Not quite as many fireworks overnight, in another session dominated by central banks. First it was revealed that China had injected CNY400 billion into the banking system to add liquidity as the economy slows, which is ironic because on the other hand China is also seemingly doing everything in its power to crash its nascent stock market bubble mania, following the latest news that China’s CSRC approved 12 IPOs ahead of schedule which is seen as a pre-emptive step to tighten interbank liquidity amid the recent rise in margin trading. This happened as China’s big 5 banks hiked deposit rates by 20% limit with aim to cap funds heading into stocks.
Another central bank that acted overnight was Russia's which proceeded with its 5th rate hike of the year, pushing the central rate up by 100 bps to 10.50% as expected.
Elsewhere, the Bank of England wants to move to a Fed-style decision schedule and start releasing immediate minutes as Governor Mark Carney overhauls the framework set up more than 17 years ago.
The Swiss National Bank predicted consumer prices will drop next year and said the risk of deflation has increased as it vowed to defend its cap on the franc even as the bank refrained from cutting interest rates.
Finally Norway’s central bank cut its main interest rate for the first time in more than two years and signaled it may ease again next year as plunging oil prices threaten growth in western Europe’s biggest crude exporter.
All in all, a busy day for central-planners everywhere. And while crude is attempting its latest feeble rebound, both the 10 Year and the 30 Year yields are sliding, with the former now down to under 2.15%, the lowest since the October flash crash, while the 30 Year touched 2.805%, below the 2014 closing low.
In Asia, the Nikkei 225 (-0.89%) traded in negative territory throughout the session albeit now off its worst levels as JPY lost some ground against USD. Hang Seng (-0.9%) was led by weakness in energy stocks while the Shanghai Comp (-0.4%) fluctuated between gains and losses, as strength in airlines and shipping names mitigated declines across oil stocks. China's PBoC said to inject CNY 400bln into banking system. In addition there were further source reports in the Asian session that China has eased bank restrictions and PBOC targets CNY 10trln loans for 2014. These measures are to quicken the pace of lending.
European equity markets have been relatively mixed this morning with marginal outperformance observed in the IBEX and FTSE MIB following the release of the ECB’s TLTRO, however the FTSE 100 is lagging as the resource heavy index is being weighed upon by weakness in the materials sector with the likes of Glencore, Rio Tinto, Anglo-American each down 2.3%-3.3%.
In terms of today the calendar starts to pick up in the US as we await the latest retail sales, jobless claims data and business inventories.
Bulletin Headline Summary from Bloomberg and RanSquawk
- ECB allots 129.84bln in its second TLTRO resulting in a brief move higher in the DAX future of ~ 40 ticks, however, overall reaction has been muted given the number is largely in line with expectations.
- RUB touches fresh all time lows as the market is left with disappointed with the central banks decision to raise rates by just 100bps (Now 10.5%).
- Moderate strength seen in CHF as the SNB refrain from cutting interest rates leaving their 3 month LIBOR target at 0.00-0.25% and maintained the EUR/CHF floor at 1.20.
- Treasuries steady, curve flattening continues; 30Y yields 2.816%, trading at lowest since mid- October even as U.S. prepares to sell $13b of the debt in last of week’s coupon auctions.
