http://www.zerohedge.com/news/2013-10-24/futures-ramp-declining-european-pmis-japan-wealth-effect-warning-china-tightening-fe
Futures Ramp On Declining European PMIs, Japan "Wealth Effect" Warning, China Tightening Fears
In addition to the already noted repeat spike in Chinese overnight repo rates as the PBOC refuses to inject liquidity for nearly a week offsetting the "news" of a better than expected HSBC PMI, the other kay datapoints to hit in the overnight session were various European PMIs which were broadly lower across the board. Of note being the French, which missed both the Manufacturing Index (49.4 vs 50.1 expected, down from 49.8) and the Services (50.2 vs 51.0 expected, down from 51.0) and Germany, which missed in Services (52.3 vs 53.7 expected, same as September), while modestly beating Manufacturing at 51.5 vs 51.4 expected, up from 51.1 last. On a blended basis, the Composite Flash PMI fell from 52.2 to 51.5, against the consensus expectation of a modest rise (Cons: 52.4). Today's correction brings to a halt a series of six consecutive monthly rises in the Euro area composite PMI.
The final reading of the Euro area Composite PMI, which includes data for Italy and Spain, will be available on November 6. However, as Goldman notes, given that the deterioration in the services sector at the Euro area aggregate level (1.3pt) was broadly similar to that in Germany (1.4pt) and larger than in France (0.8pt), this suggests significant deterioration (of around 1.6pt) in the services sector among Euro area periphery countries.
The deterioration looked as follows:
That covers China and Europe. In Japan, we got the first official warning on roughly the one year anniversary of Abenomics, that things are starting to break. Moments ago, Economy Minister Amari warned that since the stock market surge has halted, the "wealth effect" is now in danger, even as wages continue to tumble and energy and food input costs are soaring. No really: from Bloomberg - Japanese stocks are struggling to break through a wall at 14,800 yen, and the wealth effect from rising stock prices is stopping there. More:
- AMARI: EFFECTS OF STOCKS ON JAPAN CONSUMPTION SEEN PAUSING
- AMARI: ECONOMIES OF JAPAN EXPORT DESTINATIONS WEAKENING A BIT
- AMARI: JAPAN PRIVATE CONSUMPTION GROWTH SEEN PAUSING LATELY
So following this bevy of bad news, one would expect that a glance at US equity futures would reveal nothing but green. Sure enough: futures are currently spiking +8 on what else but hope that Bernanke and Yellen will keep the firehose on max while ignoring everything else.
Overnight news bulletin from BBG and Ran
- Chinese HSBC Flash Manufacturing PMI (Oct) M/M 50.9 vs. Exp. 50.4 (Prev. 50.2); New orders at 7 month high.
- China’s benchmark money-market rate rose the most since
June while the Shanghai Composite Index fell to a one-month lows policy
makers drained cash from the financial system amid signs of a pickup in
the economy - Eurozone Manufacturing PMI (Sep F) M/M 51.3 vs. Exp. 51.4 (Prev. 51.1) and German Manufacturing PMI (Oct A) M/M 51.5 vs. Exp. 51.4 (Prev. 51.1).
- Going forward, market participants will look forward to the release of the latest weekly jobs data, trade balance and another round of earnings from the US (Inc. MSFT, AMZN, F).
- Treasuries steady, 10Y yield holding near July lows as market focus begins to shift to next week’s 2Y/5Y/7Y auctions, FOMC meeting with rate decision on Oct. 30.
- Banks would have to hold enough easy-to-sell assets to survive a 30-day credit drought under a rule to be proposed today by the Fed; may have the greatest effect on banks with big trading operations such as JPMorgan and Goldma
- Era of easy money is shaping up to continue into 2014 as policy makers react to another cooling of global growth, led by weakening in developed nations, stagnant job growth in industrial world
- Janet Yellen’s No. 1 challenge as Fed’s next chairman is to reverse the confusion in markets left by Bernanke's communications strategy, TD strategist Richard Gilhooly says in interview
- The central banks of Norway and Sweden left rates unchanged at their respective meetings today; the Riksbank signaled it may keep rates on hold lower than previously assessed, while the Norges Bank noted lower than expected inflation and the depreciating krone
- Sovereign yields higher, EU peripheral spreads widen. Asian equities mixed, European stocks and U.S. equity-index futures gain. WTI crude, gold and copper rise
Market Re-Cap from RanSquawk
The risk on sentiment, as evidenced in firmer stocks which gapped higher at the open in reaction to the release of better than expected HSBC flash manufacturing PMI out of China (8-month high), failed to weigh on fixed income products, with Bunds trading steady ahead of various coupon/redemption payments from a number of EU states. The move higher in Europe was driven by industrials and oil & gas sectors, with financials not too far behind in spite of bear steepening of the Euribor curve. The SMI index underperformed; with Credit Suisse trading lower by over 2% after the bank failed to meet analyst expectations and also announced plans to overhaul its interest rate trading business.
