Silver as an investment

US Futures, European Stocks Rebound, Bonds Fall Ahead Of US Data Deluge

The overnight session started with more weakness out of Asia, where chatter that the BOJ may end up doing nothing despite all the trial balloons (as we hinted yesterday), sent the USDJPY sliding, pushing the Nikkei lower, leading to a 7th consecutive decline in the Topix, the longest such stretch since 2014 even though the BOJ is now actively buying a record amount of ETFs. However, the modest dip in S&P futures and European stocks proved too much for BTFD algos, and risk promptly rebounded.

Heading into the US open, European stocks and U.S. equity-index futures advanced as investors awaited a batch of US economic data, including retail sales, PPI, and various regional Fed indexes for clues on the strength of the world’s biggest economy and the trajectory of interest rates before next week’s Federal Reserve meeting.

As Bloomberg updates, the Stoxx Europe 600 Index added 0.3 percent at 11:02 a.m. in London. Siemens added 2.2 percent after Chief Executive Officer Joe Kaeser said Europe’s biggest engineering company may beat its earnings forecast for the fiscal year ending this month. Lenders rebounded after their worst three-day drop in two months, with those in Italy, Spain and Portugal leading the advance. The U.K.’s FTSE 100 Index gained 0.2 percent before the BOE decision. Hennes & Mauritz AB declined 3.1 percent after the Swedish fashion retailer’s August sales missed estimates because of hot weather. Next Plc dropped 5.1 percent after warning that the current quarter will be its toughest this year and 2017 sales will be hurt by Brexit-induced price increases. Electricite de France SA fell 0.9 percent after the U.K. government approved its plan to build two nuclear reactors for 18 billion pounds in southwest England. Energy producers were among the worst performers in the index, with Royal Dutch Shell Plc and BP Plc weighing the heaviest, as oil traded below $44 a barrel.

Futures on the S&P 500 Index gained 0.3 percent after the underlying benchmark retreated 0.1 percent on Wednesday. The MSCI Asia Pacific Index fell 0.3 percent. Japan’s Topix index lost ground for the seventh day in a row, led by declines in real-estate shares.

About $2 trillion has been wiped off the value of global equities over the past week as anxiety over the oil market coincided with signs major central banks were preparing to recalibrate monetary policy. While the odds of a U.S. interest-rate hike on Sept. 21 are 20 percent, the probability is 52 percent for a move this year. Prospects may be swayed on Thursday as August data on industrial output, producer prices and retail sales are released. In the U.K., BOE policy makers are forecast to leave the key rate at a record-low. Markets in mainland China, South Korea and Turkey are shut Thursday for holidays. “Markets are at the mercy of central banks but there’s a bit of a problem regarding credibility,” said Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen. “Until we get a true picture of where global monetary policy is headed, markets can’t really pick a direction.”

Crude oil traded at $43.81 a barrel following a two-day slide of almost 6 percent. Libya and Nigeria, two OPEC members whose supplies have been crushed by domestic conflicts, are preparing to add hundreds of thousands of barrels to world markets within weeks.

U.S. data showed crude stockpiles fell 559,000 barrels last week, compared with a 4 million gain forecast in a Bloomberg survey. “The market is getting a little more conservative about when the balance will return and prices are adjusting to that,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “We have moderating demand combined with the possibility of increased supplies from Libya and Nigeria. There is also the potential for non-OPEC output to start increasing.”

In the bond market, the yield on U.S. Treasuries due in a decade rose one basis point to 1.71 percent, after falling three basis points the previous day. Thirty-year yields increased two basis points to 2.47 percent, leaving the spread between the two securities at 75 basis points, having reached the widest in more than six weeks on Wednesday. Yields rose across the euro area as Spain and France sold bonds. Germany’s benchmark 10-year bond yield increased three basis points to 0.048 percent. Yields on similar-maturity French bonds also rose three basis points, to 0.35 percent, and Spain’s were one basis point higher at 1.09 percent.

