Futures Shake Off Weak Earnings, Levitate Higher: Global Market Summary
Weak results from Intel, American Express and Capital One, not to mention Goldman and Citi? No problem: there's is overnight USDJPY levitation for that, which has pushed S&P futures firmly into the green after early overnight weakness: because while the components of the market may have such trivial indicators as multiples and earnings, the USDJPY to which the Emini is tethered has unlimited upside. And now that the market is back into "good news is good, bad news is better" mode, today's avalanche of macro data which includes December housing starts and building permits, industrial production, UofMichigan consumer confidence and JOLTs job openings, not to mention the up to $3 billion POMO, should make sure the week closes off in style: after all can't have the tapped out consumer enter the weekend looking at a red number on their E-trade account: they might just not spend as much (money they don't have).
In terms of markets, stocks recovered from a lower open and gradually edged into positive territory, with the DAX index outperforming where ThyssenKrupp shares advanced by over 4% after their CFO said that there are no concrete plans to increase capital and also confirmed outlook for EBIT target. At the same time, in spite of consensus beating retail sales data from the UK, the FTSE-100 index underperformed its EU peers, weighed on by Royal Dutch Shell which issued an unexpected profit warning and consequently sent share tumbling at the open. As a result, in spite of higher oil prices, oil & gas was the only sector to trade in the red. Looking elsewhere, GBP surged across the board following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. At the same time, UK rates curve steepened, with Gilts moving into negative territory as a result. Going forward, market participants will get to digest earnings release by MS and GE, as well as Housing Starts and Building Permits from the US.
Looking elsewhere, GBP surged across the board following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. At the same time, UK rates curve steepened, with Gilts moving into negative territory as a result. Going forward, market participants will get to digest earnings release by MS and GE, as well as Housing Starts and Building Permits from the US.
US Event docket
- 8:30am: Housing Starts, Dec., est. 990k (prior 1.091m); Housing Starts m/m, Dec., est. -9.3% (prior 22.7%); Building Permits, Dec., est. 1.012m (prior 1.007m, revised 1.017m); Building Permits m/m, Dec., est. -0.5% (prior -3.1%, revised -2.1%)
- 9:15am: Industrial Production m/m, Dec., est. 0.3% (prior 1.1%); Capacity Utilization, Dec., est. 79.1% (prior 79%)
- 9:55am: University of Michigan Confidence, Jan. preliminary, est. 83.5 (prior 82.5)
- 10:00am: JOLTs Job Openings, Nov., est. 3.930m (prior 3.925m)
- 11:00am: Fed to purchase $2.25b-$3b in 2021-2023 sector
Overnight headline bulletin from RanSquawk and Bloomberg
- The DAX is the outperforming index in the European session after being supported by ThyssenKrupp after their CFO said they have no concrete plans to increase capital and confirmed outlook for EBIT target. Elsewhere, The FTSE is the underperformer following Royal Dutch Shell's unexpected profit warning.
- GBP saw broad-based strength in the European session after a better than expected retail sales figure from the UK, driven by smaller stores sales.
- Treasuries steady, 10Y notes headed for third consecutive weekly gain after yield rose to highest since 2011 in late Dec. in wake of Fed’s decision to taper bond purchases; 5Y and 7Y yields slightly higher on the week.
- U.K. retail sales rose 2.6% in Dec., more than economists forecast, led by a surge at department stores and smaller shops during the key Christmas season
- The largest banks in the European Union would face a “narrowly” defined ban on proprietary trading from 2018 under draft plans by Michel Barnier, the EU’s financial services chief
- Passage of a $1.1t bill to finance the U.S. government through Sept. 30 clears the way for lawmakers to focus on the next potential fiscal showdown: Raising the federal debt ceiling
- Enrollment in Obamacare health plans for small businesses is off to a slow start, leaving in doubt whether the U.S. program can attract enough customers to satisfy insurers
- Obama will put off decisions on the most controversial aspects of the U.S. government’s data-collection programs, including those faulted by phone and Internet companies that say customers are losing faith that their privacy is protected
- Cash demand will “substantially increase” as Chinese lunar new year holiday approaches, according to a statement on People’s Bank of China’s website after a credit work meeting
- JPY will weaken to 115 in 2014 and 10Y JGB yields will approach 1% as the Bank of Japan weighs more stimulus to offset a sales tax increase, according to a former BOJ board member
- Sovereign yields lower; EU peripheral spreads narrow. Asian equity markets mostly lower; European equity markets and U.S. equity-index futures gain. WTI crude higher, copper and gold little changed
The PBoC said it sees increased positive signals in the economy and that it will maintain appropriate liquidity and credit and social financing growth. (RTRS) PBOC's Weibo says Jan. lending is rising fast and the PBOC have asked banks to tame pace of lending and adjust banking liquidity at proper time. (BBG)
EU & UK Headlines
UK Retail Sales Ex Auto (Dec) M/M 2.8% vs Exp. 0.3% (Prev. 0.4%, Rev. 0.2%)
UK Retail Sales Ex Auto (Dec) Y/Y 6.1% vs Exp. 3.2% (Prev. 2.3%, Rev. 2.1%)
UK Retail Sales Incl. Auto (Dec) M/M 2.6% vs Exp. 0.3% (Prev. 0.3%, Rev. 0.1%) - Joint highest on record
UK Retail Sales Incl. Auto (Dec) Y/Y 5.3% vs Exp. 2.5% (Prev. 2.0%, Rev. 1.8%) - Highest since October 2004
- The ONS says the rise in sales was driven by smaller stores where annual sales grew more than three times faster than in bigger stores.
