S&P futures are little changed this morning, while Asian shares rise and European stocks (+0.5%) are poised to snap a five-day losing streak amid a broad-based rally. The pound declined as better-than-expected manufacturing data failed to offset political risk before the impending election, while crude oil gained.

Across Europe, all 19 industry groups on the Stoxx Europe 600 Index advanced (the index itself was up 0.5% in early trading), helped by media companies amid strength in the auto sector after Barclays said fears for the used car market have been overdone. Bank shares underperformed rising European stocks, after JPM and BofA warned on Wednesday that low market volatility would crimp trading revenue. Energy shares also rose as oil bounced in the wake of data pointing to a bigger-than-expected drop in U.S. stockpiles. The euro fell after two days of gains while the dollar edged higher. European manufacturing activity grew at its fastest rate in more than six years in May, according to the final eurozone PMI index.

The final Markit Eurozone Manufacturing PMI rose to a 73-month high of 57.0 in May, up from 56.7 in April and unchanged from the earlier flash estimate. The PMI has signalled expansion in each of the past 47 months.

  • Germany 59.5 (flash: 59.4) 73-month high
  • Austria 58.0 2-month low
  • Netherlands 57.6 4-month low
  • Ireland 55.9 22-month high
  • Spain 55.4 4-month high
  • Italy 55.1 3-month low
  • France 53.8 (flash: 54.0) 2-month low
  • Greece 49.6 9-month high

Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said: “The eurozone upturn is developing deeper roots as factories enjoy a spring growth spurt. Demand for goods is growing at the steepest rate for six years, encouraging manufacturers to step up production and take on extra staff at a rate not previously seen in the two-decade history of the PMI survey.

Asian shares, as measured by MSCI’s main index of Asia-Pacific shares, excluding Japan rose 0.1% to 498.39, though gains were limited by data showing Chinese factory activity contracted in May for the first time in 11 months. The MSCI Asia Pacific Index rose 0.3 percent, after capping its fifth straight monthly gain for the longest winning streak since 2013. Japan’s Topix rallied 1.1 percent as capital spending topped estimates. The Shanghai Composite fell 0.5% after the a private survey of the manufacturing sector. The findings contrasted with official data on Wednesday which suggested growth remained steady. The poor Chinese data hit the Australian dollar, often seen as a proxy for the health of the world’s second-biggest economy.

As reported earlier, following ongoing fireworks, China’s onshore yuan shrugged off poor PMI data and headed for the biggest four-day advance in almost 12 years, rising to a seven month high amid speculation policy makers are trying to discourage bets against the currency. The Yuan strengthened beyond 6.8 per dollar for the first time since Nov. 11 after the central bank pushed its reference rate, around which the spot rate can fluctuate, 0.8 percent higher in the second-largest single-day appreciation of the currency since it was de-pegged from the dollar in 2005.

“The PBOC has let the yuan bulls loose in the China shop,” said Stephen Innes, senior trader at OANDA in Australia, referring to the People’s Bank of China.

Britain’s pound, on a rollercoaster ride this week as polls have sent conflicting signals about the outcome of next week’s election, fell 0.1 percent to $ 1.2874 after another poll showed the Prime Minister Theresa May’s Conservatives just 3 percentage points ahead of the Labour opposition. There was little reaction to Britain’s manufacturing PMI beating forecasts. “This data point is clearly a positive for the UK economy however GBP traders are putting macro releases on the back burner at present, with the twists and turns in the race for upcoming election having a greater impact on the market of late,” David Cheetham, markets analyst at broker XTB, said.

In commodities, Brent rose off Wednesday’s three-week lows in anticipation of the United States quitting the Paris accord. President Donald Trump is expected to announce his decision later on Thursday. West Texas Intermediate crude oil advanced 1.3 percent to $ 48.96 a barrel, rebounding from a 2.7 percent drop in the previous session.

“If he actually withdraws the U.S from the climate accord, this would signal his intention to further roll-back emission regulations that would favor the use and demand of fossil fuels, thus giving a much needed boost to oil prices,” Jonathan Chan, investment analyst at Phillip Futures in Singapore, told Reuters.

Gold dropped 0.2 percent to $ 1,266.99 an ounce, giving back some of Wednesday’s 0.5 percent gain.

There was little acticity in rates, where the yield on 10-year Treasuries rose one basis point to 2.21 percent, after falling a similar amount on Wednesday.

