Silver as an investment

Futures Flat, Market Anxiety Eased By European Bank Rescue

European and Asian stocks, as well as S&P futures were little changed ahead of “Super Thursday’s” events which include the U.K. general election, Comey’s testimony and the ECB policy decision. That however may change following a Bloomberg news report that the ECB is set to cut inflation forecasts through 2019 due to weaker energy prices, suggesting the “hawkish” ECB announcement some had expected tomorrow has been postponed.

According to the ECB draft projections consumer prices would grow roughly around 1.5% each year in 2017, 2018, 2019. At the same time, the ECB said to revise up GDP forecasts by around 0.1 pp each year.

Earlier in the session, Spain’s collapsing Banco Popular was bailed in at the same time as Banco Santander agreed to buy the insolvent Spanish bank for a nominal 1 euro after European regulators determined that the troubled lender was likely to fail.  The bail in helped calm returned to markets on Wednesday following Tuesday’s modest selloff, as investors reassessed risks surrounding a series of key events this week. Bank stocks powered equity gains after Popular’s rescue. As a result, European blue chip shares rose and Madrid’s IBEX recovered from early losses to trade flat on the day. IBEX European banking shares rose 1.2 percent. The Stoxx Europe 600 Index rose 0.2 percent. Banks added 1.1 percent, while in the US S&P futures were little changed after the underlying gauge lost 0.3 percent on Tuesday.

As the European session wore on the success of the Spanish bail in process pushed shares in many major banks higher, supporting a recovery for Madrid’s stock market and fending off this week’s broadly weaker mood. But as Reuters notes, the rescue also underlines the risks to growth, banking and government debt burdens that are likely to delay a major switch in language and policy direction by the European Central Bank at its meeting on Thursday.

“Maybe tomorrow’s ECB meeting sees nothing but platitudes and disappoints a market that is getting ahead of itself,” said Societe Generale analyst Kit Juckes. “But (for us) that would be a huge euro buying opportunity, because ECB normalization IS coming. And when it does, the euro simply won’t be able to sustain undervalued levels for long.” Some more thoughts from the SocGen strategist:

The fall in US yields has paused. The fall in USD/JPY has paused. Commodities are trading sideways . Asian equity markets are trading sideways, or in the case of China, rallying. The big events of the week – the UK election, the ECB meeting, former FBI Director Comey’s testimony to Congress – all come in the next couple of days but today’s economic highlight may be the US consumer credit data unless the Chinese can get their FX reserve figures out soon. The big market questions are unlikely to be answered today. Are Treasury yields heading back to ‘pre-Trump’ levels or merely probing the bottom of post-election rages? Are we in danger of renewed risk aversion as the political risks mount and the US economy stumbles?


It seems to me that the US economy is fundamentally quite dull, stuck in a 2% growth rut with low productivity, huge disinflationary forces, and structural changes that fuel political; discord. Does that suggest a dramatic move down in yields? Not really. Can the politics in the US (or in the Middle East) trigger broader-based risk aversion? I still that’s unlikely, and so I think the commodity-sensitive currencies (AUD, CAD, NZD) are all in the process is finding a base. AUD was the overnight winner but CAD is my preferred long. And I still think the BOJ will hold the line and keep policy easy enough for long enough for us to see significantly higher levels in EUR/JPY and USD/JPY in due course. But not today…


If there is a single core theme for this year however, it’s that more central banks are getting closer to policy normalisation. The era of super-low US rates has meant that the currencies of countries with large current account surpluses struggled to avoid their currencies being expensive. The yen and euro were the exceptions with currencies cheap to PPP. These are the two strongest G10 currencies this year, as US yields drift lower and as European and Japanese economist recover. But of the two central banks, it’s the ECB which is by far the closest to policy normalisation. Maybe tomorrow’s ECB meeting sees nothing but platitudes and disappoints a market that is getting ahead of itself, but that would be a huge euro buying opportunity, because ECB normalisation IS coming. And when it does, the Euro simply won’t be able to sustain undervalued levels for long.

Meanwhile in Asia, the MSCI Asia Pacific Index was little changed, even as the Shanghai Composite jumped 1.2 percent to the highest in a month. The Aussie dollar climbed to the highest since May 2 after quarterly economic growth met expectations, soothing concerns of a deeper slowdown.