Eurozone Construction Output (Nov) M/M -0.6% vs Prev. -1.2% (Rev. -1.1%)
Eurozone Construction Output (Nov) Y/Y -1.7% vs Prev. -2.4% (Rev. -2.3%)
Fitch affirmed Netherlands at AAA; outlook negative. S&P revised Portugal sovereign credit outlook to negative from credit watch negative; rating maintained at BB, affirmed Malta at BBB+; outlook stable and affirmed Slovenia ratings at A-; outlook stable. (BBG)
BofA Merrill Lynch have upgraded its Q4 GDP forecast for the Eurozone to 0.3% Q/Q from 0.1% Q/Q, and its 2014 GDP forecast to 1% from 0.8%. (BofA)
RBC sees the first UK rate rise in November 2015 vs August 2016 previously and says the BOE may lower unemployment threshold to 6.5%. (BBG)
UK Chancellor Osborne has called for an above inflation rise in the minimum wage from GBP 6.31 to its pre-recession value of GBP 7.00 per hour.
French Finance Minister Moscovici is aiming for GDP growth of more than 1% in 2014 and has repeated 2014 GDP growth forecast of 0.9%. (BBG)
A new accounting standard adopted by the EU from September may reduce Italy's debt-to-GDP ratio - the second highest in the region after Greece, by as much as 2 percentage points, according to an official at Italy's statistics agency ISTAT.
US Senate voted 72-62 to send the USD 1.1trl government spending bill, which would fund the US government through September 30th, to President Obama to sign. (BBG)
Heading into the North American open stocks in Europe are seen broadly higher, with the DAX index in Germany outperforming its peers where ThyssenKrupp shares surged by over 4% after their CFO said that there are no concrete plans to increase capital and also confirmed outlook for EBIT target. At the same time, oil & gas related stocks failed to benefit from higher oil prices and the sector underperformed its EU peers since the get-go, weighed on by Royal Dutch Shell which issued an unexpected profit warning. Of note, given that today also marks expiration of various equity option contracts may result in erratic, albeit short-lived price action around expiration times.
GBP/USD rallied over 100pips and moved above its 21DMA line following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. Broad based GBP strength saw GBP/JPY also move above its 21DMA line, with the consequent JPY weakness also ensuring that USD/JPY was able to move into positive territory.
French President Hollande has said the EUR rate is particularly high. (BBG)
Deutsche Bank sees Turkish GDP growth at 2.8% in 2014. (BBG)
Commerzbank sees gold rising to USD 1,400 by end of year, as well as a revival of commodity investment demand in 2014 and forecasts copper to average USD 7,600 in 2014. (BBG)
Morgan Stanley have said that gold prices look likely to remain under pressure this year with rising US interest rates and we remain firmly of the view that far greater upside lies with the platinum group metals and palladium in particular. (DJN)
South Africa's National Union of Mineworkers accepts Northam platinum wage offer according to Tantsi and the platinum strike has been called off'. (BBG/Twitter)
Morgan Stanley say Brent to average USD 103/bbl in 2014 on higher supply. Brent crude is to peak in Q1, fall in Q2 on refinery maintenance, according to a Co. report.
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In conclusion here is the tradional wrap up from DB's Jim Reid
It seems markets are as confused as the weather at the moment and with the first month of the year well into its second half now, consistent trends are struggling to emerge. European (and especially peripheral) equities are hanging onto gains but fixed income seems to be one of the more solid performers of 2014 so far. Even there we've seen a bit of weakness in credit this week after a strong start.
Yesterday was a day of contrasts as strong macro data (in the form of the Philly Fed and jobless claims) stood in contrast to weaker micro data in the form of earnings results and downgrades. At the closing bell, the two factors ended up largely cancelling each other out with the S&P500 (-0.13%). closing only 2 points lower on the day. This was enough however to send the market back into the red for 2014.
