Sleepy Overnight Session Interrupted By Chinese Market Turmoil

Another new week, another day with not much going on. So much, or rather little so, that in its daily wrap Citi starts off with the following: "Pop Art pioneer Andy Warhol, who once said “I like boring things”, would have been a huge fan of today’s session thus far. Though several events of note linger on the horizon for later this week, G10 is firmly on the beach as of this morning."

While it was indeed a generally quiet session (with Japan markets closed), US equity futures continued their run into record territory (ES up 0.1% to 2,458.50), and Europe fractionally lower, the early Monday focus was on the previously discussed turmoil for Chinese markets where despite a solid set of Chinese data small caps tumbled, selling off into the close after further warnings of regulatory scrutiny and deleveraging, and sending the ChiNext index of Chinese small caps down over 5% to the lowest level since January 2015.

European equity markets also weaker from the open, with the industrial sector underperforming after several Scandinavian companies fell heavily after earnings. Offsetting this was some early strength from mining stocks which lifted the FTSE 100 following the strong China indsutrial production and fixed investment data. Gilts rally, supporting bunds and USTs, unwinding Friday sell-off linked to rate-locking prior to expected corporate issuance, peripheral spreads also tighten. USD holds small overnight gains; NZD underperforms after dovish RBNZ comments overnight.

Benefiting from China's strong data, Bloomberg reports that zinc and iron ore were the biggest winners and precious metals joined the advance. However, the jump in miners failed to spur the Stoxx Europe 600 Index, however, which reversed an advance as a report showed June consumer prices in the euro area were unchanged from a month earlier at 1.3%, missing "whisper estimates." And while European data was largely in line with expectations, investors were reported to be locking in gains according to Bloomberg after a three-day rally and ahead of an ECB meeting this week.  Stoxx Europe 600 index down 0.1% at 10:20 a.m. in London, was little changed before data, index rose toward 50-DMA earlier in session, but failed to cross above it. With underlying inflation still relatively weak, all eyes on ECB’s meeting this week when the central bank is expected to "hold fire" and wait until September before slowing the pace of its bond-buying program. The dollar strengthened against almost all its G-10 peers and was poised to end a five-day losing streak. Treasury yields slipped.

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