Today markets will look ahead to jobless claims and ISM data, while Lululemon, Dollar General and Tech Data are among companies expected to release earnings. U.S.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,413.25
  • STOXX Europe 600 up 0.5% to 391.83
  • MXAP up 0.3% to 153.14
  • MXAPJ up 0.1% to 498.39
  • Nikkei up 1.1% to 19,860.03
  • Topix up 1.1% to 1,586.14
  • Hang Seng Index up 0.6% to 25,809.22
  • Shanghai Composite down 0.5% to 3,102.62
  • Sensex up 0.06% to 31,162.95
  • Australia S&P/ASX 200 up 0.2% to 5,738.13
  • Kospi down 0.1% to 2,344.61
  • German 10Y yield unchanged at 0.303%
  • Euro down 0.2% to 1.1225 per US$
  • Italian 10Y yield fell 8.9 bps to 1.908%
  • Spanish 10Y yield rose 1.2 bps to 1.565%
  • Brent Futures up 1.2% to $ 51.37/bbl
  • Gold spot down 0.2% to $ 1,266.43
  • U.S. Dollar Index up 0.2% to 97.11

Top Overnight News

  • Trump’s Biggest Goals at Risk as Kushner Is Sucked Into Probe
  • If Trump Dumps the Climate Accord, the U.S. Is the Loser
  • China, EU Recommit to Climate Pact With Trump Support in Doubt
  • Goldman Sachs Says OPEC Should Be More Like the Federal Reserve
  • Buy Utility, Real Estate ETF Straddles Before FOMC: Goldman
  • Perennial Said to Be Chosen for Final United Engineers Talks
  • Intelsat Bondholders Said to Reject Merger Terms With OneWeb
  • Google Submits New Plan for London King’s Cross Headquarters
  • Europe Carmakers Lobby Raises 2017 Market Growth Forecast to 2%
  • VW Weighs U.S. Factory Plans as Trump Ponders Trade Barriers
  • Autoliv Repurchased 870,972 Shares in May
  • Air Transport Prices 3.8m Shrs From Existing Stockholder
  • Next IPhone Sale Likely to Start in Nov.: Hua Nan Securities

Asian stock markets traded mixed following a subdued lead from Wall St. where financials suffered after revenue warnings by BofA and JPMorgan, while the region also digested a miss on Chinese Caixin Manufacturing PMI. A deluge of data was the main driver in Asia with Nikkei 225 (+1.1%) the outperformer following encouraging Japanese Capex, Company Profits and PMI figures, while a softer JPY also underpinned exporter sentiment. Conversely, ASX 200 (+0.1%) traded choppy and was briefly pressured alongside weakness in the Shanghai Comp. (-0.4%) after the disappointing Chinese PMI data which fell into contraction territory for the 1st time in 11 months. 10yr JGBs were relatively flat with demand lacking amid strength in Japanese stocks, while slightly weaker 10yr auction results added to the lacklustre price action with both b/c and accepted prices lower than prior. Chinese Caixin Manufacturing PMI (May) 49.6 vs. Exp. 50.1

Top Asia News

  • China Crushes Yuan Bears, Snubs Moody’s as Currency Takes Off
  • China Stocks Decline From Four-Week High as Factory Data Misses
  • Citi Assigns 40 Percent Probability of India Rate Cut in June
  • Pakistan’s MSCI Dream Becomes Dull Reality as Stocks Hold Losses
  • Prada Falls as Much as 4.9% After Michael Kors Sales Plummet
  • Bharti Said to Sound Out Banks to Fund $ 8 Billion Indus Deal
  • Kaisa Said to Plan New Bonds to Exchange Debt From Workout

European equity markets trade in modest positive territory, as energy outperforms, following the higher than expected draw in yesterday’s API report (-8670k), with the earlier miss in the Chinese Caixin Manufacturing PMI unfazing European markets. Manufacturing has been the theme of the morning, with Manufacturing PMI figures being seen across the continent with slight beats in the UK and Germany assisting in maintaining the marginal positive territory in European bourses. Politics continue to dictate, with the overnight selling pressure in GBP, following the latest UK election from Times/YouGov and SurveyMonkey showing Labour gaining on the Conservative lead, finding a bounce, with GBP/USD seeing support around the 1.285 level. Risk sentiment has been unaffected by the marginal morning buying seen in USD/JPY, looking towards the 112.00 handle, with the subdued trade evident in fixed income markets, with the French OAT auction being the highlight, currently trading marginally lower on the day alongside the German Bund.

