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Wall Street at Breakfast

Wall Street opens lower on uncertainty over rate hikes


Reuters: U.S. stocks opened lower on Tuesday as uncertainty loomed over the Federal Reserve’s path for interest rate hikes.

  • The Dow Jones industrial average .DJI fell 54.71 points, or 0.31 percent, to 17,682.29
  • the S&P 500 .SPX lost 8.72 points, or 0.42 percent, to 2,057.41 and
  • the Nasdaq composite.IXIC dropped 35.01 points, or 0.72 percent, to 4,856.78.

It all started in Japan, where the yen jumped to a 17-month high and government bonds climbed as increasing concern that global economic growth is faltering stoked demand for haven assets.

Additionally, the Yan overnight appreciated even after Bank of Japan Governor Haruhiko Kuroda said he will keep monitoring foreign-exchange markets and reiterated the potential for additional monetary stimulus.

According to FX watchers the critical USDJPY carry pair may test a break of 110.

The surge in the Yen pushed Japan’s closely correlated Nikkei another 2.4% lower to 15,732 as it rapidly approaches its February 12 lows of 14,952.

It wasn’t just Japan and the Yen: in Germany bunds climbed after an unexpected drop in factory orders (down -1.2%, exp. 0.3%), with Bund yields sliding below 0.1% (0.07% to be precise).

“There are worries about the global economy,” Christian Reicherter, an analyst at DZ Bank AG in Frankfurt told Bloomberg. “In this environment, bunds are still the place to go”, and indeed, the chart below confirms just that.

As a result, stocks fell around the world, along with emerging-market currencies.  All 30 stocks in Germany’s DAX Index fell after an unexpected drop in factory orders.

The Stoxx Europe 600 Index sank to a five-week low and U.S. equity futures pointed to a second day of losses.

Gold advanced the most in a week, and oil dropped for a third day before stockpiles data.

Markets now::

  • S&P 500 futures down 0.9% to 2040
  • Stoxx 600 down 1.9% to 329
  • FTSE 100 down 1.4% to 6081
  • DAX down 2.4% to 9583
  • German 10Yr yield down 4bps to 0.09%
  • Italian 10Yr yield down 1bp to 1.23%
  • Spanish 10Yr yield down less than 1bp to 1.46%
  • S&P GSCI Index down 0.2% to 310.8
  • MSCI Asia Pacific down 1.6% to 124
  • Nikkei 225 down 2.4% to 15733
  • Hang Seng down 1.6% to 20177
  • Shanghai Composite up 1.4% to 3053
  • S&P/ASX 200 down 1.4% to 4924
  • US 10-yr yield down 4bps to 1.72%
  • Dollar Index up 0.11% to 94.62
  • WTI Crude futures down 0.3% to $35.59
  • Brent Futures down 0.3% to $37.59
  • Gold spot up 1.5% to $1,233
  • Silver spot up 1.6% to $15.16

Top Global News

  • Pfizer-Allergan Deal May Be Imperiled by U.S. Inversion Rules: new rules may put a planned $160 billion merger between Pfizer and Allergan in jeopardy; Allergan Falls After Treasury Rules Announced; Pfizer Gains
  • UBS, HSBC Offshore Dealings Thrust Into Panama Papers Spotlight: report describes UBS’s dealings with law firm Mossack Fonseca; both banks say they comply with laws for vetting customers; ‘Panama Papers’ Train New Spotlight on Global Elites’ Wealth
  • Tesla Deliveries Miss Forecast as ‘Hubris’ Hurts SUV Supply: automaker sold 14,820 Model S cars and Model X SUVs in 1Q, short of the 16,000 it had predicted in February; Tesla Motors CIO Vijayan Leaves to Launch Own Startup: WSJ
  • Valeant Creditors Said to Resist Proposal to Relax Loan Pact: co. facing push back from some of its lenders as it seeks to waive a default, loosen restrictions on its debt; Valeant Said to Cut Libido Pill Sales Force in Reorganization
  • Disney Says Staggs Stepping Down as Chief Operating Officer: departure complicates efforts to find heir to CEO Robert Iger; executive is said to have struggled to gain support of board
  • Pimco Says Bill Gross Was Told He’d Lose $200 Million Bonus: firm responds in suit saying CEO and counsel warned co- founder
  • Sumitomo Mitsui to Charge Fees on Accounts of Overseas Lenders: goal is to recover costs of the BOJ’s negative interest rates; Mitsubishi UFJ, Mizuho considering similar steps
  • Vale Seeking to Trim Debt Exits ThyssenKrupp Steel Venture: ThyssenKrupp to gain full control of embattled Brazilian mill; Vale free from plant’s debt obligations
  • Lagarde Cites ‘Brexit’ Among Geopolitical Risks to Global Growth: IMF Managing Director Lagarde cited the U.K.’s June referendum on exiting the EU among threats to the global economy; U.K. Growth Subdued as ‘Brexit’ Hurts Confidence, Markit Says
  • Trump Faces Biggest Test Yet in Tuesday’s Wisconsin Primary
  • Samsung Bioepis Sues AbbVie Over Humira Patent: Korea Economic Daily

In Europe, risk off sentiments dominates price action in Europe with the Eurostoxx (-2%) hit by the slump in mining and energy names.

  • Financials have also underperformed so far today in the wake of the Panama Papers scandal, with Credit Suisse lower by 3.5%.
  • Sentiment has also been dampened from the lacklustre PMI readings from European nations with the French services reading slipping into contractionary territory, while Germany also posted softer than expected factory orders.
  • Bunds gained on the back of flight-to-quality flow to make a firm break above 164.00 with the yield curve continuing its bull-flattening bias. As such, yields broke below 0.10% having fallen to its lowest level in a year.

Europe News

  • German Factory Orders Unexpectedly Fall on Exports Slowdown: orders fall 1.2% on month vs estimate of 0.3% increase; Feb. decline led by sluggish growth in global trade; German Growth at Risk Amid Global Economic Slowdown: OECD
  • Euro Area Growth Stays ‘Sluggish’ as Markit Index Revised Lower: euro-area economy grew slower than initially anticipated at the end of 1Q, according to Markit Economics, which revised down a key index of activity
  • Thousands of Icelanders Protest as PM Ignores Calls to Quit: protests after leaked documents suggested PM Gunnlaugsson allegedly benefited from offshore investment accounts in tax havens
  • Credit Suisse CEO Says ‘Best Time’ to Grow in Asia as Rivals Cut: CEO said now is the “best time” to expand in Asia because retreats by some competitors make it easier to find top recruit
  • Peugeot Tumbles as Expansion Spending Weighs on Profit Margins: co. predicted that spending on new models and technology would weigh on profit in coming years
  • Gemalto to Propose Vallee as Successor to CEO Piou: COO Vallee to succeed CEO Olivier Piou who will retire at end of Aug.
  • Europe’s Central Banks Begin Boosting QE Price Transparency: Bank of France to follow Dutch in taking steps toward greater transparency, person familar with plan says

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