Yet again, the move higher in money market rates in China, which saw the seven-day repo jump to 4.5%, which is the highest level since national holidays, resulted in Chinese stocks underperforming its regional peers. However despite the latest up tick in money market rates, there is little evidence to suggest that the PBOC will announce measures to boost liquidity at this stage with analysts at Deutsche Bank noting that recent moves are not outside the historical range of volatility.
Looking elsewhere, the release of somewhat less than impressive Eurozone based PMIs managed to offset the positive sentiment which carried over from the overnight session and meant that EUR/USD traded steady, with EUR/GBP capped by the 200DMA line. Going forward, market participants will look forward to the release of the latest weekly jobs data, trade balance and another round of earnings from the US (Inc. MSFT, AMZN, F).
Asian Headlines
Chinese HSBC Flash Manufacturing PMI (Oct) M/M 50.9 vs. Exp. 50.4 (Prev. 50.2); New orders at 7 month high.
China's central government will not introduce any bailout package or have large-scale stimulus policy as it did in 2008, according State Information Centre economist Fan Jianping.
EU & UK Headlines
ECB's Mersch says new long-term LTRO might not be necessary, but all options are open.
Eurozone Manufacturing PMI (Sep F) M/M 51.3 vs. Exp. 51.4 (Prev. 51.1)
Eurozone Services PMI (Sep F) M/M 50.9 vs. Exp. 52.2 (Prev. 52.2)
German Manufacturing PMI (Oct A) M/M 51.5 vs. Exp. 51.4 (Prev. 51.1)
German Services PMI (Oct A) M/M 52.3 vs. Exp. 53.7 (Prev. 53.7)
French Manufacturing PMI (Oct P) M/M 49.4 vs. Exp. 50.1 (Prev. 49.8)
French Services PMI (Oct P) M/M 50.2 vs. Exp. 51.3 (Prev. 51.0)
Eurozone Manufacturing PMI (Sep F) M/M 51.3 vs. Exp. 51.4 (Prev. 51.1)
Eurozone Services PMI (Sep F) M/M 50.9 vs. Exp. 52.2 (Prev. 52.2)
German Manufacturing PMI (Oct A) M/M 51.5 vs. Exp. 51.4 (Prev. 51.1)
German Services PMI (Oct A) M/M 52.3 vs. Exp. 53.7 (Prev. 53.7)
French Manufacturing PMI (Oct P) M/M 49.4 vs. Exp. 50.1 (Prev. 49.8)
French Services PMI (Oct P) M/M 50.2 vs. Exp. 51.3 (Prev. 51.0)
Analysts at UBS expects coalition talks in Germany to now go on until about end-November. Although many topics on the list are contentious, analysts see a good chance that this deadline is met. If then a postal ballot among the c470,000 SPD members on the draft contract is positive, Mrs Merkel will be re-elected chancellor in the last Bundestag hearing before the winter holiday, and the new government will be in place.
Barclays month-end extension: Euro Agg +0.08y
Barclays month-end extension: Sterling Agg +0.02y
Barclays month-end extension: Sterling Agg +0.02y
US Headlines
Sen. Jeanne Shaheen, who is up for re-election in 2014, wrote to Obama on Tuesday and asked him to delay the enrollment deadline for the individual mandate.
“Given the existing problems with the website, I urge you to consider extending open enrollment beyond the current end date of March 31, 2014,” Shaheen wrote to the president. "Allowing extra time for consumers is critically important so they have the opportunity to become familiar with the website, survey their options and enroll.”
Analysts at Citi say the exact timing of the start of Fed tapering is highly uncertain, but now expect that tapering will be pushed back to March, with asset purchases not ending fully until late 2014.
Barclays month-end extension: Treasury +0.06y.
Equities
Stocks traded higher, with industrials and oil & gas sectors outperforming, as market participants reacted to the release of better than expected HSBC flash manufacturing PMI data out of China. However the SMI index in Switzerland underperformed, with Credit Suisse trading lower by over 2% after the bank failed to meet analyst expectations and also announced plans to overhaul its interest rate trading business.
FX
In spite of the risk on sentiment, supported by the release of better than expected HSBC flash manufacturing PMI from China, yet another rise in money market rates in China meant that USD/JPY failed to benefit from the positive sentiment. As a result, the pair traded steady, in close proximity to the 200DMA line.
RBA deputy governor Lowe said AUD may realign as mining boom wanes and the global economy recovers. Lowe added that weaker AUD since April is a welcome development, adding that the impact of low interest rates evident and has further to run. RBA's Lowe further stated that inflation is only a touch higher, overall still looks pretty benign and commented that high exchange rate is the biggest structural headwind to the economy.
