Monday, October 12, 2015

US Mid-Session Update

Economic Data

- (PT) Portugal Sept CPI M/M: +0.8% v -0.3% prior; Y/Y: 0.9% v 0.7% prior
- (PT) Portugal Sept CPI EU Harmonized M/M: 0.7% v 0.4%e; Y/Y: 0.9% v 0.5%e
- (IN) India Aug Industrial Production Y/Y: 6.4% v 4.8%e  
- (IN) India Sept CPI Y/Y: 4.4% v 4.4%e  
- (MX) Mexico Aug Industrial Production M/M: 0.2% v 0.2%e; Y/Y: 1.0% v 1.0%e; Manufacturing Production Y/Y: 3.1% v 2.6%e  

Global markets are sliding sideways again today after Friday's flattish session. Volumes are well below average, with US fixed income markets closed for the Columbus Day holiday. As of writing, the DJIA is up 0.20%, the S&P500 is flat and the Nasdaq is up 0.15%.

On Friday, Fed Vice Chair Fischer clarified the Fed's thinking on policy in a major speech. Fischer said he did not anticipate global economic weakness to delay interest rate liftoff and asserted the Fed still plans to increase rates this year. Fischer also characterized this pledge as "an expectation, not a commitment." This morning, Lockhart said October or December was likely appropriate for the first hike, but also stated the FOMC would have a lot more data by time of December FOMC meeting.

Dell reached a deal to acquire EMC for around $67 billion in one of the biggest tech mergers ever. Dell will pay $24.05 a share in cash plus shares of a new tracking stock in EMC's prize holding, VMware, valued at about $9/shr. The total deal price of $33.15/shr is about 28% above EMC's closing level on Oct. 7, just before reports of the talks started circulating. 

AB InBev has made a fourth takeover approach to SABMiller, raising their offer to £43.50/shr from £42.15/shr last week. At this price, the megadeal would be valued around $103.6 billion. The deadline to reach an agreement falls on Wednesday. InBev still needs to convince Colombia's billionaire Santo Domingo family, owner of a 14% stake in SAB, to accept the revised offer. There as also an article published in the New York Post asserting that AB InBev and SAB remain pretty far about on the terms of the deal, casting doubt on the ability of both sides to get an arrangement done in time. 

Eli Lilly said it would shut down clinical development of a cholesterol-lowering pill based on cholesteryl ester transfer protein (CETP) technology. Lilly said a large phase III study of evacetrapib was being discontinued because an interim analysis determined the pill was unlikely to reduce the number of deaths, heart attacks, strokes or other cardiovascular events. Merck is the only other Big Pharma with a CETP inhibitor in ongoing phase III studies. Shares of LLY are down 7.7% on the news, while MRK is off 2%. Small biotech name Esperion Therapeutics is also working on a CETP drug, but it's candidate has a quite distinct method of action. ESPR was up more than 15% in the premarket but is currently back around +6%.

Looking Ahead

16:30 (US) Fed's Brainard (dove, voter) in Washington
- 17:00 (KR) South Korea Sept Import Price Index M/M: No est v -0.3% prior; Y/Y: No est v -13.6% prior
- 17:00 (KR) South Korea Sept Export Price Index M/M: No est v 0.7% prior; Y/Y: No est v -1.5% prior
- 19:01 (UK) Sept BRC Sales Like-For-Like Y/Y: +1.5%e v -1.0% prior
19:50 (JP) BOJ Minutes for Sept. 14-15 Meeting 
22:00 (CN) China Sept Trade Balance: $47.9Be v $60.2B prior; Exports Y/Y: -6.0%e v -5.5% prior; Imports Y/Y: -15.9%e v -13.8% prior

Europe Mid-Market Update


- Various market holidays keep participation light (Japan closed for Health and Sports Day, Canada for Thanksgiving, US banks closed for Columbus Day, Brazil closed for Our Lady Aparecida)
- IMF autumn conference in Lima emphasized the importance of the Feds rate lift off operation in the context of international vulnerabilities
- Portugal election showed rare case of a bailed-out country re-electing its government.