Market WrapS&P 500 futures up 0.3% to 2121

  • Stoxx 600 up 0.1% to 339
  • FTSE 100 up 0.1% to 6683
  • DAX up less than 0.1% to 10379
  • German 10Yr yield up 2bps to 0.04%
  • Italian 10Yr yield up 2bps to 1.32%
  • Spanish 10Yr yield down less than 1bp to 1.07%
  • S&P GSCI Index up 0.3% to 347.4
  • MSCI Asia Pacific down 0.3% to 136
  • Nikkei 225 down 1.3% to 16405
  • Hang Seng up 0.6% to 23336
  • S&P/ASX 200 up 0.2% to 5240
  • US 10-yr yield up less than 1bp to 1.7%
  • Dollar Index up 0.07% to 95.4
  • WTI Crude futures up 0.3% to $43.71
  • Brent Futures up 0.6% to $46.13
  • Gold spot down 0.1% to $1,321
  • Silver spot up less than 0.1% to $18.98

Top Global News:

  • Bond Market Flashes Signal Traders Haven’t Seen Since 2012: Yield curve steepens as traders trim bets on higher Fed rates
  • Oil Holds Losses Below $44 as Global Oversupply Seen Worsening: Libya, Nigeria may boost shipments within weeks
  • Wells Fargo Bogus-Account Scandal Said to Draw U.S. Probe: N.Y., California prosecutors said to look at bank, individuals
  • BlackRock Sides With BOJ in Debate Over Tokyo Whale’s ETF Buying: critics say BOJ buying could make stocks hard to trade
  • Telia Says U.S., Dutch Propose $1.4b Uzbek Settlement: Could be largest fine ever under U.S. foreign corruption act
  • Fiat Chrysler Said to Explore China Venture With BAIC Group: Partnership would be second in China for Fiat Chrysler
  • Tesla Investigates Potential Autopilot Link in Fatal China Crash: Beijing court has accepted family’s lawsuit, CCTV reports
  • Magna Considering New Car Plants After Getting BMW 5-Series Deal: Production of new 5-Series will start in 2017 in Austria
  • Ford, Rolls-Royce Skip Paris as Car-Show Glitz Fades in Web Age: Companies scramble to woo consumers on Instagram, YouTube
  • Informa Agrees to Buy Penton Information for $1.6b: Deal expands U.K.-based information provider in U.S.
  • United Technologies Board Hands Chairman Title to CEO Hayes: The 55-year-old executive succeeds Edward Kangas

Looking at regional markets,Asian stocks traded mixed following a similar lead from the US where WTI crude futures declined 3% for the second consecutive day, with price action otherwise subdued amid various market closures in the region. This led to early weakness in ASX 200 (+0.2%) and Nikkei 225 (-1.3%) with the latter also pressured by a firmer JPY. Hang Seng (+0.6%) outperformed its regional counterparts ahead of tomorrow’s closure, after better than expected Chinese New Yuan Loans and Aggregate Financing figures, while mainland China, Taiwan and South Korea had already begun their long weekend. 10yr JGBs traded relatively flat despite the risk averse tone in Japan, while today’s enhanced-liquidity auction also failed to support price action with a lower b/c than prior.

Top Asian News

  • Mitsubishi Mulls Lawson Majority Stake Amid Commodity Shift: Japan trading house moving away from commodities businesses
  • Japan Shares Slide for 7th Day on Negative-Rate Speculation: Banks pace decline on concern over delayed earnings recovery
  • China’s H Shares Go From Best to Worst as Stimulus Bets Recede: shares declined this week as volatility increased
  • Australia’s Jobless Rate Declines as Fewer People Seek Work: hours worked fall and underemployment rises in labor market
  • Iron Ore Hits the Skids as Miners, Banks Wrangle Over Supply: Vale SA says S11D ramp-up will take four years to complete
  • Battleground Shifts to 20-Year Japan Bond as Liquidity Ebbs: analysts say trend to continue if 10-year yield stays negative
  • Singapore’s Rough Week for Shipping Foreshadows Challenging 2017: Firms face record $1.8b in bond maturities next year
  • China Issues Highest Typhoon Alert as Meranti Makes Landfall: Typhoon Meranti kills 1 in Taiwan

In Europe, equities traded modestly lower initially as participants remain tentative ahead of upcoming risk events. In terms of stock specific news, the UK government has finally confirmed that the Hinkley Point nuclear power plant will go ahead after a new agreement has been agreed. Elsewhere, Morrisons (MRW LN) posted strong earnings which led to shares in the Co. rising just over 7%.
From a sector perspective, energy names remain the worst performers amid further weakness in the energy markets WTI is currently down 0.44%. Finally, in fixed income markets things have been particularly sideways with participants awaiting the latest BoE announcement and US data deluge.

