After a quiet Asian session, where not even the latest Chinese CPI miss was enough to push the SHCOMP to new multi-year highs, all eyes were on Europe where a few hours ago the European Commission announced it had received not one but two new proposals from Greece according to EU Commissioner for Economic Affairs Pierre Moscovici, with the Greek government adding that it considers proposals submitted last week as remain basis for political negotiations. According to Bloomberg, the freshly submitted documents contains alternative proposals to close differences with creditors on fiscal gap with; proposals to create a debt viable sustainability plan for country. What they do not contain is an agreement to engage in pension cuts as the Troika demands so this is most likely another dead end path.
"Diverse proposals are being circulated including new suggestions which were received earlier this morning," spokesman Margaritis Schinas said, noting that Economics Commissioner Pierre Moscovici had met Greek delegates in Brussels on Monday. "The three institutions are currently assessing these suggestions with diligence and care," Schinas added.
However, barely had Europe received the Greek addenda when it nein'ed all over them, with BBG citing an international official directly involved in talks saying that the "Greek government's revised proposal to unlock bailout funds is vague rehash of earlier plans, not considered credible."
Also overnight, as reported previously, the headquarters of Deutsche Bank was raided earlier this morning and while no details were initially available, Reuters said that investigators were "looking for evidence related to client transactions" with a DB spokesperson saying the raid was in relation to "security deals made by clients." It was initially unclear what deals and what clients, but the raid may explain the sudden departure of DB's co-CEOs over the weekend.
In any case, the excitement from all the events did not stay well with European stocks or risk, and as of this moment the EuroStoxx 600 is down again, on pace for its first 6 day losing streak in 2015, down about 5%.
A closer look at Asian equities shows a drop following a negative Wall Street close, which saw the DJIA shed its YTD gains and S&P 500 close below its 100 DMA for the first time in a month. Chinese bourses led the slump weighed on by soft Chinese inflation data, helping cap recent gains across the Shanghai Comp (-0.4 %) and Hang Seng (-1.2%); Y/Y 1.2% vs. Exp. 1.3% (Prev. 1.5%). The ASX (0.5%) and Nikkei 225 (-0.7%) remain in the red, the latter weighed on by a strong JPY.
European equities are broadly weaker following on from the negative closes seen in Asia and the US in what has been a subdued session so far. The technology sector is the notable laggard in Europe in the wake of a downbeat note from JP Morgan coupled with the selloff seen in the NASDAQ yesterday. From a stocks specific perspective, HSBC (-0.8%) stole the headlines after announcing that they were to embark on EUR 5bln cost cutting measure and will slash over 25K jobs globally. However, shares in HSBC shares trade downside was limited as their cost cutting measures may cost the bank GBP 4.5bln. The DAX index has continued to slide following an earlier technical break below 11,000, with concerns over Greece weighing on the index.
Bunds have remained unnerved and trade flat following the recent developments in Greece after the EU Commission confirmed that they have received an updated version of the troubled nation’s reforms. Thereafter, an international official later stated that Greece's revised proposal was not sufficient and is merely a vague rehash of the previous proposal.
In FX markets, GBP continues to trade weaker against the EUR with cross-buying in EUR/GBP supporting the EUR despite continued concerns over Greece. Meanwhile, the USD-index (+0.02%) has remained flat with a lack of fundamental catalysts dictating price action. AUD was unable to hold on to some of its earlier gains after AU business confidence surged to a 9-month high and slipped into negative territory. This was amid soft Chinese inflation data which saw consumer prices rise at their slowest pace in 5-months.
Tomorrows DoE crude inventories are expected to post its sixth consecutive drawdown which is supporting WTI and Brent crude as they inch higher, while precious metals markets also remain firmer following the global selloff in equities. Separately, iron ore continued its recent rally following the decline seen in port inventories and as Chinese steel mills undergo seasonal maintenance.
In summary: European shares fall for sixth day with the tech and financial services sectors underperforming and real estate, media outperforming. HSBC to Cut as Many as 50,000 Jobs in Gulliver Assault on Costs. Greece Said to Submit Revised Budget Plan in Bid for Funding. China Said to Weigh Margin Finance Rule Change Amid Stock Boom. The German and Spanish markets are the worst-performing larger bourses, the U.K. the best. The euro is weaker against the dollar. Japanese 10yr bond yields fall; Greek yields increase. Commodities gain, with corn , wheat underperforming and Brent crude outperforming. U.S. wholesale inventories, small business optimism, JOLT job openings due later.