Commodities
Goldman Sachs said it expects gold prices to fall in 2014 driven by improving US economic data, rising real rates and the commencement of tapering of monetary stimulus by the Fed. The bank expects gold price to decline to USD 1,144 per ounce in 2014. Separately, gold seen by UBS analysts having more to gain on bank regulation.
Silver market seen in surplus next year, according to analysts at HSBC.
Nyrstar lowered forecast for zinc output from own mines to 265-280ktons from 300-400ktons previously.
An Iranian lawmaker has said that the nation has halted enriched uranium production up to 20%, therefore a few steps from which experts believe nuclear weapons can be produced. However, no other Iranian officials at this point in time have confirmed this news.
The US are said to be 'very concerned' about Turkeys potential missile deal with China and are holding discussions with Turkey, according to the US Ambassador.
http://www.zerohedge.com/news/2013-10-24/china-repo-rate-surge-continues-pboc-refrains-liquiidty-injection-third-auction
China Repo Rate Surge Continues As PBOC Refrains From Liquiidty Injection For Third Auction
The reason why the Chinese Shanghai Composite again can't catch a bid (and why the Baltic Dry is sliding and will continue sliding from recent highs) is the same as the main event yesterday: the concerns that while the Fed punchbowl is and will continue to be filled beyond the point of overflowing, China - where inflation has once again taken a turn for the worse as it did this summer when after much repo pain the PBOC killed it early on in order to not repeat the scary episode of 2011 - may be actively engaging in monetary tightening. And like yesterday, when the PBOC refrained from adding liquidity via reverse repos, so today for a third straight auction the Chinese Central Bank refused to inject short-term funding into the system. The immediate result:China’s one-month Shibor rose 59 bps, most since June 25, to 5.4000%; three-monthShibor rose to 4.6876% from 4.6843% yesterday, while the key 7-Day Repo Rises 63 Bps to 4.68% hitting 5% prior, which was the biggest jump since July.
This move quickly prompted the sellside brigade to whip out the heavy "move along, all is well" artilery with the following opinions, via Bloomberg, on the repo rate surge:
Nomura
- Current rise in 7-day repo rate is a signal for monetary-policy tightening as Chinese government could have adjusted its liquidity management to offset seasonal factors and avoid rise in repo rate
- Doesn’t expect a repeat of liquidity squeeze seen in June, and tightening expected to be done in a gradual manner
Morgan Stanley
- Back end of RMB money market curve has remained calm, marking important difference to early summer event when China rates moved higher across maturity spectrum
- While combined action of pushing front-end rates and yuan higher suggests tighter monetary conditions, policy tightening action is moderate compared to spring experience
BOT-Mitsubishi UFJ
- China’s monetary tightening concerns ease, with 7-day repo rate still not at an unusually elevated level
- Investors appear more comfortable that repo rate surge is unlikely to signal a shift to tighter monetary policy; Chinese authorities appear comfortable with their current policy stance as inflation remains below 3.5% and real GDP growth is on course to modestly exceed their 7.5% target in 2013
The question is just how far will the PBOC go again this time: back in June it took several weeks of reverse repo auction lapses before the 7 day SHIBOR exploded well into the double digits, which in turn crippled the hot money flows. Will the PBOC simply repeat this exercise once again, and will it be as "successful" as it was last time, or will something finally break this time?
As for the other, less relevant news out of China, the flash HSBC printed at 50.9, between the final September 50.2, and flash reading of 51.2. Below is SocGen's take:
The flash reading of the HSBC manufacturing PMI came in better than expected at 50.9 in October (Cons. 50.4; SG 50), in-between the final reading of 50.2 and the flash reading of 51.2 in September.
Simply compared with the final report for September, there were notable improvements with most key sub-indices. Output rose to a six-month high of 51 from 50.2; new orders were up by 0.8 point to 51.6, a seven-month high; purchases of inputs climbed above 50 for the first time in nine months; and employment increased to 49.9 from 48.8. Export orders were fairly resilient but did not increase much: 50.8 after 50.7. However, the two price indices - input and output prices - both retreated from the final readings in September, which points to slower improvement in the producer price index ahead.Given the big difference between the flash and the final last month, it is somewhat difficult to judge the magnitude of the improvement, although the levels of these PMI readings suggest that the growth momentum of smaller manufacturing firms, at least, held up in October.However, seeing growth stabilising, policymakers seem to be shifting their focus back to risk management. Beijing's municipal government issued a seven-point property tightening policy on Wednesday. Aside from a reiteration of existing policy, the city plans to offer 70 thousand units of below-market-price apartments in the next two years, which is equivalent to nearly 30% of the housing sales in 2012. Other big cities are likely to follow Beijing's lead to announce property tightening measures in the coming months. At the macro level, the People's Bank of China withdrew nearly 100bn yuan from the interbank market in the past two weeks and as a result, the overnight repo rate is back above 4% and the 7-day rate close to 5%. The leadership still intends to delever the economy, which is the main reason behind our call that the secular deceleration trend is far from over.
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