Top European News

  • U.K. Approves EDF’s GBP18b Nuclear Power Project: Approval delayed by review of subsidy, Chinese involvement
  • SNB Keeps Rates on Hold as Brexit Fallout Clouds Global Outlook: Deposit rate stays at -0.75% as forecast by economists
  • VW Extends European Market Share Losses After Diesel Scandal: Industrywide auto sales growth resumed after 1.8% July dip
  • U.K. Retail Sales Fall Less Than Forecast as Confidence Holds: Dip follows strongest July increase in sales since 2002
  • Nokia CEO Stung by Failed Mergers Speeds Alcatel Integration: ‘World does not wait’ for companies to integrate, Suri says
  • Glaxo’s Shingles Shot Maintains Efficacy for Four Years in Study: Filing for FDA approval for Shingrix is on track for 2016
  • Morelli Returns to Paschi as CEO to Salvage Rescue Plan: Will lead bank as it prepares for vital recapitalization deal
  • Next Sees Tough Quarter Ahead and Price Hikes Coming in 2017: Higher garment costs could drag down sales by as much as 1%
  • Morrison Beats Estimates as Potts Brings Stability to Grocer: Three-year cost-saving and cash flow targets will be exceeded

In FX, the Bloomberg Dollar Spot Index  added less than 0.1%. The New Zealand dollar led
declines with a 0.3 percent drop, after second-quarter gross domestic
product increased less than economists predicted. Japan’s yen was
little changed at 102.44 per dollar. Morgan Stanley said the Bank of
Japan will probably cut the rate on some bank reserves to minus 0.2
percent from minus 0.1 percent at next week’s meeting. Kyodo News
reported Wednesday that such a move will be considered by the BOJ, while
a Nikkei newspaper article said that the central bank was exploring a
deeper foray into negative rates to stoke inflation. The euro fell
0.1 percent to $1.1242 as a report confirmed that inflation stayed well

below the European Central Bank’s goal last month, and as Governing
Council member Klaas Knot said the institution’s quantitative easing
program will be maintained until the end of 2020 as maturing debt is reinvested.

In Commodities, crude oil traded at $43.81 a barrel following a two-day slide of almost 6 percent. Libya
and Nigeria, two OPEC members whose supplies have been crushed by
domestic conflicts, are preparing to add hundreds of thousands of
barrels to world markets within weeks. U.S. data showed crude stockpiles
fell 559,000 barrels last week, compared with a 4 million gain forecast
in a Bloomberg survey. “The market is getting a little more
conservative about when the balance will return and prices are adjusting
to that,” said Ric Spooner, chief market analyst at CMC Markets in
Sydney. “We have moderating demand combined with the possibility of
increased supplies from Libya and Nigeria. There is also the potential
for non-OPEC output to start increasing.” Copper held near its highest level in almost four weeks in London. It jumped 2.6 percent on Wednesday — the most in three months — after a report showed Chinese lending increased in August by more than economists estimated, brightening the outlook for demand in the world’s top user of industrial metals. Copper producer KGHM Polska Miedz S.A. climbed 1.2 percent, boosting Polish shares. KGHM had fallen as much as 9.7 percent last week.

US Event Calendar

  • 7am: Bank of England bank rate, est. 0.25% (prior 0.25%)
  • 8:30am: Current Account Balance, 2Q, est. -$121b (prior – $124.7b)
  • 8:30am: Retail Sales Advance, Aug., est. -0.1% (prior 0%)
  • 8:30am: Initial Jobless Claims, Sept. 10, est. 265k (prior 259k)
  • Continuing Claims, Sept. 3, est. 2.15m (prior 2.144m)
  • 8:30am: Philadelphia Fed Business Outlook, Sept., est. 1.0 (prior 2)
  • 8:30am: Empire Manufacturing, Sept., est. -1 (prior -4.21)
  • 9:15am: Industrial Production, Aug., est. -0.2% (prior 0.7%)
  • 9:45am: Bloomberg Consumer Comfort, Sept. 11
  • 10am: Business Inventories, July, est. 0.1% (prior 0.2%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change