- Long bonds to be sold today yield 2.825% in WI trading after drawing 3.092% in Nov.; stop at that level would be lowest in more than two years
- ECB’s second round of long-term loans came in at the low end of estimates; allotted EU130b vs range of EU90b-EU250b in Bloomberg News survey
- Euro-area bonds rally, with German 30Y bond falling below 1.50% level for first time ever; ECB’s Liikanen says central bank’s purchase debate covers “full range” of debt
- PBOC injected 400b yuan into the banking system, according to a person familiar with the matter, pressing ahead with targeted steps to add liquidity as the economy slows
- Norway’s central bank cut its main interest rate for the first time in more than two years and signaled it may ease again next year as plunging oil prices threaten growth in western Europe’s biggest crude exporter
- The Swiss National Bank predicted consumer prices will drop next year and said the risk of deflation has increased as it vowed to defend its cap on the franc
- The Bank of England wants to move to a Fed-style decision schedule and start releasing immediate minutes as Governor Mark Carney overhauls the framework set up more than 17 years ago
- Russia’s fifth interest-rate increase this year failed to stem the ruble’s worst rout in 16 years, risking further damage to an economy battered by sanctions and oil prices near the lowest since 2009
- New York regulators have found evidence that Barclays Plc and Deutsche Bank AG may have used algorithms on their trading platforms to manipulate forex rates, a person with knowledge of the investigation said
- Sovereign yields mostly higher. Asian stocks fall. European stocks, U.S. equity-index futures gain. Brent crude +0.9%, trading below $65/bbl level; gold and copper decline
US Event Calendar
- 8:30am: Retail Sales Advance, Nov., est. 0.4% (prior 0.3%)
- Retail Sales Ex Auto, Nov., est. 0.1% (prior 0.3%)
- Retail Sales Ex Auto and Gas, Nov., est. 0.5% (prior 0.6%)
- Retail Sales Control Group, Nov., est. 0.5% (prior 0.5%)
- 8:30am: Import Price Index, m/m, Nov., est. -1.8% (prior -1.3%)
- Import Price Index, y/y, Nov., est. -2.6% (prior -1.8%)
- 8:30am: Initial Jobless Claims, Dec. 6, est. 297k (prior 297k)
- Continuing Claims, Nov. 29, est. 2.344m (prior 2.362m)
- 8:45am: Bloomberg U.S. Economic Survey, Dec.
- 10:00am: Business Inventories, Oct., est. 0.2% (prior 0.3%)
- 12:00pm: Household Change in Net Worth, 3Q (prior $1.390t)
- 1:00pm: U.S. to sell $13b 30Y bonds in reopening
FX
In FX, AUD has come under pressure this morning having broken technical support and with the USD index edging higher with gains of 0.5%, which in turn has put pressure on EUR/USD and GBP/USD over the last hour. RANsquawk sources have noted larger leveraged funds seen as general USD buyers (Unconfirmed). In addition, worth noting that overnight RBA Edwards stated that he continued to expect falls in the local currency and that there is room to cut rates if needed. Furthermore, following the Russian key rate decision (10.5% from 9.50%), the RUB weakened against the USD as some participants may have been disappointed that the Russian central bank didn't adopted a more aggressive move.
Also of note, The Norges Bank surprised the market this morning opting to cut their key interest rate by 25 bps to 1.25% which was against market consensus. In addition, the Norges Bank said that they see they key rate at present level or lower until the end of 2016. As a result of this action EUR/NOK rose above 9.000 for the first time since 2009.
COMMODITIES
WTI and Crude oil futures have traded within a relatively tight range as the market awaits key tier 1 data later today. In specific news, analysts at Commerzbank cut their 2015/2016 Brent price forecast to USD 73.bbl and USD 83/bbl and cut their WTI price forecast to USD 69/bbl and USD 80/bbl. In the precious metal complex, Gold is under selling pressure as it moves inversely with the strengthening USD, with the DXY-index trading up 0.4%.
DB's Jim Reid concludes the overnight summary as customary:
Xmas is in danger of being cancelled if markets continue to behave like they have this week. Risk assets broadly sold off yesterday as oil markets tumbled following a cut in crude demand forecasts for 2015 by OPEC. Both WTI (-4.51%) and Brent (-3.89%) dropped to $60.94/bbl and $64.24/bbl respectively – the latter closing below $65 for the first time in five years. With regards to the demand forecasts, the cartel has reduced its forecast to 28.92m barrels/day in 2015 marking the lowest level since 2004. More pertinent however is that the demand forecast is also well below the 30m barrels/day output target that OPEC recently agreed to stick to in late November. Not helping the situation there was also comments from the Saudi Arabian Oil Minister Ali Al Naimi who told reporters that "why should I cut production?" and "the market will correct itself". With all that the Energy sector (-3.08%) suffered another round of losses to lead the S&P 500 (-1.64%) lower for the third consecutive day. Energy aside all other major sector groups from Materials to Staples all finished the day in the red. Treasuries closed firmer, the 10y benchmark yield tightening 5bps to 2.164% - aided by a strong 10y Treasury auction with demand the highest since March 2013. The bid-to-cover ratio also hit 2.97, well above the 2.69 average of the last 10 auctions. Data was light, the only noticeable release being US trade data which showed a smaller than expected budget deficit print ($56.8bn vs. $64.0bn deficit expected).
