Silver as an investment

Global Stocks Jump As Mega Merger Monday Closes April With A Bang

The ongoing surge in the dollar and the 10-Year Treasury’s daily battle with the 3.00% rate (which has proven to be a solid resistance level) have been pushed back to the backburner, as Merger Monday comes back with a bang following a trio of blockbuster deals announced over the weekend including:

While superficially, the renewed flood of deals suggests there is a storm brewing for corporate margins and that most/all of these deals will be drastically transformed by the time regulators are done with them (and some may be outright blocked), the deal euphoria has boosted US futures and stocks in both Europe and Asia higher ahead of what is shaping up to be a very busy week, one where the Fed may even surprise with an unexpected rate hike (odds of a May hike right now are a non-trivial 34.5%).

In the US, futures for the S&P 500, Dow Jones and Nasdaq all pointed to a higher open.

“A whole host of anxieties and disquieting news has appeared since the start of the year and has ranged from trade wars to a nuclear threat from N. Korea,” Jefferies equity strategists write in note. “In reality, it is the starting point of financial conditions which matter most for equity markets and these are principally determined by the dollar, long rates and credit markets. Two out of three are changing.”

Burst of M&A aside, it has been a quiet session, with China and Japan out on holiday until Wednesday, and mainland Europe on holiday tomorrow.

Despite the subdued volumes, in Europe the month is coming to an end on a positive note, with Euro Stoxx 50 up 0.2%. Things have improved for European equities with the Stoxx 600 outperforming the S&P 500 in April and now back above its 200-DMA, thanks in part to the euro, now trading back under $1.2100.

In the UK, shares in the FTSE 100 Index climbed to the highest in almost three months, with retailer J Sainsbury Plc jumping the most on record as it plans to buy Walmart Inc.’s U.K. arm, Asda. Rivals Tesco Plc and Marks & Spencer Group Plc slipped. Helping UK stocks was the latest drop in the pound which tumbled for a fourth day after Amber Rudd quit as U.K. home secretary, and Housing Secretary Sajid Javid was named her replacement.

in Asia, China’s H-shares and the Hang Seng index set the pace for stock gains after China’s PMI beat estimates for both manufacturing and services.

  • Chinese Manufacturing PMI (Apr) 51.4 vs. Exp. 51.3 (Prev. 51.5). (Newswires)
  • Chinese Non-Manufacturing PMI (Apr) 54.8 vs. Exp. 54.5 (Prev. 54.6)
  • Chinese Composite PMI (Apr) 54.1 (Prev. 54.0)

And while China and Japan markets were shut for local holidays, the MSCI Asia Pacific rose 0.6%; with Korean assets still enjoying a boost from last Friday’s historic North-South summit with Kospi index up 0.7% and USD/KRW down 0.9%.

In macro, After unexpectedly sliding on Friday despite the strong Q1 US GDP beat, this morning, the dollar jumped after London open, supported by higher U.S. yields amid lower-than-average flows as Japan and China were shut for holidays. With the BBDXY trading at session highs, the DXY is again back within range of 200-DMA. As noted above, the pound dropped a fourth day on renewed turbulence in the U.K. government, while the euro came under pressure following unexpectedly weak regional inflation readings out of Germany.  The won rallied on optimism over peace at the Korean peninsula and European equities followed Asia peers higher.  Commodity currencies weaker as crude and gold weaken through European open, with the Aussie worst performer among G-10 down 0.2%.

After last week’s fireworks, Treasury futures were little changed, and along with bunds traded in a very tight range, as curves slightly steepened; Italian BTPs underperform as latest indications on government negotiations point towards new elections. Australia 10-year yield falls to 2.78%.

In commodities, WTI crude slipped approaching month end, amidst multiple bearish factors: firstly, month end rebalancing, in thinner trading conditions due to Chinese and Japanese market holidays, a rise in US rig counts pointing to increased production and a firmer USD placing downward pressure ahead of key US data points such as the core PCE price index ahead of the upcoming Fed meeting. The data in particular focus as some analysts are suggesting that should the YY rate post 2.0% (vs. prev. 1.9%) we will be at the Fed’s stated inflation target, signalling a higher possibility for hawkish tones. In addition, technical impulses weighing, with USD 67.80 and USD 67.56 support levels tripped in WTI. Note June Brent futures expire later today. In the metals complex, gold sliding as the risk sentiment continues to improve following reduced Korean tensions, and thereby reducing safe haven demand flows. However, Copper bid following a strong Chinese PMI’s.

