gain before Verizon prices its 8-part deal, which could be as much as $49b. Week’s auctions continue with $21b 10Y notes; stopout yield at WI level of 2.945% would be highest since June 2011.
- Treasuries may be lifted by rate lock unwinds related to Verizon deal, according to InTouch Capital Markets; VZ launch expected this morning in New York
- After telling the nation 10 days ago he would ask Congress to authorize a strike against Syria, Obama reversed course last night in a nationally televised address and said he would pursue a proposal to have Syria surrender its stockpiles of chemical arms, thus casting his lot with Russia’s Vladimir Putin
- U.K. unemployment fell to 7.7% in the quarter through July from 7.8% in 2Q, moving closer to the 7% threshold at which Bank of England’s Carney has said officials will reassess their policy stance; UK Claimant Count Rate (Aug) M/M 4.2% vs. Exp. 4.3% (Prev. 4.3%) - Lowest since Feb-2009.
- Chinese Premier Li Keqiang said the foundations of a growth rebound aren’t solid while cautioning that stimulus won’t help resolve deep-rooted issues in the world’s second-largest economy
- ECB’s Luc Coene said “it’s clear” that Greece will need additional aid, “one time for certain, possibly two times”
- Sovereign yields mostly lower, EU peripheral spreads mostly wider, led by Greece and Portugal. Nikkei little changed, Shanghai Composite +0.2%. European stocks mostly higher, S&P 500, Nasdaq 100 futures higher. WTI crude, gold, copper gain
UBS raised its China 2013 GDP estimate to 7.6% from 7.5%. There were also reports that Deutsche Bank raised its China Q3 GDP forecast to 7.9% from 7.7% and raises Q4 GDP forecast to 8% from 7.8%.
Moody's affirmed Japan's Aa3 rating, stable outlook. Moody's said the revised GDP figures support the current rating and suggests Abenomics gaining some traction.
EU & UK Headlines
UK Claimant Count Rate (Aug) M/M 4.2% vs. Exp. 4.3% (Prev. 4.3%) - Lowest since Feb-2009
UK Jobless Claims Change (Aug) M/M -32.6K vs. Exp. -21.0K (Prev. -29.2K, Rev. to -36.3K)
UK ILO Unemployment Rate (Jul) 3M/3M 7.7% vs. Exp. 7.8% (Prev. 7.8%) - Lowest since September-November 2012
Italian Senate Committee adjourned the debate on Berlusconi to September 12th. Of note, Italian Treasury is due to auction off EUR 5.5bln in 2.75% 2016 and 4.75% 2028 BTPs tomorrow, as well as CCTeu bonds.
In terms of supply this morning, Germany sold EUR 4.07bln in a new 2.00% 2023 line, b/c 1.3 (Prev. 1.3) and avg. yield 2.06% (Prev. 1.80%), retention 18.48% (Prev. 19.23%)
According to local media reports, France is to revise down 2014 growth forecast to 0.9% from 1.2%, and to keep its 2013 forecast unchanged at 0.1% growth.
German CPI (Aug F) M/M 0.0% vs. Exp. 0.0% (Prev. 0.0%)
French Non-Farm Payrolls (Q/Q) (Q2 F) -0.2% vs. Exp. -0.2% (Prev. -0.2%)
US President Obama called for a pause in authorizing military strikes on Syria. Obama added he has deeply held preference for peaceful solutions and has seen encouraging signs in the last few days. Obama further added he asked Congress to postpone a vote on Syria action while diplomacy is pursued and that he has ordered US military to maintain its posture to keep pressure on Assad and be ready to respond if diplomacy fails.
All US states except for Delaware have escaped the possibility of falling back into recession, as they reap the rewards of strong private-sector employment and a burgeoning energy sector according to Moody's.
Update on Verizon: Reportedly received over USD 90bln worth of orders for bonds that it's selling in order to help pay for the USD 130bln acquisition of Vodafone's 45% stake in Verizon Wireless.
- Verizon is expected to sell USD 49bln in bonds today, while it will also market a USD 12bln loan. The demand has blow away all expectations
- Verizon thought it would sell USD 20bln of paper this week, while underwriters thought it would take a year to sell the USD 40-50bln that the carrier was looking to raise.
Stocks traded higher in Europe this morning, with the Italian benchmark stock index outperforming after the Italian Senate Committee adjourned the debate on Berlusconi to September 12th. Even though last night Apple failed to spark enthusiasm after the company unveiled two new iPhones, the 5S and new not so cheap model the 5C, ARM Holdings shares in London surged by almost 5% after it was reported that co.’s 64-bit technology is featured in the new
There was little in terms of EU specific commentary, but macroeconomic data from the UK continued to surprise to the upside which in turn saw EUR/GBP touch on lowest level since mid-January. At the same time, GBP/USD advanced to its highest since mid-February.
Elsewhere, USD/JPY traded steady, albeit in minor negative territory, as market participants booked profits following the recent surge which also the pair edge back above the key 100.00 level. Also, firmer USTs, with consequent interest rate differential flows weighed on the pair.
Goldman Sachs that the Brent crude sell-off was overdone and that they see no improvement regarding the conflict in Libya which is constraining oil production.
Separately, Goldman Sachs said gold prices will decline into 2014 on the back of an acceleration in US activity and a less accommodative policy stance.
Syrian foreign minister says Syria will declare its chemical weapons arsenal and sign chemical weapons convention. Separately, an emergency UN Security council meeting was cancelled as Russia pulled out as a result of a dispute with France over Syria.