Economic data

- (SE) Sweden Sept PES Unemployment Rate: 4.1% v 4.3% prior
- (FR) France Aug Current Account Balance: +€0.2B v -€0.4B prior

Fixed Income Issuance:

- (IT) Italy Debt Agency (Tesoro) sold €7.0B vs. €7.0B indicated in 12-month Bills; Avg Yield: 0.023% v 0.028% prior; Bid-to-cover: 1.63x v 1.50x prior




- Stoxx50 -0.1% at 3,247, 
- FTSE -0.5% at 6,384, 
- DAX +0.5% at 10,144, 
- CAC-40 -0.4% at 4,682, 
- IBEX-35 +0.1% at 10,317, 
- FTSE MIB -0.1% at 22,232, 
- SMI -0.04% at 8,677, 
- S&P 500 Futures -0.02%

- Market Focal Points/Key Themes: 

European stocks open largely flat before slipping in somewhat muted trading due to holidays both in Japan and US, however US markets will be open; sectors moving up include energy shares and materials; Germany says utilities have enough provisions to cover nuclear clean-up supporting utilities (RWE RWE.DE +12.4% E.on EOAN.DE +9.7% Energie Baden-Wuerttemburg EBK.DE -0.6%); healthcare was on the downside


- Healthcare [Novozymes NZYMB.DK -3.2% (broker move)]
- Materials [Glencore GLEN.UK -1.0% (potential asset sale)]
- Technology [Smiths Group SMIN.UK +3.0% (update)]


- German Econ Ministry: Utilities companies' provisions for nuclear decommissioning are adequate
- ECB's Coeure (France): Too early to discuss new QE program - CNBC interview 
- ECB's Liikanen (Finland): ECB probe into banking sector probably made SME funding harder
- Sweden Central Bank (Riksbank) Dep Gov Ohlsson: Policy is having an effect; to move towards inflation target in orderly manner
- Kuwait Oil Min Omail: There are signs that global economic growth could improve by early 2016
- China Communist Party to hold its annual meeting Oct 26-29th
- Kuwait Oil Min Omail: There are signs that global economic growth could improve by early 2016
- OPEC Sec Gen al-Badri: 7-8 non-OPEC nations to hold technical talks with the organization. Saw improvement in oil demand with more balanced market seen in 2016


- European calendar light and subdued participation due to various global holidays
- EUR/USD pair was hovering towards the 1.14 area where potential buy-stops orders lurked. Euro supported by various ECB commentary that more QE is not warranted at this time and inflation should pick up by year end. 
- The JPY currency was fractionally firmer with USD/JPY pair just above the 120 handle. BoJ's Kuroda reiterated his view that did not see immediate need for stimulus expansion

Fixed Income:

Bund futures trade at 156.01 down 1 tick from the open. Support levels to watch out for are 155.74 (10/07 lows), 155.42 (09/28 lows), 155.13 (09/25 lows)
Gilt futures trade at 118.32, up 4 ticks from the open. 

Political/In the Papers:

- (US) Fed Vice Chair Fischer: "We do not anticipate" global economic weakness to delay interest rate liftoff; To remain "cognizant" of overseas risks. Fed still plans to increase rates this year but added that such a pledge was 'an expectation, not a commitment'
- (EU) ECB chief Draghi: Reiterating Euro Area showing signs of resilience; QE has surpassed expectations. Will take somewhat longer than thought to return to 2% inflation. Reiterates ready to use all the instruments available; can amend QE size, duration, compositio
- (PT) Portugal election: centre-right coalition retains power but could lose majority. Pro-austerity coalition under PM Coelho took 36.8% of the vote but looks set to lose its parliamentary majority

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- 06:00 Portugal Sepy CPI y/y (Prelim): M/M: -0.3% prior; Y/Y: 0.7% prior
- 08:10 Fed Speaker: Lockhart Speaks on U.S. Economic Outlook in Florida
- 09:00 BoE Speaker: Weale (Hawk), Netherlands
- 09.45 ECB announces holdings of SMP, CBPP3/ABS & PSPP purchases
- 10.30 Fed Speaker: Evans Speaks on Policy and the Economy in Chicago, IL
- 12:00 Merkel Speaks at CDU Party Conference in Stade
- 13:05 BoC Spekaer: Gov Poloz at NABE, Washington
- 16:30 Fed Speaker: Brainard Gives Outlook and Policy Speech in Washington
- 17:40 RBA's Lowe Gives Speech in Sydney

Monday's poster of the day

Asia Mid-Session Update

Economic Data

- (NZ) New Zealand REINZ SEPT House Sales Y/Y: 38.3% v 41.7% prior 

Index Snapshot (as of 02:30 GMT)

- Nikkei225 closed, 
- S&P/ASX -0.7%, 
- Kospi +0.4%, 
- Shanghai Composite +3.4%, 
- Hang Seng +1.3%, 
- Dec S&P500 -0.1% at 2,005

Commodities/Fixed Income

- Dec gold +0.2% at $1,158/oz, 
- Nov crude oil +0.7% at $50.0/brl, 
- Dec copper flat at $2.41/lb