Bulletin headline summary from RanSquawk

  • M&A action in focus as Sainsbury’s surges up 20% on Asda merger news
  • Markets largely tepid in anticipation of US core PCE price index
  • Looking ahead, highlights include, German national CPI, US PCE Price Index and Personal Consumption

Top Headlines from Bloomberg

  • In M&A news, T-Mobile US Inc. agreed to acquire Sprint Corp. for $26.5 billion in stock, while Marathon Petroleum Corp. confirmed that it plans to buy rival oil refiner Andeavor in a deal that could create the largest fuel maker in the U.S.; U.K.’s J Sainsbury Plc said it plans to buy Walmart Inc.’s Asda unit in a 7.3 billion-pound ($10 billion) deal
  • U.K. PM Theresa May has lost a pro-Europe ally with the resignation of Home Secretary Amber Rudd, the fourth Cabinet member to quit in six months over a scandal, just as internal battles over Brexit come to a head; May named self-described euroskeptic Housing Secretary Sajid Javid to replace Rudd
  • Kim Jong Un is turning on the charm ahead of his summit with Donald Trump, adding pressure on the U.S. President to ease sanctions against North Korea even before it’s made any significant concessions
  • The 34-year-old dictator plans to invite foreign journalists to witness the shutdown of North Korea’s main nuclear weapons test site in May, South Korean President Moon Jae-in’s spokesman told reporters on Sunday
  • Crisis engulfing Australian wealth manager AMP deepened, with Catherine Brenner resigning as chairman after the company admitted misleading the regulator
  • China April manufacturing PMI at 51.4; est. 51.3
  • S. Korea March industrial output falls 4.3% y/y; est. -1.6%
  • Trump administration plans to extend relief from steel and aluminum tariffs to some countries, but not all, when their temporary exemptions expire on Tuesday, Commerce Secretary Wilbur Ross said

Market Snapshot

  • S&P 500 futures up 0.2% to 2,677.75
  • STOXX Europe 600 up 0.04% to 384.79
  • MXAP up 0.6% to 174.25
  • MXAPJ up 1% to 569.06
  • Nikkei up 0.7% to 22,467.87
  • Topix up 0.3% to 1,777.23
  • Hang Seng Index up 1.7% to 30,808.45
  • Shanghai Composite up 0.2% to 3,082.23
  • Sensex up 0.6% to 35,165.48
  • Australia S&P/ASX 200 up 0.5% to 5,982.73
  • Kospi up 0.9% to 2,515.38
  • German 10Y yield rose 0.6 bps to 0.577%
  • Euro down 0.2% to $1.2111
  • Brent Futures down 1.1% to $73.80/bbl
  • Italian 10Y yield fell 0.6 bps to 1.487%
  • Spanish 10Y yield unchanged at 1.263%
  • Brent Futures down 1.1% to $73.80/bbl
  • Gold spot down 0.5% to $1,317.57
  • U.S. Dollar Index up 0.1% to 91.67

Asian equity markets were positive but with gains mostly modest amid a holiday-quietened start for the region and ahead of the key risk events this week including the FOMC meeting and US NFP jobs data. ASX 200 (+0.5%) and KOSPI (+0.7%) were higher although weakness across Australia’s commodity sectors restricted upside, while South Korea continued to benefit from improving ties following Friday’s summit and after North Korea vowed to close its nuclear test site. Hang Seng (+1.7%) was the outperformer of the region with the index propped up by China’s largest banks following improved earnings reports and with sentiment also underpinned by better than expected Chinese Manufacturing and Non-Manufacturing PMI data. As a reminder, both Japan and mainland China were closed for holidays with Japan to only open Tuesday and Wednesday amid Golden Week, while China is shut today and tomorrow due to Labour Day. China is said to be planning trade offers for the US delegation including US Treasury Secretary Mnuchin when they visit this week. Reports stated that Beijing is likely to offer to import more goods from US to reduce and offer to negotiate a free trade agreement as well as other measures.