And while the risk-off mood has abated, traders still seem reluctant to add any big positions ahead of Super Thursday. The purchase of Popular at least offered a distraction, and signaled that Europe has made progress in ensuring the strength and stability of its financial sector.

A surprisingly closely-fought British election set for Thursday is weighing on investors’ minds along with Senate testimony from James Comey, the former FBI chief fired by President Donald Trump. Any damaging revelations in Comey’s testimony are likely to further hurt Trump and take the wind out of his plans to roll back regulations and overhaul the tax system – an agenda that had sent the dollar to 14-year highs earlier this year.

“Tomorrow’s what is being dubbed as ‘Triple Threat Thursday’, … an event-filled day that could send global markets on a bumpy ride,” said ING currency strategist Viraj Patel.

Oil futures decline, gold and dollar are little changed. Brown-Forman, Navistar are among companies reporting earnings. MBA mortgage applications data due.

Bulletin Headline Summary From RanSquawk

  • Banco Popular purchased for EUR 1 by Santander while German Utilities surge on nuclear fuel tax ruling.
  • AUD up on better than exp. GDP with major FX pairs trading in choppy fashion.
  • Looking ahead, highlights include DoE Crude Inventories.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,431.50
  • STOXX Europe 600 up 0.2% to 389.98
  • MXAP up 0.04% to 155.39
  • MXAPJ down 0.06% to 502.46
  • Nikkei up 0.02% to 19,984.62
  • Topix up 0.04% to 1,597.09
  • Hang Seng Index down 0.09% to 25,974.16
  • Shanghai Composite up 1.2% to 3,140.33
  • Sensex up 0.07% to 31,213.07
  • Australia S&P/ASX 200 down 0.01% to 5,667.17
  • Kospi down 0.4% to 2,360.14
  • German 10Y yield rose 0.6 bps to 0.258%
  • Euro down 0.2% to 1.1255 per US$
  • Brent Futures down 0.8% to $49.71/bbl
  • Italian 10Y yield fell 1.7 bps to 1.962%
  • Spanish 10Y yield rose 0.4 bps to 1.543%
  • Gold spot down 0.06% to $1,293.61
  • U.S. Dollar Index up 0.03% to 96.66

Top Overnight News from Bloomberg

  • Santander to Take Over Popular as ECB Says Bank Was Failing
  • Sessions Said to Suggest Resigning as Tensions Grow With Trump
  • Trump’s Closest Allies Warn President It’s Time to Stop Tweeting
  • Gunmen Launch Twin Attacks in Tehran, State Media Report
  • Dollar Tree Asks Court to Name Receiver in Dollar Express Feud
  • Exact Sciences Shares Said to Be Offered at $34.75- $35.75
  • PLAY FY Rev. View Midpoint Trails Est.; Shares Fall 2.8%
  • United Natural FY Revenue View Trails Est.; Shares Fall 2.2%
  • Glacier Bancorp to Buy Columbine Capital for About $74m
  • Comey Hearing Pits Ex-FBI Chief Against Trump Over Russia Probes

Asia markets traded choppy with initial downside observed following a subdued close in US, where participants were cautious ahead of the looming key risk events including the ECB meeting, UK election and former-FBI Director Comey’s testimony all scheduled for this Thursday. This pressured Nikkei 225 (Unch.) and ASX 200 (+0.1%) in early trade with Japanese exporters reeling from a firmer JPY, while the ASX 200 fell to a 4-month low before better than expected GDP data provided support. Shanghai Comp. (+0.7%) and Hang Seng (+0.2%) gained with the mainland bourse outperforming after the PBoC upped its liquidity efforts with a total CNY 180bIn injection via 7-day, 14 day and 28-day reverse repos. 10yr JGBs were choppy with initial upside seen amid the risk averse sentiment in Japan, although prices failed to maintain gains on return from the Tokyo break amid weakness in USTs, an improvement in risk tone and after a somewhat lacklustre Rinban operation. PBoC drained a net CNY 60bIn open market operations.