Top European News

  • Spring Boom Fuels Hiring at European Factories as ECB Looks On
  • U.K. Domestic Demand Helps Manufacturing Sustain Growth Momentum
  • Banco Popular Shares Fall to Record Low on Solvency Concerns
  • ECB’s Villeroy Warns Against ‘Dangerous Hesitations’ by U.S.
  • Satellite Companies Fly; Softbank’s OneWeb Deal Said to Collapse
  • Iron Ore Sell-Off Deepens as New Month Opens With Same Old Pain
  • Deutsche Bank Plans Asia Wealth Expansion With 50 New Hires
  • Italy’s Growth Pace Revised Up, Boosting Prospects for 2017

In currenices, we have seen some modest adjustments in some of the major pairings, with some of the crosses playing a key part over the last 24 hours. These have moderated in the last 12 hours or so, but the focus turns back to the USD as the US data schedule starts in earnest today. First up is the ADP private jobs survey, with the manufacturing ISM release later on this afternoon. A very small comeback seen in US Treasury yields after the weakness seen this week, and this has lifted USD/JPY back above 111.00 in what is a very tentative move based on the price action alone. EURUSD maintains better levels but continues to struggle, in what is a clear sign that we have risen a little too fast in the time frame achieved, but we see little prospect of a major pullback here as the ECB meeting next week will be fraught with taper-talk risk. Tight ranges set to play out here as a result.

In commocidites, the big news overnight was the Caixin manufacturing PMI released in Asia, falling short of expectation and below the pivotal 50.0 mark. We would have expected a little more of a reaction were it not for the losses already suffered in the metals market, and with China demand having been a concern for some time, this was effectively priced in. Even so, minor losses seen across the board, but Copper is in the upper half of its USD2.50-2.60 range. Nickel is still underperforming though, and this is largely on the technical backdrop, having fallen back under the key 9000 mark. Oil prices have stabilised after another strong report from APIs showing a near 8.5mln barrel draw down in Crude, but higher US production levels have tempered some of this. Gold is still at better levels as safe haven flow dictates as well as recent USD weakness. Silver is well propped-up above UD17.00.

Looking at the day ahead, we’ve got a fairly packed calendar. Along with the final manufacturing PMI revision we will also receive the ISM manufacturing print for May which is expected to nudge down a modest 0.1pts to 54.7. The other important data concerns the ADP report which comes a day before tomorrow’s payrolls. The  ADP consensus is currently sitting at 180k. Also due out today is April construction spending, initial jobless claims and the May vehicle sales data. Away from the data we’re due to hear from the Fed’s Powell this afternoon at 1pm when he speaks on the ‘Normalization of Monetary Policy’. The ECB’s Villeroy is due to speak this morning. China Premier Li Keqiang is also due to meet the EU’s Tusk and Juncker at the China-EU summit in Brussels.

US Event Calendar:

  • 7:30am: Challenger Job Cuts YoY, prior -42.9%
  • 8:15am: ADP Employment Change, est. 180,000, prior 177,000
  • 8:30am: Initial Jobless Claims, est. 238,000, prior 234,000; Continuing Claims, est. 1.92m, prior 1.92m
  • 9:45am: Markit US Manufacturing PMI, est. 52.5, prior 52.5
  • 9:45am: Bloomberg Consumer Comfort, prior 50.9
  • 10am: ISM Manufacturing, est. 54.7, prior 54.8; Prices Paid, est. 67, prior 68.5; New Orders, prior 57.5; Employment, prior 52
  • 10am: Construction Spending MoM, est. 0.5%, prior -0.2%
  • Wards Total Vehicle Sales, est. 16.9m, prior 16.8m
  • Wards Domestic Vehicle Sales, est. 13.2m, prior 13.1m

DB’s Jim Reid concludes the overnight wrap

While politics continues to bubble a little under the surface, yesterday US banks cast a shadow over markets with Q2 trading outlooks disappointing. Indeed JP Morgan’s CFO said at a conference yesterday that revenues from its trading business are down 15% in Q2 so far relative to this time last year, driven predominantly by the fixed income business. She also added that she doesn’t see any reason why this trend will change in June. Similar comments were made by BofA’s CEO who said revenues are 10-12% lower while Wells Fargo’s CFO said that the Bank has taken its foot off the gas in lending lately. Morgan Stanley’s CEO later said that the estimates from his two rivals “are reflecting reality and I don’t think we’re very different”.

That sent shares prices for US Banks lower with the sector ending the day down -1.68%. That weighed on the broader index however a late bounce back into the close meant the S&P 500 only finished down a tiny -0.05%. It’s worth noting that yesterday DB’s Binky Chadha published his latest asset allocation report in which he argues for a broader-based more sustainable move up for the S&P on an imminent turn up in growth and a positive data surprise phase. You can find more in his report. Note that it’s global PMI/ISM day so we’ll see the latest on activity sentiment as the day progresses.