Market Wrap
- S&P 500 futures down 0.4% to 2070.5
- Stoxx 600 down 1.2% to 380.7
- US 10Yr yield down 2bps to 2.37%
- German 10Yr yield up 1bps to 0.89%
- MSCI Asia Pacific down 0.8% to 146.2
- Gold spot up 0.6% to $1180.7/oz
- All 19 Stoxx 600 sectors drop; real estate, media outperform, tech, financial services underperform
- Asian stocks fall with the Kospi outperforming and the Nikkei underperforming; MSCI Asia Pacific down 0.8% to 146.2
- Nikkei 225 down 1.8%, Hang Seng down 1.2%, Kospi down 0.1%, Shanghai Composite down 0.4%, ASX down 0.5%, Sensex down 0.2%
- Bradesco Said to Be Most Likely Buyer of HSBC’s Brazil Unit
- Newmont to Buy AngloGold Mine in Colorado for $820m
- Elliott Seeks Injunction to Stop Merger Plans by Samsung’s Lees
- Euro down 0.11% to $1.1279
- Dollar Index down 0.03% to 95.27
- Italian 10Yr yield down 2bps to 2.24%
- Spanish 10Yr yield down 2bps to 2.23%
- French 10Yr yield little changed at 1.21%
- S&P GSCI Index up 0.9% to 436.1
- Brent Futures up 1.4% to $63.6/bbl, WTI Futures up 1.2% to $58.8/bbl
- LME 3m Copper up 0.6% to $5983.5/MT
- LME 3m Nickel up 0.9% to $13565/MT
- Wheat futures down 0.1% to 527.5 USd/bu
Bulletin headline summary from Bloomberg and RanSquawk
- European equities (Eurostoxx50 -0.7%) are broadly weaker following on from the negative closes seen in Asia and the US in a session shy of market moving fundamental news.
- The stalemate between Greek and its creditors continues after reports that the EU are unsatisfied with Greece’s latest reform submission.
- Looking ahead, today provides a rather light economic calendar with US Wholesale Inventories, API Crude Inventories and possible comments from ECB’s Makuch (Neutral) and ECB’s Lautenschlaeger (Hawk)
- Treasuries gain for second day as global equities plunge; auctions begin today with $24b 3Y notes, WI yield 1.095%, highest since March, vs. 1.00% in May; drew 0.865% in April.
- The Greek government submitted a three-page budget proposal to its creditors in Brussels in a bid to unlock bailout funds, two international officials with direct knowledge of the discussions said
- China’s consumer prices rose at a slower pace in May and factory-gate deflation extended a record stretch of declines, underscoring tepid demand at home and abroad
- China’s securities regulator is considering a change to its margin finance rules in a move that could quell volatility should the country’s world-beating stock-market rally falter
- China stock exchanges have created $6.5t of value in just 12 months, surpassing the headiest days of the U.S. Internet bubble
- Euro-area GDP rose 0.4% in in 1Q, the three months through March after expanding a revised 0.4 percent in the previous three months, confirming May 13 estimate
- David Cameron said comments he’d made suggesting U.K. government ministers would have to support continued EU membership were “misinterpreted,” after protests from lawmakers in his Conservative Party
- HSBC Holdings Plc will eliminate as many as 50,000 jobs through 2017 by shrinking its global reach as CEO Stuart Gulliver seeks to cut annual costs by about $5b to restore profit growth
- Deutsche Bank AG said its offices in Frankfurt were searched on Tuesday as part of an investigation into securities transactions by clients; bank employees are not accused of wrongdoing, a spokesman said
- Sovereign 10Y bond yields mostly lower. Asian and European stocks slide, U.S. equity-index futures fall. Crude oil, copper and unchanged, gold higher
US Event Calendar
- 9:00am: NFIB Small Business Optimism, May, est. 97.2 (prior 96.9)
- 10:00am: Wholesale Inventories, April, est. 0.2% (prior 0.1%)
- Wholesale Trade Sales, April, est. 0.6% (est. -0.2%)
- 10:00am: JOLTS Job Openings, April, est. 5.044m (prior 4.994m)
- 1:00pm: U.S. to sell $24b 3Y notes
DB's Jim Reid concludes the overnight event summary
Headlines continue to fly around with regards to Greece and it was amusing to read in the Economist that the crisis has now gone on longer than 10% of marriages. Although to be honest that sounds too low. It'll be interesting to see where that number is by the time it’s properly resolved!!
Before we delve into dissecting the action, it’s been an important morning for Chinese data with the latest inflation numbers out. The numbers make for slightly disappointing reading with both the CPI (+1.2% yoy vs. +1.3% expected) and PPI (-4.6% yoy vs. -4.5% expected) prints coming in below market expectations for May. The inflation reading in particular is down from +1.5% last month and now back at its lowest level since January while the deflation at factory gates marks the 39th consecutive monthly negative print, underlying the overcapacity and weak demand both domestically and abroad and furthering the case for more stimulus.