Top Asian News

  • Banks and Hedge Funds Drawn Into Noble Group’s Legal Fights
  • Noble Group’s Financial Position Is ‘Critical,’ Chairman Says
  • Indonesia, India May Hasten Rate Hikes to Stabilize FX, DBS Says
  • Philippine Treasury Working on a Bond Deal Amid Failed Auctions

European bourses opened mixed, but since then traded in positive territory (Eurostoxx 50 +0.2%) with modest gains as the region follows suit from Asia overnight. Looking at the sectors, Telecoms are outperforming following the merger of Deutsche Telekom’s (+1.3%) T-Mobile and Softbank’s Sprint; Vodafone (+1.6%) and Orange (+0.4%) higher in sympathy. Energy is the worst performing sector with names subdued amid declining oil prices, BP (-0.8%), Shell (-0.7%) and Total (-0.8%) shares are lower as a result. In terms of stock specifics; Sainsbury’s (+15.0%) shares soared on a merger with Walmart’s ASDA touted at around GBP 12bln. Shares in competitors are lower on this news, with Tesco (-1.2%) at the foot of the FTSE 100.

Top European News

  • Elliott, Telecom Italia Board Nominees Fully Support CEO Genish
  • U.K. Gender Pay Gap Wider Than in Most of Europe, Study Says
  • Pound Extends Drop as May Troubles Persist Amid Dollar Demand
  • Dixons Carphone Drops on Sainsbury Plan to Put Argos Into Asda

In FX, the Dollar is firmer vs all G10 peers approaching the end of April and a positive 1st month of Q2, with the index forming a solid base above 91.500. Rebalancing models are somewhat mixed, but indicating moderate Usd demand overall, while some are also positioning for a potential positive inflation assessment from this week’s FOMC and already looking ahead to Friday’s NFP. AUD/NZD: The weakest G10 links and still looking prone to further downside if 0.7550 and 0.7050 fail to hold amidst declines in commodity prices and holiday-thinned trade with China and Japan closed. Little support gleaned from better than expected Chinese PMIs, as the cross pivots 1.0700 ahead of the RBA meeting overnight that is not seen deviating from the neutral stance. GBP: Sterling remains under pressure and on course to end a 13 year sequence of gains vs the Usd in the month of April after a dramatic change in fortunes in the last 2 weeks. A run of disappointing data has seen May BoE hike prospects plunge from 90%+ to around 20% or just under, and PMIs in the next 3 days could wipe out tightening expectations altogether if weak. Adding further to the Pound’s woes, another top Government resignation, ongoing doubts about a Brexit deal and a marked reduction in CFTC long positions alongside RHS interest in Eur/Gbp for month end (cross above 0.8800 as a result).

In commodities, oil is falling approaching month end, amidst multiple bearish factors. Firstly, month end rebalancing, in thinner trading conditions due to Chinese and Japanese market holidays, a rise in US rig counts pointing to increased production and a firmer USD placing downward pressure ahead of key US data points such as the core PCE price index ahead of the upcoming Fed meeting. The data in particular focus as some analysts are suggesting that should the YY rate post 2.0% (vs. prev. 1.9%) we will be at the Fed’s stated inflation target, signalling a higher possibility for hawkish tones. In addition, technical impulses weighing, with USD 67.80 and USD 67.56 support levels tripped in WTI. Note June Brent futures expire later today. In the metals complex, gold sliding as the risk sentiment continues to improve following reduced Korean tensions,  and thereby reducing safe haven demand flows. However, Copper bid following a strong Chinese PMI’s.

On today’s calendar, inflation data should be the overwhelming focus for markets today with preliminary April CPI reports due in Germany and Italy, and the March PCE core and deflator readings along with personal income and spending due in the US. Other data worth highlighting is the official April PMIs in China along with the April Chicago  PMI, March pending home sales and April Dallas Fed PMI in the US. Earnings highlights on include McDonalds and Allergan

