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Market Commentary

Dovish central banks, steady oil and earnings hopes underpin sentiment

In another quiet overnight session, the biggest – and unexpected – macro news was the surprise monetary easing by Singapore which as previously reported moved to a 2008 crisis policy response when it adopted a “zero currency appreciation” stance as a result of its trade-based economy grinding to a halt.

Richard Breslow accurately put it, “If you need yet another stark example of the fantasy storytelling we amuse ourselves with, juxtapose today’s Monetary Authority of Singapore policy statement with the storyline that the Asian stock market rally intensified on renewed optimism over the global economy. Singapore is a proxy for trade and economic growth ground to a halt last quarter.”

The Singapore announcement led to a sharp round of regional currency weakness just as the dollar appears to have bottomed and is rapidly rising. The Singapore dollar slid 1 percent in the wake of the new stance.

Speaking of the Greenback, the USD rose against most major peers and base metals denominated in the U.S. currency fell to compensate for the appreciation. The dollar’s more than 6 percent drop since late January is starting to meet some resistance amid lackluster euro-area expansion and investor speculation that U.S. economic growth remains intact, strengthening the case for higher interest rates this year.

To be sure, none of that speculation was actually confirmed by the data, with both retail sales and inventories missing but when did facts matter over narratives.

“We’ve seen stabilization in macro data in China, but stabilization is one point, re-acceleration is another,” said Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf, Germany.

After crude dropped as low at $40.84, it rebounded and was trading unchanged after the latest IEA forecast predicted the global supply glut would narrow to just 200k b/d in 2H, down from 1.5m b/d in 1H.

In Europe, the Stoxx 600 was little changed as miners and energy producers tumbled, while investors weighed earnings reports from Burberry Group Plc and Nestle SA.

  • Commodity producers, the best performers among industry groups in 2016, fell for the first time in five days.
  • Anglo American Plc and Randgold Resources Ltd. lost at least 2.7 percent.
  • BP Plc led oil stocks lower.
  • Lenders also declined, paced by Standard Chartered Plc and Barclays Plc, after jumping the most since 2011 on Wednesday.
  • Burberry tumbled 5.9 percent after forecasting a revenue drop at its wholesale unit in the first half of the year.
  • Nestle rose 1.8 percent after its sales beat analysts’ estimates.

Top European news

  • ITV Said to Pursue Takeover of Canada’s Entertainment One: Entertainment One also owns rights to Peppa Pig cartoons
  • Rocket Internet Drops in Frankfurt Amid $222m Net Loss: losses widen at startups including HelloFresh, Lazada
  • Swiss Re, L&G Said to Mull Bids for Deutsche Bank Abbey Life: Abbey Life could fetch about GBP1b in a sale
  • Steinhoff Convertibles Sale Has Interest for 60% of Deal Size: according to an emailed statement from BofAML
  • Kuoni Says EQT Offer Successful as 72.6% of B Shares Tendered: additional acceptance period to start on April 20

Markets standings right now

  • S&P Futures down 0.1% to 2075
  • Stoxx 600 down 0.2% to 342.5
  • German 10Yr yield up 3bps to 0.16%
  • Euro Stoxx 50 down -0.2%
  • FTSE 100 down -0.2%
  • DAX up 0.1%
  • MSCI Asia Pacific up 1.7% to 132.2
  • Nikkei 225 up 3.2% to 16911.1
  • Hang Seng up 0.8% to 21337.8
  • Kospi up 1.7% to 2015.9
  • Shanghai Composite up 0.5% to 3082.4
  • France 10yr yield up 3bps at 0.5%
  • Greece 10yr yield up 4bps at 9.34%
  • Dollar Index up 0.17% to 94.9
  • US 10Yr yield up 1bps to 1.77%
  • Brent Futures down 0.5% to $44/bbl
  • WTI Futures down 0.6% to $41.5/bbl
  • Gold spot down 0% to $1242/oz

S&P500 futures fell 0.1 percent, in a modest retreat from a four-month high. Bank of America Corp. and Well Fargo & Co. are due to report earnings Thursday. Investors also await data on initial jobless claims and inflation for indications on the possible trajectory of interest rates.

  • Chinese companies canceled almost four times the amount of bond offerings in April compared with a year earlier.
  • At least 35 companies postponed or cancelled 34.1B yuan ($5.3B) in note sales through April 13.
  • “Credit risk is spiking with recent defaults so the market is in a panic,” said Ji Weijie, a credit analyst at China Securities Co. in Beijing. “No one wants to buy low-rated bonds right now. The China Railway Materials incident has had the biggest impact on the market recently because the company has a high rating of AA+ and it is completely state owned.”
  • The surge in scrapped offerings reflects growing concern about default risks amid the worst economic slowdown in a quarter century. Yields on five-year AA- rated local corporate notes have jumped 20 basis points this month, set for the biggest increase in 13 months.

 

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