Asian equities are also in the red for 2014 and it’s been another fairly weak day in the region as equity markets in China (-1.0%) and Korea (-0.7%) trade lower. The Shanghai Composite (-1.0%) is threatening to slip back below the 2000 mark and there is focus on the Chinese interbank market on reports in the Financial Times and Reuters that ICBC the largest bank in China (and the world) is refusing to use its own money to repay investors in an off-balance sheet “wealth management product”. The $500m product, which matures at the end of this month and which is optimistically called "2010 China Credit / Credit Equals Gold #1 Collective Trust Product", used the funds it raised from investors in 2010 to fund a loan to an unlisted coal company which now faces solvency issues. The trust offered investors a 10% yield, compared to the benchmark deposit rate of 3%. Onshore interbank rates have spiked upwards (7 day repo +150bp to 5.81%) – but we should highlight that we are re-entering the typically volatile pre-Chinese New Year period when bank funding rates tend to spike. We’ll know for sure what happens when this particular product matures on Jan 31st – which is also the date of Chinese New Year when the onshore demand for bank liquidity is the highest. Certainly one to watch.
US treasury yields have spent the last week bouncing between 2.80% and 2.90% with recent economic data failing provide any clear directional trend after the post payroll rally. Bernanke gave what was billed as his final speech as Fed Chairman before he steps down in less than two weeks, and it appeared that he used the occasion to mount a staunch defence of Fed policy. Perhaps the key excerpt was when Bernanke said that he doesn’t think financial stability concerns should detract from the need for monetary policy accommodation, which the Fed is providing. Bernanke did concede though that the risk that QE could prompt financial instability is the only risk that he
finds credible. He dismissed concerns that inflation was a significant risk, pointing to yesterday’s US headline CPI print of +1.5% YoY (in line with consensus). The core CPI print remained unchanged from November (+1.7% YoY) which is a level that it has been at for the last four months. The tame inflation picture was evident across the pond, with both the German (1.2% YoY) and Euroarea (0.8% YoY) showing little sign of an uptick. On a positive note, the Philly Fed survey beat expectations (9.4 vs 8.7) but there was a small downward revision to the previous month's data (6.4 vs 7.0 originally). The NAHB homebuilder sentiment index dropped two points (56 vs 58) - slightly disappointing consensus calling for an unchanged number.
On the micro side, the news was a bit more subdued and none more so than in the US retail (-0.65%) and banking (-0.65%) sectors which both underperformed the broader S&P500 (-0.13%). As we’ve been noting this week, there have been a number of disappointments from the US retail and consumer-discretionary sectors and this theme again popped up yesterday with a warning from consumer-electronics retailer BestBuy that holiday sales in the nine-weeks ended Jan 4th fell 0.9%. Investors punished the company’s stock, which ended the day down 29%. This came two days after another electronics retailer GameStop fell 20% after cutting its forecasts. Staying on the retail theme, department store operator JC Penny (-1.6%) announced that it will be closing 33 stores and eliminating 2000 jobs in a bid to turnaround the company’s fortunes (JCP has not posted a profit for nine consecutive quarters).
Turning to the banks, after its recent outperformance versus the broader indices, there was little cheer in the financial space thanks to a high profile miss from Citigroup, whose stock sold off 4.4%, and American Express (- 0.53%) who also missed expectations. Looking at the Citigroup result in more detail, the big disappointment came from both equities trading (-24% q/q) and FICC trading (-15% q/q), which provided a reminder to Q3 last year when the Financial Times warned that Citi had the largest exposure to emerging markets of any US bank. Goldman managed to beat Q4 analyst estimates (EPS 5.13 vs 4.18 exp, revenues $8.7bn vs $7.7bn exp), off the back of strong growth in investment banking (+47% q/q), FICC (+46% q/q) but its stock (-2%) also sold off yesterday. Even those financials who were not reporting, such as HSBC (- 1.04%) had a tough day, with headlines in Bloomberg and the UK Telegraph suggesting the bank faced a multi-billion dollar capital shortfall. At a broader earnings level, it was a mixed day all round with only eight out of the 14 S&P500 companies that reported earnings beating/meeting analyst estimates.
Today’s US data docket is extensive courtesy of a number of data releases which have been pushed forward ahead of next Monday’s Martin Luther King Day holiday. December housing starts and building permits data will be released today and our economists expect weather-related factors to impact the former, but permits data should be largely immune. Today’s December industrial production may also be weather affected. In the UK, December retail sales will be the main focus. Back in the US, the preliminary UofMichigan consumer confidence and JOLTs job openings round out the week’s data releases. General Electric, Morgan Stanley and BofNY Mellon report earnings today.