Closer to home European bourses were also a little weaker at the margin (Stoxx 600 -0.13%) following a late dip into the close although the bigger underperformer was the energy sector after Oil prices dipped lower. WTI Oil tumbled -2.70% and closed back below $ 48.50/bbl seemingly just on scepticism around the recently extended production cut deal. It has bounced back a little this morning (+0.60%) after the weekly API data reported a drop in crude inventories last week. Meanwhile bond markets were a bit of mixed bag yesterday with month-end flows seemingly distorting any obvious trends. Treasuries ended little changed while yields in Europe ranged from a 5bp rally in Portugal (following the strongest quarterly GDP print since 2013) to a 5bp move higher for Gilts (as the market dissected that shock YouGov/Times poll).

Staying with politics, the EU-China summit is scheduled to kick off today however the FT, amongst other news outlets, is reporting that both have agreed to forging an alliance on combating climate change, in stark contrast to the suggestions that President Trump is to withdraw the US from the Paris climate act (the President has tweeted that he will announce his decision at 3pm EDT today). It’s expected that the alliance will be revealed on Friday at the EU leaders’ summit. Meanwhile the Washington Post is reporting that former FBI Director James Comey is preparing to testify to Congress as early as next week  concerning the conversations with President Trump prior to his dismissal.

This morning in Asia it’s been another mixed start for risk assets. Leading the way is the Nikkei (+0.97%) with the rally coinciding somewhat with a weaker Yen after the BoJ’s Harada said that “monetary easing measures have been effective and warnings of the dangers of these measures make little sense”. He did however go on to say that these measures have not achieved an increase in prices, but that a tightening labour market should lead to wage growth. “Hyperinflation” and the collapse of the Yen are unlikely to happen when the BoJ exits easy policy, Harada also said. Nice to know!! The Hang Seng (+0.39%) and ASX (+0.15%) are also a little firmer this morning however the Shanghai Comp (-0.28%) and Kospi (-0.14%) are in the red. China’s Caixin manufacturing PMI for May printed at 49.6 (lowest since June 2016) and down from 50.3, resulting in a bit of divergence from the official data. Sterling has also weakened a bit more in the early going this morning (although remains above where it was prior to that shock poll this time yesterday) after another YouGov/Times poll late last night showed the Conservative lead shrinking to just 3% over Labour at 42% to 39%. That’s down from 7% on May 27th.

Moving on. As suggested by some softer country-level inflation reports leading into it, yesterday’s Euro area headline CPI print missed to the downside after coming in at +1.4% yoy for May (vs. +1.5% expected) and down five-tenths from April largely on base effects. The core also dropped a bit more than expected (+0.9% yoy vs. +1.0% expected) and was down three-tenths from the month prior. That level matches where core inflation was from December through to February. Prior to this in France headline inflation was confirmed as being flat in May versus expectations for a small +0.1% mom rise. In Germany there were no surprises to come from the latest unemployment data with the 5.7% rate for May down one-tenth from April. Meanwhile in the UK mortgage approvals edged lower for a third consecutive month in April (64.6k vs. 66.0k expected).

Across the pond, the highlight of the data yesterday was the May Chicago PMI which rose 1.1pts from April to 59.4 (vs. 57.0 expected) making it the strongest reading since November 2014. Pending home sales were confirmed as falling -1.3% mom in April after expectations were for a small rise. Away from that the main take away from the Fed’s Beige Book was some districts reporting that positive optimism was waning somewhat, while labour markets also continue to tighten and most districts reported shortages across a broadening range of occupations and regions. The Dallas Fed’s Kaplan also spoke yesterday and reiterated his call for two more rate hikes this year, despite highlighting concern about the recent decline in core inflation. He added that he expects an increasingly tight labour market will help create building inflation pressures in the months ahead.

Looking at the day ahead, this morning in Europe we will receive the final revisions to the May manufacturing PMIs which also includes a first look at the data for the UK and periphery. As a reminder, with strong data for Germany and France, readings in the periphery are expected to be a little softer. This afternoon in the US we’ve got a fairly packed calendar. Along with the final manufacturing PMI revision we will also receive the ISM manufacturing print for May which is expected to nudge down a modest 0.1pts to 54.7. The other important data concerns the ADP report which comes a day before tomorrow’s payrolls. The  ADP consensus is currently sitting at 180k. Also due out today is April construction spending, initial jobless claims and the May vehicle sales data. Away from the data we’re due to hear from the Fed’s Powell this afternoon at 1pm when he speaks on the ‘Normalization of Monetary Policy’. The ECB’s Villeroy is due to speak this morning. China Premier Li Keqiang is also due to meet the EU’s Tusk and Juncker at the China-EU summit in Brussels.

Source: http://capitalisthq.com/global-stocks-rise-as-oil-rebounds-yuan-soars/