China equity markets have sold off following the data. The Shanghai Comp (-1.23%), CSI 300 (-1.20%) and Shenzen (-0.62%) are all lower as we go to print. It could be a big day for Chinese equities as MSCI Inc. opines on whether to include mainland securities in some of its widely used global indices. This could easily help propel or prick the bubble. Bourses elsewhere are showing a similar trend to China. The Hang Seng (-1.02%), Nikkei (-0.76%) and ASX (-0.06%) are all currently trading down. Treasuries are 1.4bps lower in yield while Asia credit markets are a basis point wider. The tightening in Treasuries this morning has dragged most other Asia bond yields lower.
Back to markets yesterday. As mentioned it was a reasonably dull day for the most part, with equity markets in the US declining for the third consecutive session as the S&P 500 in particular fell 0.65% and to the lowest level since April 7th. Losses were relatively broad-based, although led by a fall for higher beta sectors including Technology (-1.22%) and Industrials (-0.74%) names. The recent leg up in US Treasury yields to the highest levels since October appeared to attract some demand yesterday at the 10y benchmark ended 2.5bps lower in yield at 2.383% and recovered some of Friday’s post-payrolls sell off, while 5y (-3.5bps) yields also tightened although 30y yields remained broadly unchanged at 3.115%. The commodity complex was relatively mixed for the most part. Brent (-0.98%) and WTI (-1.67%) both declined while Gold (+0.18%) ended up a touch. There was a notable move in the Dollar yesterday meanwhile. The DXY eventually closed down 1.05% to wipe out all of Friday’s gains. Reports that US President Obama had suggested that the stronger Dollar was a problem (although later denied by the White House) appeared to play its part, although the bulk of the weakness was largely as a result of a stronger day for the Euro.
With little in the way of data or news flow, it was all eyes on Greece which once again dominated headlines. A WSJ article in particular attracted much of the attention with the article suggesting that Greece and its Creditors are in discussions over an extension of the current bailout program until the end of March 2016. The article suggested that the proposal was first presented to Greece last week at Greek PM Tsipras and the EC’s Juncker meeting on Wednesday. The article notes that the idea is to convert financing set aside for propping up Greek banks at the EFSF into usable money, with the program then aligning the existing EFSF program with the IMF which also expires in March 2016. Although this would mean no new program needs to be passed through European parliament, the sticking point would likely still be the issue of passing through Greek parliament should this be seen as the Troika staying for longer, as well as the chance that it would be unlikely that there is any debt relief up front. The article aside, there was little material news yesterday and talks continue to remain in deadlock. German Chancellor Merkel, French PM Hollande and US President Obama were among the leaders urging progress and swift action yesterday. Greek spokesman Sakellaridis, meanwhile, reiterated that ‘our proposal is the starting point’ in relation to negotiations, while Greek press Ekathimerini noted that a delegation of Greek officials is in Brussels continuing talks.
It was a quiet day data-wise in the US yesterday with just a modest rise for the May Labour Market Conditions Index (1.3 from -0.5 previously). Meanwhile there was some focus on a NY Fed survey which showed consumer expectations for inflation rebounding in May. The survey showed that the median expectation for price rises is 3% in the year through next May, which is up from 2.7% in April.
Markets in Europe were again characterized by higher bond yields. 10y Bunds ended 3.5bps higher in yield at 0.879%, just off last Wednesday’s closing highs while in the periphery Spain (+3.0bps), Portugal (+3.6bps) and Italy (+2.0bps) also rose. With 10y Greek yields also finishing +24.6bps higher, Greek concerns were likely to have played a part, while comments from the ECB’s Nowotny describing higher yields as a ‘success story’ may well have supported the move higher. Yesterday’s industrial production data out of Germany was better than expected. The April reading of +0.9% mom came in above +0.6% expected, helping to push the annualized rate up to +1.4% yoy. Trade data for the region also showed a larger than expected surplus (€22.1bn vs. €19.4 expected), driven primarily by higher exports. Our colleagues in Germany noted that based on yesterday’s IP report, along with the April retail sales and unemployment data, the model points towards +0.6% qoq GDP growth, while the composite PMI and IFO expectations survey point towards +0.4%-0.5% qoq growth. Our colleagues currently sit at the lower end of estimates at +0.4% qoq. Elsewhere, data flow was mixed in Europe. French business sentiment (99 vs. 98 expected) was a touch ahead of consensus while the Euro area Sentix investor confidence print (17.1 vs. 18.7 expected) was a miss. Equity markets in Europe closed lower yesterday. The Stoxx 600 finished -0.93% while the DAX (-1.18%) and CAC (-1.28%) both declined. Greek equities finished -2.73% for their third consecutive day of declines.
We’ve got a busier calendar to look forward to today and we start in the UK this morning where we get the April trade balance before we get the preliminary Q1 GDP release for the Euro area. Across the pond this afternoon, we’ve got the NFIB small business optimism survey for May to look forward to before we get April wholesale inventories and trade sales data and also the JOLTS job openings (one of Fed Yellen’s important dashboard indicators) expected.
