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Markets Commentary

In China where stocks tumbled 2.8% to a two month low following an unexpected warning in the official People’s Daily mouthpiece that debt and NPLs are too high, not to expect more easing will come, and that the Chinese Economy’s performance won’t be U- or V-shaped but L-shaped.

This took place after another month of disappointing, sharply weaker trade data as fears about China’s slowdown returned. An expected freefall in key commodity prices led by acrash in the iron ore complex did not help Chinese sentiment, as China’s latest commodity bubble has by now clearly burst.

European stocks gapping higher at the open and rallying from a one-month low, shaking off the Chinese trade data drag that pushed Shanghai shares lower along with industrial metals, driven by a “surprising” surge in the USDJPY which has moved nearly 200 pips higher since its post-payrolls low.

Another driver is the jump in oil, which rallied just shy of $46 a barrel, buoyed by Canadian wildfires that are curbing production and speculation that the Saudi Arabian oil minister succession will be bullish for oil prices.

Certainly helping Europe rebound was the latest Goldman trade recommendation which came out about an hour ago, and was as follows:

  • GOLDMAN SACHS CUTS STOXX 600 12-MONTH TARGET TO 345 FROM 380
  • GOLDMAN SACHS CUTS EURO STOXX 50 12-MOS. TARGET TO 3070 VS 3500

As is common knowledge always do the opposite of what Goldman recommends and at last check, the Stoxx Europe 600 Index advanced 1.4% with health care and technology companies leading the gains.

  • Apart from mining companies, all of the 19 industry groups on the Stoxx Europe 600 Index advanced.
  • Copper fell to its lowest in almost a month after imports into China slipped from a record, while iron ore tumbled following an increase in stockpiles at Chinese ports.
  • Oil climbed as high as $45.94 a barrel in New York and
  • gold retreated as a gauge of dollar strength rose for a fifth day.
  • S&P 500 futures added 0.3 percent, after U.S. stocks Friday halted a three-day decline amid investor speculation that the payrolls data will encourage the Federal Reserve to raise interest rates gradually.
  • Traders are pricing in little chance of higher borrowing costs next month, with December the first month with more than even odds of a hike.
  • Chinese trade figures released over the weekend showed exports fell in dollar terms in April and imports dropped for the 18th month in a row,
  • while U.S. jobs figures on Friday were weaker than economists forecast, several Federal Reserve officials have said over the past week that U.S. interest rates are headed higher, comments that have given a boost to the greenback;
  • this happens as earnings season is set to conclude the worst quarterly report in decades.
  • In other words, lots of central bank multiple expansion, and lots of buybacks are taking place behind the scenes.
  • Euro-area finance ministers and International Monetary Fund officials are meeting Monday to decide whether Greece’s government has done enough belt-tightening to gain another aid disbursement.
  • Germany reported a bigger increase in March factory orders than economists forecast, while companies including Enel SpA and Tyson Foods Inc. are scheduled to announce earnings.

Global Markets Snapshot

  • Stoxx 600 up 1.4% to 336.3
  • Eurostoxx 50 +1.6%,
  • FTSE 100 +0.8%, CAC 40 +1.4%,
  • DAX +1.9%, IBEX +1.5%
  • FTSEMIB -0.1%
  • SMI +1.3%
  • S&P 500 futures up 0.3% at 2058
  • Brent Futures up 1.5% to $46.1/bbl
  • Vstoxx Index down -2.1% at 24.6
  • MSCI Asia Pacific down 0.2%
  • Nikkei 225 up 0.7% to 16216
  • Hang Seng up 0.2% to 20156.8
  • Kospi down 0.5% to 1967.8
  • Shanghai Composite down 2.8% to 2832.1
  • Euro down 0.09% to $1.1394
  • Dollar Index up 0.07% to 93.96
  • German 10Yr yield up 2bps to 0.16%
  • Italian 10Yr yield down 1bps to 1.49%
  • Spanish 10Yr yield down 1bps to 1.59%

European Top News

  • Total to Buy French Battery Maker Saft in $1.1 Billion Deal: acquisition forms part of plan to expand clean-energy business
  • Imagination Tech Climbs on Bid Speculation Spurred by Tsinghua: Chinese state-backed technology co. Tsinghua Unigroup buys 3% stake in co.
  • Investec Finances Four Emirates A380s in $1 Billion Jet Deal: bank says low oil price makes superjumbo more attractive
  • Glencore Becomes Top Holder in Iron Ore Miner After Debt Revamp: has also secured marketing offtake rights
  • Ikea in Talks to Take Over Some BHS Stores, Times Reports: Swedish retailer registered interest with BHS’s administrators
  • Italy Favors Erdemir-Led Group for Ilva vs Mittal: Repubblica: group seen as able to counter possible bid by Arcelor Mittal
  • Korian Plans to Buy Foyer de Lork; Deal EPS Accretive This Year: deal to be financed with cash from Korian, available credit lines
  • G4S 1Q Continuing Businesses Rev Rises 4.5% to GBP1.51b: comments ahead of CEO Ashley Almanza presentation at JP Morgan conf.
  • Abengoa Assets Have EU1b Less Value Than Estimate: Confidencial: reports citing sources it doesn’t identify
  • Adidas May Be Only Bidder for German Soccer Team Sponsoring: FAZ: cites unidentified people close to the negotiations

 

 Top Global News
  • Brexit Battle Rages in Week of Bigwig Barrage on U.K. Risks: Carney, Lagarde, Osborne due to speak as decision day nears
  • Cameron Evokes War, Churchill Memory in Bid to Avoid Brexit: Britain has ‘fundamental national interest’ in EU, Cameron says
  • Bill Gross, Mohamed El-Erian Warn Against Counting the Fed Out: Gross says Fed rate increase may come in June as wages rise
  • Bloomberg Editorial: The IMF Is Right About Greece’s Need for Debt Relief: any plan to resolve its financial crisis has to involve debt relief
  • Filipinos Vote as Populist Mayor Rides Wave of Discontent: Duterte leads main rivals by 11 points in final opinion polls
  • World’s Most Expensive Rough Diamond Sells for $63m: 813- carat diamond recovered by Lucara in Botswana last year
  • Twitter Cuts Off U.S. Spy Agencies From Analytics, WSJ Reports: move comes after Apple battled with Justice Department
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