As we've discussed numerous times of late, the sell-off in energy credits has also been a notable theme for the US HY market. Looking at the recent price action, spreads across US HY energy names widened further yesterday and are now around 82bps wider this week. Spreads have widened over 210bps since the OPEC meeting in late November. The moves for the broader US HY market, although less exaggerated, are similar in terms of direction with the index some 44bps wider this week and +65bps post OPEC. Our US credit colleagues have recently updated their analysis highlighting that Brent at $55/bbl (on a sustained basis) could represent something of a distress point for US HY energy producers so we are not far off that now. These stresses are filtering through to decision making at the micro level with corporates starting to prudently manage their capex and cash flows ahead of expected further weakness. We flagged the ConocoPhillips story yesterday and several more over the past few weeks (eg. Schlumberger and Vale although the latter is more related to metals) but these stories may have more legs from here. Indeed yesterday saw US shale operators Oasis Petroleum and Goodrich Petroleum announce planned slashes to capex spending next year. We also saw BP announce that they are looking at incurring significant redundancy payments associated with overhauling operations through 2015. With consumption and government spending not exactly firing on all cylinders slashing investment is hardly going to be helpful for growth.
Turning to Europe, today sees the 2nd TLTRO. A total of EUR 83bn was taken up under the first operation in September, a disappointment relative to DB's projection for around a EUR 100bn take up and even higher market expectations elsewhere. Our guys do expect a higher take up in the second operation but the total in the first two TLTROs is likely to fall well short of the EUR 400bn total allowance (DB expect EUR ~170bn today), making the ECB’s aim of expanding the size of its balance sheet more challenging, especially as EUR270bn of long-term loans rolls off over the next two months. However a poor take up today should as a consequence increase the likelihood of a broader QE in Q1 which will include Government bonds. It continues to be an upside down world of bad news being quite good for markets a lot of the time. We should know the results around 10.15am London time.
Back to markets the sentiment in Europe was also impacted by the moves in Oil but data wasn't exactly supportive either. The Stoxx 600 pared earlier gains of as much as +0.9% to close -0.34% at the end of play. Similar declines were felt for energy names, with the component declining 1.93%. In terms of data, French industrial production came in particularly soft at -0.8% mom (vs. +0.2% expected), whilst manufacturing production didn’t fare much better – the -0.2% mom reading below market consensus. The prints perhaps underlined reasons over a new proposal from the French government yesterday aimed at kick starting growth in the economy and putting together the reforms needed to avoid EU sanctions. According to the WSJ, the package includes measures to increase shop opening hours, measures around resolving disputes over employment firings, deregulating legal trade and cutting red tape for construction. Benchmark 10y yields in France yesterday closed 0.5bps tighter at 0.961%. Elsewhere, 10y Bunds struck fresh lows at 0.681% yesterday, although it traded as low as 0.672% intraday as peripheral assets underperformed, headlined by further price moves in Greece. 10y benchmark yields in Greece widened a further 35bps whilst 3y yields closed 104bps wider at 9.122%. Greece’s 1y CDS was the notable price-mover however, widening over 700bps to 1536bps on the day. The ASE closed -1.01%.
Asian markets overnight are taking the lead from the US session yesterday. The Shanghai Composite, HSCEI, Nikkei and the KOSPI are all down -0.24%, -0.94%, -0.86% and -1.49%, respectively. Oil remains a key focus for markets even though Asia on balance should remain a safer play in a falling oil environment given its position as a net importer of fuel. The weakness in DM credit is also seeing some spill over into Asian credit markets overnight. Malaysia (net exporter of Oil) has seen its 5yr CDS widen by around 13bps over the last few days whilst AA-rated China Oil credits are around 10bps wider since the end of last week. The USD continues to trade softer against major currencies whilst Crude oil is bouncing off yesterday's intraday lows.
Briefly coming back to the oil theme, there was further weakness in Venezuela yesterday as benchmark 3y yields widened a further 220bps to yield north of 44%. With the country’s budget straining under tumbling oil prices, Bloomberg reported that the upfront cost for 5y CDS jumped to 60% and implying a probability of default of 94%. The country's reserves have dipped to their lowest levels in a decade, covering just 40% of debt due in the next five years.
In terms of today the calendar starts to pick up in the US as we await the latest retail sales, jobless claims data and business inventories. With regards to retail sales, our US colleagues note that the retail control element is most relevant given its direct input into GDP and for this and they expect a +0.5% gain for the second consecutive month. In Europe we will get the final November inflation reading for Germany as well as preliminary French inflation data. Finally we get October industrial production for Italy and housing data out of Spain.