Top Asian News

  • Suicide Bomber Blows Himself Up at Imam Khomeini Shrine: Tasnim
  • India’s Top Steel Mill Still in the Hunt for European Assets
  • Watch the Bond Deadlines of These Four Singapore Companies
  • Investors Remain Cautious Ahead of ECB, U.K. Vote: Markets Wrap
  • Japan Stocks to Watch: Fujitsu General, JDI, PeptiDream, Sony
  • China’s FX Reserves Rise for Fourth Month as Yuan Stabilizes
  • Hong Kong Steals Tokyo’s Crown as Priciest Asian City for Expats
  • Dali Foods Falls With Man Wah as Shorts Target Hong Kong Stocks
  • TCI Express Sees Revenue Doubling by 2021 on Demand, India’s GST
  • GeoInvesting’s David Is Short on Hong Kong-Listed Dali Foods
  • India Tech Cos Drop After Report of Clients Seeking Price Cut
  • Pacific Insurance Rises as Investors Seen Chasing Sector Laggard

European bourses trade with lacklustre behaviour ahead of Super Thursday, as the majority of EU bourses trade mixed. Equity specific news has highlighted the European morning with Santander’s purchase of Banco Popular the noticeable pre-market stock story. Further equity news came out of Germany, as the German Constitutional Court stated that the nuclear fuel rod tax is illegal, meaning that RWE (+4%), E.ON (+3%) and EnBW (+2%) would be able to claim back around EUR 6bIn in taxes, subsequently the companies saw upside following the news. Benchmark 10yr yields trade modestly higher as the German bund rejected the new high printed on the September contract, coming back from 165.03, as German paper traders also have the 10.30 (BST) BOBL auction to lookout for. The European long end will take some focus today; with Italian BTP and ESM 30y issuance today, with pricing expected this afternoon.

Top European News

  • OECD Sets Out an Economic To-Do List for Next U.K. Government
  • Anglo American’s New Chairman Has a History of Leading Takeovers
  • OECD Warns Protectionist Rhetoric Undermining Investment Rebound
  • Workspace Rises on FY Results; Liberum Says Strength to Expand
  • Patel Leaves Schroders for BCS as Derivatives Trader
  • KGHM Eyes Growth in Chile, Poland as Record M&A Leaves Scars
  • Santander Acquiring Popular Is Good Outcome, De Guindos Says
  • Corbyn Replaces Abbott With Lyn Brown During Ill Health: BBC
  • EasyJet to Close Hamburg Base Next Year, Halve Capacity

In currencies, there is not a huge amount of activity in the FX markets other than pushing the USD lower, notably against the JPY as the spot rate eyes a move on 109.00. Dealers report stops through this level, and a breach may well trigger a move towards the 2017 lows ahead of 108.00 by the week. EUR/USD is still pressing on the resistance ahead of 1.1300 accordingly, but repeated attempts have come to little as yet. Even so, the market is loath to lose the bid ahead of the ECB press conference, where traders will be scrutinising verbiage alluding to a QE taper signal later this year. This is also supporting EUR/GBP, but price action is fighting the relentless bid in Cable, as consensus expectations of a Tory win on Thursday evening see the market looking to ride the wave of an anticipated GBP rally, no matter how long it lasts. Risks are skewed to the downside however, with the Brexit factor soon to return once the election dust has settled.

In commodities, there is also little of note to drive the commodity markets today apart from the DoE report later today. That said, the higher than expected draw down in the APIs did little other than stabilise WTI and Brent inside familiar territory, but cause for some modest optimism if the energy department back up Tuesday nights release. Elsewhere, the bid tone in Gold holds firm as one would have expected, with the UK election ahead but more so the risks surrounding the Comey testimony to the SIC, despite some reports late yesterday that suggest he will stop short of implicating president Trump of obstruction of justice. USD1300.00 still clearly in sight, but little catch up in Silver, which is camped in the mid USD17.00’s. Very little price action of note in base metals, with Lead the modest outperformer, but all largely flat on the day.

Looking at the day ahead, it’s another quiet session for data in the US this afternoon with the April consumer credit reading this evening being the sole release. Central bank wise the RBI will announce its latest policy decision

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -3.4%
  • 3pm: Consumer Credit, est. $15.0b, prior $16.4b

DB’s Jim Reid concludes the overnight wrap

One wonders whether markets are experiencing the calm before the storm as we await “Super Thursday”. The main global equity bourses have moved less than a percent in the 4 days of June so far. Having said that, bonds continue to rally with 10 year Treasuries and Bund yields 5.8bps and 5.2bps lower this month at 2.146% and 0.252% respectively. Treasuries being at the lowest since November 9th last year (around Mr Trump’s victory) and 5yr5yr breakevens also back to November levels and rallying 27bps over the last month and a bit. The bond rally is great for carry but markets don’t feel particularly great at the moment. Activity is fairly lethargic and most people’s view of higher yields (including ours) is failing to materialise. The fact that gold is at 7 month highs shows that in spite of inflation numbers being pretty tame of late, there is perhaps a nervousness of the relatively high plateau that risk is on.