Bulletin Headline Summary From RanSquawk and Bloomberg

  • European equities trade modestly lower as participants remain tentative ahead of upcoming risk events
  • UK retail sales exceeded expectations with upwards revisions to the previous’. All eyes now on the BoE
  • Looking ahead, highlights include UK rate decisions, UK Retail Sales Data, EU CPI, US Manufacturing, Retail Sales, Industrial Production and weekly jobs report
  • Treasuries little changed in overnight trading with global equities mixed, Bank of England rate decision at 7am ET with forecast seeing no change.
  • The Swiss National Bank maintained its ultra-loose negative interest-rate policy, with its deposit rate unchanged at a record low of -0.75%, and pledged to intervene in currency markets if needed
  • Marco Morelli was CFO at Banca Monte dei Paschi di Siena SpA, Italy’s third-largest bank, and helped led it to the edge of collapse. Now, six years after leaving, Morelli is returning as chief executive officer
  • Products synonymous with the credit crisis like “collateralized debt obligations” and “synthetic securitization” are returning as investors take on more risk while banks are forced by regulators to reduce it
  • The $13.6 trillion Treasury market is sending a signal it hasn’t flashed in more than four years – shorter-dated debt is the place to be as traders gain confidence the Federal Reserve will keep interest rates on hold
  • The BOJ has gained an influential ally in its effort to ease concern over central bank intervention in the nation’s $5 trillion stock market. BlackRock said investor fears of getting crowded out by the BOJ’s exchange-traded fund purchases are overblown
  • The offshore yuan headed for the biggest weekly advance since July, with suspected intervention by China’s central bank choking supplies of the currency and driving borrowing costs to an eight-month high
  • Amid the most enduring global oil glut in decades, two OPEC crude producers whose supplies have been crushed by domestic conflicts are preparing to add hundreds of thousands of barrels to world markets within weeks

DB’s Jim Reid completes the overnight summary

In terms of the rest of markets yesterday, it had looked like equities might recover some of Tuesday’s losses with most major bourses initially rebounding in the early going, but another sharp leg lower for Oil had the usual pretenders in the energy sector leading markets lower into the close. The S&P 500 (-0.06%), Dow (-0.18%), Stoxx 600 (-0.09%) and DAX (-0.08%) all finished just about in the red although the Nasdaq (+0.36%) did push higher with a decent gain for Apple.
With regards to those Oil moves, WTI (-2.94%) closed back below $44/bbl for just the second time in the last five weeks despite what was actually a fairly bullish release of inventory data. The EIA reported that stockpiles actually fell 600k last week after forecasts were for a gain. That said stockpiles of gasoline and distillates did rise, while the news that Libya is planning to resume shipments from a long-closed port likely also had an impact.

That weak close in the US, combined with a slightly firmer Yen (+0.30%) this morning has seen the Nikkei (-1.20%) and Topix (-1.06%) weaken in early trading. The ASX (-0.18%) has also faded although the Hang Seng (+0.34%) is performing better. Markets in China are closed for a public holiday so overall newsflow is reasonably light.

Away from Oil and the bond market moves yesterday there wasn’t a whole lot more to report. Datawise in the US the only release was a slightly lower than expected import price index reading for August (-0.2% mom vs. -0.1% expected). In Europe the latest industrial production print for the Euro area was slightly softer than expected for July at -1.1% mom (vs. -1.0% expected) while France reported no revision to the August CPI print of +0.3% mom. In the UK the latest employment numbers were also released and largely met expectations. The ILO unemployment rate held steady at 4.9% yoy in the three months to July, while the Claimant Count rate was also unchanged at +2.2% yoy. Average weekly earnings did nudge down two-tenths to +2.3% yoy although that was a couple of tenths ahead of consensus.

That continues the run of largely decent and pretty supportive post-Brexit data in the UK. It’s worth noting that today we have the BoE monetary policy meeting, however our Economists don’t expect the Bank to shift policy today – a view also shared by the wider market. Our economists continue to have the November meeting pencilled in for the next easing.

Yesterday The House View team published a one-page infographic on the debate surrounding the current policy mix. They argue that despite the increasing focus on a shift away from monetary policy, we shouldn’t hold our breath for a swift paradigm shift, given other levers (fiscal easing, structural reform, financial regulation) are unlikely to deliver much. See here for the report: http://pull.db-gmresearch.com/p/11552-ADC1/11106326/DB_TheHouseView_2016….
Looking at the day ahead, we kick off this morning with more data out of the UK, this time in the form of the August retail sales data where a -0.7% mom headline reading is expected which would represent some payback from the strong July data. Following that we’ll get the final revisions to August CPI for the Euro area, along with the July trade data. The Bank of England at midday follows this. It’s a packed diary in the US this afternoon, so hold your breath. The highlight of the early releases will likely be the August retail sales data where expectations are for a small decline (-0.1% mom) in headline sales, but ex auto and ex auto and gas sales to increase +0.2% mom and +0.3% mom respectively. As always the control group component (+0.4% mom expected) is always worth keeping an eye on given its input into the GDP accounts. Also due out will be the August PPI data where prices are expected to have risen modestly, while the Philly Fed manufacturing survey, Empire manufacturing survey and initial jobless claims data are also out early doors. Shortly after we’ll then get industrial production (-0.2% mom expected) for last month, along with capacity utilization, manufacturing production and finally business inventories. If that wasn’t enough, there’s also more Central Bank action in the form of the SNB decision this morning (no change expected).