US Event Calendar

  • 8:30am: Personal Income, est. 0.4%, prior 0.4%; Personal Spending, est. 0.4%, prior 0.2%
  • 8:30am: PCE Deflator MoM, est. 0.0%, prior 0.2%; PCE Deflator YoY, est. 2.0%, prior 1.8%
  • 8:30am: PCE Core MoM, est. 0.2%, prior 0.2%; PCE Core YoY, est. 1.9%, prior 1.6%
  • 9:45am: Chicago Purchasing Manager, est. 58, prior 57.4
  • 10am: Pending Home Sales MoM, est. 0.5%, prior 3.1%; Pending Home Sales NSA YoY, prior -4.4%
  • 10:30am: Dallas Fed Manf. Activity, est. 25, prior 21.4

DB’s Jim Reid concludes the overnight wrap

Apple’s results on Tuesday may have some implications for the wider market and could go either way with investors worried about sales but with a possible mega payout as compensation. Definitely one to watch. In fact it’s a busy week of US data/events with plenty to keep US yields in the spotlight after a notable sell-off in the first half of the week followed by a notable rally over the last couple of days (US 10yr -2.4bp Friday to 2.958%, -7.5bps from intra week highs on Wednesday).

The highlights are a Fed meeting (Wednesday end), US Treasury quarterly refunding plan announcement (Wednesday), PCE inflation data (today) and the April employment report (Friday). Inflation data in Europe (Thursday) is also due out along with a first look at Q1 GDP (Wednesday), while the final PMI revisions are also due. Earnings will also continue with 147 S&P 500 companies reporting and 55 Stoxx 600 companies. In the US, 268 companies in the S&P 500 have reported their 1Q results so far (54% of market cap). DB’s Binky Chadha and team noted that 78% of the companies have beat on EPS, which is the highest ratio since 2010, while the aggregate earnings beat (8.9%) is also more than double the historical average. Further, growth appears to be broad based  with all sectors on track to post double digit EPS growth, led by Energy (91%), Technology (34%) and the Financials (28%). In aggregate, corporate earnings are on track to be up at least 24% yoy in the quarter.

Back to this week, in terms of the Fed on Wednesday, the consensus is for no change in policy which is a view also shared by the market with futures pricing implying odds of just 5% for a hike. There is no press conference so it’s the statement that will be of note. DB think there might be a tweak to the inflation language acknowledging the move towards 2% on YoY inflation rather than “have continued to run below 2 percent”. Outside of this the most important data come at the far end of the week. Today we’ll see the March PCE data with the consensus at a +0.2% mom core reading. Base effects (the well flagged wireless price rolloff) should help push the YoY core PCE reading to +1.9% (DB 1.9%) from +1.6%. For payrolls on Friday, the consensus expect a 195k nonfarm reading following the weather influenced 103k print in March. Average hourly earnings are also expected to have risen +0.2% mom and will be the centre point of the report (see details of strong ECI numbers from Friday below) while the unemployment rate is forecast to fall a tenth to 4.0% (it’s been remarkably steady at 4.1% for 6 months – DB think it breaks through 4% soon and continues lower this year and next). The other notable data worth noting in the US this week is the April ISM manufacturing print tomorrow which is expected to fall nearly a point to 58.5. Back to bonds and Wednesday’s US Treasury quarterly refunding plan will be closely watched with the expectation for another across the board boost to auction sizes in light of the tax cut announcement and increased spending.

In Europe GDP and CPI data will be the main focus. With regards to the former, on Wednesday we’ll get a first look at Q1 GDP for the Euro area with the consensus and DB currently expecting +0.4% qoq growth (averaged 0.7% qoq in 2017). For CPI, we’ll see the April report for the Euro area on Thursday with the consensus expecting a +0.9% yoy print for the core, having held at +1.0% yoy for the last 3 months. Also worth highlighting in Europe this week are the final revisions to the April PMIs including a first look at the data for the non-core and UK. Away from the data in Europe expect Brexit headlines to come back to the fore with EU and UK negotiators undergoing another round of talks from Wednesday. Staying in Europe, today’s latest CSPP will be a focus given the surprise sharp drop off in corporate purchases in April so far and Draghi’s refusal to acknowledge such a buying slowdown had begun in last week’s press conference. Something has to give here! For more on the week ahead, the full day-by-day guide is at the end today.