Truthfully markets didn’t have a huge amount to feed off yesterday and that appeared to be enough of an excuse to take some of the chips off the table ahead of the main events tomorrow. While global  inflation expectations continue to trend lower helping push bond yields lower it was also interesting to see that the weighted average Bund maturity of QE purchases in May by the ECB dropped to a record low 3.99 years from 4.7 years over the past two months. It was around 12 years before Xmas before a rule change allowing them to buy below the depo rate. 2y Bund yields were 2.7bps lower yesterday and back to -0.732% (about 8bps lower over the last 2 week). This followed the latest PSPP and CSPP holdings data – the latter of which we detail later on. Interestingly the data also showed that Bund purchases came in below what the implied capital keys suggest, while France and Italy appeared to be the largest beneficiaries. 10y OAT yields were 5.5bps lower yesterday alone (versus 3.5bps for Bunds).

At the other end of the risk spectrum the S&P 500 (-0.28%) limped to another small loss by the close of play. It did actually pare a decline with about an hour left in the session after ABC reported that James Comey will stop short of saying that President Trump sought to obstruct a federal probe. Late last night Trump also tweeted that he had held “great” meetings with the House and Senate leaders supposedly around topics of tax reform and healthcare. It’s not the first time we’ve heard that though. Elsewhere there were slightly heavier declines for markets in Europe though with the Stoxx 600 (-0.67%) suffering its heaviest decline since mid-May. Meanwhile in commodities Oil (+1.67%) rebounded slightly however most base metals struggled once again.

In Asia this morning the mood in markets has been mixed. While the Nikkei (-0.32%), Kospi (-0.15%) and ASX (-0.14%) have followed Wall Street in trading lower, both the Hang Seng (+0.15%) and Shanghai Comp (+0.75%) appear to be trading to their own beat. There’s some suggestion that an injection of cash by the PBoC today via reverse repos is helping sentiment. US equity index futures are also a smidgen higher while the rally for safe havens like Gold, the Yen and Treasuries has briefly paused overnight. Further reports of China being prepared to increase its holdings of Treasuries hasn’t had much of an impact. Moving on. Yesterday’s dataflow was largely a non-event for markets. In the US the BLS JOLTS survey revealed a decent climb in job vacancies in April to just over 6.0m (vs. 5.75m expected). It was actually the  first time vacancies have ever passed 6.0m. The survey also revealed that the quits rate edged down one-tenth to 2.1% while the hiring rate also eased one tenth to 3.5%. In Europe the Sentix investor confidence reading rose 1pt to 28.4 in June and is now at the highest since 2007. Retail sales were however reported as rising a little less than expected for the Euro area in April (+0.1% mom vs. +0.2% expected).

Meanwhile over at the ECB, we also got the latest CSPP holdings data. It showed that the ECB held €90.7bn of corporate bonds as of June 2nd which implies net purchases settled that week of €1.52bn or an average daily run rate of €379m, which is marginally above the €367m average since the programme started. This morning Michal Jezek in my team has published a short update called “CSPP Trimmed Less than PSPP, with a Record Share of Primary Purchases”. It focuses on primary purchases in light of strong issuance in May and on the relative dynamics of CSPP and PSPP since the overall QE was trimmed in April.  It should have been in your inbox shortly before this hit, otherwise please contact for a copy.

Away from this there was another opinion poll to highlight in the UK which continues the theme of some of the inconsistency we have seen from the various pollsters depending on the methodology used, but still one with a theme of a recent narrowing between the Tories and Labour. The Opinium poll showed the Conservatives as holding a 7% lead over Labour at 43% to 36% which is actually a lead of 1% more for the Tories versus the last poll, but still down from as high as 16% last month. Sterling was little changed yesterday and in reality has been overall fairly stable for much of the last month.

Looking at the day ahead, this morning in Europe we’ll get April factory orders data out of Germanyand the latest Halifax house prices data in the UK. We’ll also receive the OECD economic outlook. It’s another quiet session for data in the US this afternoon with the April consumer credit reading this evening being the sole release. Central bank wise the RBI will announce its latest policy decision