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Markets Commentary

Kuwait  oil workers had ended their strike which disrupted oil production in the 4th largest OPEC producer for 3 days cutting it by as much as 1.7 mmb/d.

Kuwait Petroleum also added that it would boost output to 3m b/d within 3 days, which in turn has pressured the price of oil overnight, and the May WTI contract was back to just over $40 at last check, sliding 2%.

Not helping things was a very dejected Venezuela oil minister Eulogio Del Pino who said at a conference in Moscow that he sees oil prices returning to lows in 3-4 weeks if oil producers can’t make a deal. For now the algos – and central banks – disagree.

And speaking of central banks, it is probably safe to say that after yesterday’s negative inventory build data and the news of the Kuwait strike ending, should oil resume its climb and somehow end green (even if DOE reports another inventory build later today) that it is indeed central banks who are now actively propping up and daytrading oil, as so many have now suspected.

It wasn’t just oil: overnight Chinese stocks also snapped and dropped by the most since February, with the SHCOMP sliding 2.3% after dropping as much as 4.5% earlier, to the lowest since March 17 as analysts questioned the PBoC’s willingness to conduct further monetary easing.

The catalyst was the PBOC research bureau chief economist Ma Jun who said late Tuesday that future policy operations, while observing the need to continue supporting growth, will pay attention to heading off macroeconomic risks.

On any other day, rolling over Crude and Chine would have been enough to pressure global stocks even more.

while futures and European stocks were looking uglier overnight, it was once again BOJ-driven levitation by the USDJPY which was magically activated just as Europe opened, that pushed US equity futures back to the unchanged, on speculation that the BOJ will now announce even more QE in its April meeting, this time in the form of expanded ETF purchases, which according to Goldman may be almost double the existing size.

Still, if only for now, the Stoxx Europe 600 Index slipped from a three-month high, down 0.3% with health care and media companies posting the biggest losses. BHP Billiton and Rio Tinto added more than 3 percent. Despite recent gains, the European gauge has still tumbled 16% since reaching a record a year ago, and optimism over European Central Bank stimulus has given way to skepticism about its ability to boost growth.

But that may change: “It’s difficult to find a major positive trigger from here,” said Otto Waser, chief investment officer at R&A Research & Asset Management. “Central banks are done so we don’t expect anything positive from them anymore. Earnings trends are not positive enough in Europe to support a major positive market.”

Investors are also awaiting the ECB’s next meeting on Thursday for clues about the path of monetary policy. While economists are virtually certain ECB President Mario Draghi won’t touch interest rates, recent history shows that increased stock volatility is still likely. Intraday swings for the Euro Stoxx 50 Index averaged 4.1 percent during the ECB President’s past four policy updates, or about double that for all meetings since 2010.

Futures on the Standard & Poor’s 500 Index declined 0.2 percent, after the gauge closed above 2,100 for the first time since since Dec. 1. Of the benchmark’s 60 members to have reported first-quarter earnings so far, 77 percent have beaten profit estimates, according to data compiled by Bloomberg.

What is, however, most ironic is that global equities have climbed more than 15 percent from this year’s low, spurred by now rejected rumors of an oil production cut (at first), then freeze (also rejected), and signs of stabilization in China’s economy, which in turn has been nothing more than another massive credit injection and once the credit impulse fizzles, will leave the Chinese economy in an even worse shape than it was. 

Where markets are now:

  • S&P 500 futures down 0.2% to 2088
  • Stoxx 600 down 0.4% to 348
  • FTSE 100 down 0.4% to 6377
  • DAX down 0.4% to 10310
  • German 10Yr yield down 2bps to 0.15%
  • Italian 10Yr yield down less than 1bp to 1.4%
  • Spanish 10Yr yieldunchanged at 1.54%
  • S&P GSCI Index down 1% to 340.2
  • MSCI Asia Pacific up less than 0.1% to 133
  • Nikkei 225 up 0.2% to 16907
  • Hang Seng down 0.9% to 21236
  • Shanghai Composite down 2.3% to 2973
  • S&P/ASX 200 up 0.5% to 5216
  • US 10-yr yield down 3bps to 1.76%
  • Dollar Index up 0.09% to 94.06
  • WTI Crude futures down 2.4% to $40.10
  • Brent Futures down 2% to $43.16
  • Gold spot down less than 0.1% to $1,250
  • Silver spot up 0.3% to $16.99

Top Asian News

  • China Default Chain Reaction Looms Amid 192 Day Cash Turnaround: Wait increases risks firms can’t repay debts, Natixis says
  • All Japan Sovereigns Yield Below 0.4% as 40-Year Hits Record Low: 40-year yield drops to 0.31%, 30-year falls to record 0.3%
  • Kuroda Rejects Idea of Helicopter Money, Citing Legal Hurdles: BOJ governor says notion of helicopter money contradicts the law
  • China Said to Mull Shenzhen-Hong Kong Link Approval Before July: Final approval by Chinese regulators may include start date
  • HSBC Sees India Yield Dropping to 7% as Rajan Gets Cash Flowing: 3-mo. treasury bill yield slides to lowest since 2010

In FX, the yen strengthened 0.2 percent to 109.01 per dollar after Bank of Japan Governor Haruhiko Kuroda said monetary easing is not a promise of a weaker currency or stronger equities. Japanese exports dropped 6.8 percent from a year earlier in March, while imports declined 14.9 percent, data showed Wednesday.

Top European News

  • ASML Sees Rising Sales, Margin Pressure on New Technology: Dutch company trying to fuel demand for new EUV technology
  • Commerzbank CEO Says Slow Quarter Means ‘Challenging’ 2016: Blessing says first-quarter will likely be weaker than in 2015
  • U.K. Unemployment Posts First Rise Since 2015 as Market Cools: U.K. unemployment rose for the first time in seven months
  • Syngenta Ups Cost Cuts as It Targets ChemChina Deal by Year- End: co. reports fifth quarterly sales decline
  • ABB’s Profit Beats Estimates on Orders from Power Utilities: maker of power grids reports lower first-quarter profit
  • Heineken Beer Volume Beats Estimates on Asia, Americas: 7% increase in shipments soars past analyst consensus of 2.4%
  • SAP Sees 2016 Sales on Track After Sluggish Start to Year: Finance chief Mucic said no large acquisitions on horizon
  • Russia-Germany Gas Link Polarizes Europe, EU Energy Chief Says: Nord Stream 2 isn’t aligned with bloc’s energy principles
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