- OPEC chief al-Badri: OPEC countries will not be affected if US decides to eliminate its oil export bank - financial press 
- Qatar Oil Min Al Sada: Oil prices have bottomed; Sees signs of recovery to take place in 2016 - financial press 
- (KR) South Korea sells 5-yr govt bond, avg yield at 1.820% 
- USD/CNY: (CN) PBoC sets yuan mid point at 6.3406 v 6.3493 prior setting; strongest Yuan setting since Aug 12th 

Market Focal Points/FX

- Asian markets are mixed, with China markets broadly outperforming and Australia trading softer despite the strength in basic materials. Energy markets are more volatile than typical in early electronic trade - Nov WTI crude is up about 1% on bullish remarks by OPEC chief and also Qatar Oil Min. In FX, USD/JPY is little changed above ¥120 with Tokyo closed for holiday, AUD/USD trading in a 40pip range finding support at the $0.73 handle, and NZD/USD initially falling to 0.6670 before bouncing above 0.67. EM FX is also mixed and volatile - USD/SGD was up about 80pips above 1.4020, KRW gained over 1% against USD, and offshore Yuan is at its strongest level since devaluation around 6.3250 after another stronger fix by the PBoC.

- Markets in China are helped by upbeat comments from PBoC Dep Gov Yi Gang, who said the equity correction is almost over and the stock turbulence would have limited impact on economy. NDRC State planning agency official offered similar remarks, noting the economy is basically stable. Finally, there were local press reports that PBoC has expanded a relending credit program to 9 provinces and cities, resulting in more credit capacity for local banks.

- BOJ Gov Kuroda spoke at the IMF meeting in Lima, downplaying expectations for further BOJ easing. Kuroda said inflation is gradually rising, and the price dynamics are as anticipated. IMF Managing Director Furusawa was of similar opinion, noting CPI rise is gradual in Japan when excluding the effect of low energy prices. On the fiscal side, Furusawa recommended that Japan govt proceeds with the 2nd sales tax hike to maintain its credibility, while a separate Nikkei report stated Tokyo is preparing to cut effective corporate tax rate to less than 30% in FY17/18 from 32.1% current average.

- Australia materials names, especially gold miners, are higher on rallies in metals and 6-week highs in gold seen on Friday. Financials are underperforming, in part weighed down by an AFR report speculating that major banks may have to cut dividends since they lag their overseas peers based on their non-risk- weighted "leverage ratios".

- There was more notable Fed speak over the weekend, with high profile comments coming out of Fed vice chair Fischer diminishing the perceived by traders link between rate liftoff and global economic weakness.  Fischer said the Fed will be "cognizant" of overseas risks, but does not "anticipate" the global economic weakness to delay interest rate liftoff. ECB's Coeure also spoke, stating Eurozone inflation will move back to 2% "very slowly".


US equities / ADRs:
- EMC: Said to look for other potential suitor after an offer from Dell; Asked for a "go-shop" provision as part of Dell agreement - financial press 

Notable movers by sector:
- Consumer discretionary: SA SA International Holdings 178.HK -0.3% (golden week sales); Cabcharge Australia Ltd CAB.AU -2.3% (ACCC proposes to deny ihail app); China Eastern Airlines 600115.CN+5.0% (Sept result)
- Financials: Poly Property Group Co Ltd 119.HK +3.4% (Sept result); China State Construction Holdings 3311.HK +3.1% (Sept result); Poly Real Estate Group Co 600048.CN +2.9% (Sept result); China Overseas Land 688.HK +3.6% (spin-off proposal); Country Garden 2007.HK +2.4% (YTD result)
- Industrials: Cardno Ltd CDD.AU -0.7% (divestment); Guangzhou Automobile Group 2238.HK +0.9% (Sept result); China Railway Construction Corp 1186.HK +1.0% (approval to unit's Hong Kong IPO); Daewoo Shipbuilding & Marine 042660.KR +2.4% (additional loss speculation)
- Technology: Hon Hai Precision Industries 2317.TW +1.7% (cooperation with Alibaba)
- Materials: Doray Minerals Ltd DRM.AU +5.3% (Q3 result); Independence Group IGO.AU +8.9% (gold prices rise); Evolution Mining EVN.AU +8.7% (new discoveries)
- Energy: Santos Ltd STO.AU -2.4% (equity issue and job cuts speculation)
-Telecom: China Mobile941.HK +2.3%, China Telecom 728.HK +6.3% (investment in China Tower)
- Utilities: Transurban TCL.AU -0.5% (Q1 result)

all things bonds

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

monthly pivots

upside retracements

downside retracements

regression channels

support and resistance

US Holiday: Columbus Day

Markets Open, Banks Closed

Products listed on Globex will run a normal schedule

Speaking today:-

08:10 Dennis Lockhart
10:30 Charles Evans
16:30 Lael Brainard