This morning in Asia, markets are trading higher with the Hang Seng (+1.50%), Kospi (+0.72%) and ASX200 (+0.54%) all up, while markets in China and Japan are closed for holidays. The Korean Won jumped c1% vs. the Greenback as tensions in the peninsula eased further this morning, in part as North Korea announced the symbolic step of shifting its time zone 30 minutes earlier to align with South Korea “as a first practical step for national reconciliation”. Datawise, China’s April manufacturing and non-manufacturing PMI were both slightly above consensus, at 51.4 (vs. 51.3 expected) and 54.8 (vs. 54.5 expected) respectively.

Now quickly recapping other markets performance from Friday. US bourses were little changed (S&P +0.11%, Nasdaq +0.02%; Dow -0.05%) as stronger results from tech companies were partly offset by weakness in energy stocks, such as Exxon Mobil, which dropped -3.8% post its result. In Europe, the Stoxx 600 edged up +0.23% and rose for the second consecutive day. Elsewhere, the US dollar index dipped -0.02% while Sterling dropped -0.99% following a softer than expected 1Q GDP print. Notably, the Bloomberg implied odds of a potential May rate hike in the UK fell 33ppt to c23% on Friday.

Moving onto some of the weekend headlines. On trade, the Commerce Secretary Ross noted that the US plans to extend the temporary exemption on steel tariffs to some countries post 1 May, but not all. On the other side, leaders from the UK, Germany and France have spoken via a joint conference call and a German spokesman noted afterwards that “they agreed that the US should take no measures against the EU or else the EU should be ready to defend its interests…” Back home in the UK, PM May’s ally Ms Amber Rudd has quit as the Home Secretary on Sunday, which could add to the recent Brexit uncertainties.

Over in Asia late on Friday afternoon, China’s PBoC issued the final version of the Guidelines on Asset Management Businesses, which aims to tackle risks arising from the shadow banking sector. Our Chinese economists believes the new regulations remove a good part of policy uncertainty in 2018, where a notable change is that the “transition period” of the new rules toward full compliance has been extended to end-2020 versus mid-2019 in the draft version. Overall, our team believes the downside risk of disorderly deleveraging has been mitigated, or at least delayed, by the new Guidelines and their GDP growth forecast remains unchanged (2018 of 6.6% – Link).

Before we take a look at today’s calendar, we wrap up with other data releases from Friday. In the US, the 1QGDP was firmer than expected (2.3% vs. 2.0% expected), in part as inventories made a 0.4ppt contribution to growth during the quarter. The employment cost index also beat at 0.8% qoq (vs. 0.7% expected) and lifted annual growth to 2.7% yoy. Notably, this is the fastest pace since 4Q 2008 and continues a steady uptrend over the past two years. Wage and salaries rose 0.9% qoq in 1Q and up 2.9% yoy. Elsewhere, the 1Q core PCE and personal consumption were both in line at 2.5% qoq and 1.1% respectively, with the former representing the biggest increase since 2011. Finally, the final reading of the University of Michigan consumer sentiment index was revised slightly upwards to 98.8 (vs. 98 expected).

In the UK, the 1Q GDP was below market at 0.1% qoq and 1.2% yoy (vs. 1.4% expected) and marked the lowest reading since the end of 2012 in the first quarter. Harsher weather and thereby a 3.3% qoq decline in construction activity were some of the key drags. Meanwhile the Nationwide house price index rose 2.6% yoy in March. Over in Germany, its April unemployment rate was in line at 5.3%. In France, 1Q GDP came in at 2.1% yoy (vs. 2.3% expected) as growth in household spending remained soft at 0.2% qoq and net exports made no contribution to growth this quarter. Elsewhere, France and Spain’s April CPI were both slightly below consensus, at 1.8% yoy (vs. 1.7% expected) and 1.1% yoy (vs. 1.2% expected) respectively. Finally, the Euro area’s April economic confidence (112.7 vs. 112 expected) were above market while the final reading of the April consumer confidence was confirmed at 0.4.

On today’s calendar, inflation data should be the overwhelming focus for markets today with preliminary April CPI reports due in Germany and Italy, and the March PCE core and deflator readings along with personal income and spending due in the US. Other data worth highlighting is the official April PMIs in China along with the April Chicago  PMI, March pending home sales and April Dallas Fed PMI in the US. Earnings highlights on include McDonalds and Allergan