- French draft UN Security Council resolution would give Syria 15 days to make complete declaration of entire chemical arms program. According to the report, the draft resolution would demand immediate UN inspections of all sites based on Syria's chemical weapons declaration and the draft resolution would threaten Syria with further necessary measures in the event of failure to comply.
US API US Crude Oil Inventories (Sept 6) W/W -2930K vs. Prev. -4200K.
- Cushing Crude Inventory (Sept 6) W/W -587K vs. Prev. -1900K
- Gasoline Inventories (Sept 6) W/W 195K vs. Prev. -387K
- Distillate Inventory (Sept 6) W/W 807K vs. Prev. -109K
Iraq is to add 175,000bpd oil capacity in late September, according to the Iraqi oil minister.
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We conclude with Jim Reid's traditional overnight wrap
Markets have continued with their impressive run. We've now seen 7 full business days in September and global equities have been higher for all of them and the S&P500 has not seen a down day since the last business day of August. A combination of falling crude prices (down 4% since Friday), a potential back down in the threat of a US military strike in Syria and yesterday’s firmer Chinese industrial production data combined to give the S&P500 (+0.73%) its longest winning streak since July. In a prime time televised speech, Obama reiterated his moral arguments for action in Syria but said that he was willing to give diplomacy a chance to run its course. S&P500 futures responded positively to the President’s comments (trading broadly flat as we type).
Within this rally in global equity markets, we have seen a sharp outperformance in the developing world. Indeed the MSCI EM equities index is up 6.7% since the end of August after having rallied in 6 of the last 7 days. Key equity benchmarks in Brazil, Russia, India, China, Indonesia, and Turkey have rallied 7.9%, 6.5%, 7.8%, 6.8%, 3.8%, 8.1% over the same period. The S&P 500, the CAC, and the DAX are up 3.1%, 4.7% and 4.2% over the same period. EM currencies are also stronger with the BRL, INR, ZAR, MXN, KRW, and TRY +4.5%, +2.9%, +2.8%, +2.2%, +2.1%, and +1.0%, respectively since the end of August. On the fixed income side we’ve also witnessed a surge in EM bond issuance with US$10bn in new sovereign deals having been priced in the past few days from the likes of South Africa, Russia and Kenya, not including the latest US$1.5bn Sukuk bond sold by Indonesia. So overall it looks like EM has had a good start to September as we approach the tapering moment of truth.
Fundamentally what is also supporting the EM sentiment are signs of an ongoing macro recovery in China. Following the better than expected industrial production numbers yesterday, DB’s Jun Ma has revised up his 3Q and 4Q GDP growth again. This is the second upward revision since August 22. Specifically, he raised his 3Q GDP growth forecast to 7.9% yoy from 7.7%, and 4Q GDP growth forecast to 8.0% from 7.8%. He also revised up his 2014 GDP growth forecast by 0.1ppt to 8.6%.
Into this recent strength, today we see what is likely to be the largest corporate bond deal in history with Verizon issuing what is said to be up to $49bn of debt. The previous record was set by Apple which 'only' launched $17bn back in May. Secondary US spreads have been drifting wider this week to make room for the new supply which is likely to come significantly back from secondary paper. Reports suggest that the company appears to have gone for size over pricing and the market has responded with around $100bn of orders across the eight tranche deal (Reuters). According to Reuters, guidance on some of the longer-dated tranches are a 135bp wider than where Verizon's existing bonds in comparable maturities were trading in late August before news of its acquisition of Verizon Wireless first hit newswires, and around 50-85bp wider than where Verizon’s bonds were trading on Monday. Pricing of the deal is expected this morning NY time after which attention will then turn to whether the company’s plans to issue in the euro and sterling markets given the amount of proceeds raised in the dollar markets. The record Verizon deal caps off what has been an incredibly active week-and-a-half of debt issuance in the dollar market as corporate treasurers rush to lock in funding ahead of event risks such as the September FOMC and also to take advantage of the usual post holiday activity.
Looking at our screens this morning, markets are pretty mixed with gains seen in the Nikkei (+0.6%) after reports that PM Abe has ordered his government to come up with measures to cushion the impact of an increase in the national sales tax. USDJPY briefly touched an intraday high of 100.50 which is helping boosting sentiment in Japanese equities. The Hang Seng (-0.3%) is lagging, weighed by oil producers and there has also been some selling in index heavyweight China Mobile (-2.0%). The company is widely expected to be selling the new iPhone 5 range in China and there is some disappointment being expressed by markets following a perceived lacklustre launch by Apple yesterday (Apple stock was down 2.3% yesterday). Elsewhere, oil is down another 0.1% and 10yr UST yields are unchanged at 2.96% following a 5bp rise yesterday.
Coming back to fixed income markets, in what is being seen as somewhat of a milestone the 10yr yield on Spanish government bonds yesterday fell below those of Italy for the first time in 18 months. The Italian newsflow has been mostly focused on the potential negatives arising from the Italian senate committee's upcoming decision whether to bar former PM Berlusconi from the upper house. But there has also been a steady stream of positive anecdotal evidence from Spain of late which is buoying sentiment there. Against the backdrop of lower yields, the FT is reporting that Madrid is testing investor interest in a possible 50-year bond – the first such ultra-long dated issue for Spain. Another possibility being considered would be to issue inflation-linked bonds for the first time. However, Spanish government officials have stressed that, with 80% of 2013 funding requirements met, any new forms of issuance are likely to come next year.
Today’s calendar looks relatively light again. The UK will be focused on employment data while US mortgage applications and wholesale inventories are the main economic releases across the Atlantic. Germany will be auctioning 10yr bonds this morning.