Thu 20 Jun 2013 06:55:12 CT
- FOMC post-mortem: Stocks and bonds under pressure in Europe as markets re-price Fed QE tapering expectations.
- Chinese HSBC Flash Manufacturing PMI (June) M/M 48.3 vs. Exp. 49.1 (Prev. 49.2), a 9-month low.
- SNB 3-Month Libor Target Rate (Q2) Q/Q unchanged at 0.00-0.25%, as expected; maintains EUR/CHF floor at 1.2000.
The price action was dominated by bond vigilantes this morning, with stocks also in free-fall mode as market participants reacted to the release of less than impressive macroeconomic data in China, but also digested the statement and more importantly comments by the governor Bernanke who suggested that tapering could begin this year. The belly of the treasury curve bore the brunt of the sell-off, while credit spreads blew out overnight in Asia and in Europe this morning as the USD rallied and the index looks set to make a test on the 100DMA level at 82.18. The USD was also supported by worsening liquidity conditions in the Chinese interbank market, where the 7-day repo rate jumped 374bps to record 12%. Heading into the North American open, stocks are seen lower across the board, with basic materials and financials seen as the worst performing sectors, while health care stocks outperformed given the flight to quality sentiment. Going forward, market participants will await the release of the latest weekly jobs data, as well as the Philadelphia Fed survey.
Chinese HSBC Flash Manufacturing PMI (June) M/M 48.3 vs. Exp. 49.1 (Prev. 49.2), a 9-month low. Also of note, China 7-day repo rate jumped 374bps to record 12% and China's weighted average overnight repo rate hit 13.1%, the highest in more than 10 years.
EU & UK Headlines
Eurozone Manufacturing PMI (June A) M/M 48.7 vs. Exp. 48.6 (Prev. 48.3)
Eurozone Services PMI (June A) M/M 48.6 vs. Exp. 47.5 (Prev. 47.2)
Eurozone Composite PMI (June A) M/M 48.9 vs. Exp. 48.1 (Prev. 47.7)
German Manufacturing PMI (Jun) M/M 48.7 vs. Exp. 49.8 (Prev. 49.4)
German Services PMI (Jun) M/M 51.3 vs. Exp. 50.0 (Prev. 49.7)
French Manufacturing PMI (Jun) M/M 48.3 vs. Exp. 47.0 (Prev. 46.4) - 16 month high
French Services PMI (Jun) M/M 46.5 vs. Exp. 44.8 (Prev. 44.3) - 10 month high
German IFW cuts German GDP growth forecast for 2013 to 0.5% vs. 0.6% and raises German GDP growth forecast for 2014 to 1.8% vs. 1.5%.
UK Retail Sales with Auto Fuel (May) M/M 2.1% vs. Exp. 0.8% (Prev. -1.3%, Rev. -1.1%)
UK Retail Sales with Auto Fuel (May) Y/Y 1.9% vs. Exp. 0.2% (Prev. 0.5%, Rev. 0.8%)
UK Retail Sales ex-Auto Fuel (May) M/M 2.1% vs. Exp. 1.0% (Prev. -1.4%, Rev. -1.2%)
UK Retail Sales ex-Auto Fuel (May) Y/Y 2.1% vs. Exp. 0.5% (Prev. 0.2%, Rev. 0.6%)
Denmark's biggest pension fund, ATP, which holds USD 36bln of long-term German bonds, says it may have to sell the debt unless Chancellor Merkel moves to block a tax on financial transactions.
In spite of volatile conditions in the bond market, supply from France and Spain was digested with relative ease, while the latest debt offering by the DMO failed to live up to expectations. See website headlines for a full breakdown.
To recap FOMC from yesterday:
View All Market Commentary
- Bernanke provided clarity on potential tapering by suggesting it could begin this year, and FOMC sees an improvement in labour market conditions
- Fed's Bernanke said if economic forecast comes in as expected, committee sees likely reduction in pace of purchases this year and end asset purchases by the middle of next year
- Fed maintains USD 85bln monthly pace of bond buying
- Repeated prepared to increase or reduce pace of bond purchases to maintain policy accommodation
- Bullard and George dissented vs. only George last month
- 15 of 19 FOMC officials see first rate rise after 2014; previously Fed saw exceptionally low rates through to mid-2015
- Fed projects unemployment rate at 6.5% - 6.8% by end of 2014 (Prev. saw 6.7% - 7.0%)
Barclays Prelim month-end Treasuries extension +0.06yrsEquities
Heading into the North American open, stocks are seen lower across the board, with basic materials and financials seen as the worst performing sectors, while health care stocks outperformed given the flight to quality sentiment. Asian equity markets traded lower overnight, following on from the negative close on Wall Street after Fed chairman Bernanke commented if economic forecast comes in as expected, the FOMC sees a likely reduction in the pace of purchases this year and end asset purchases by the middle of next year.
BOE Prudential Regulation Authority report says capital shortfall of GBP 27.1bln identified at eight banks. Breakdown is as follows:
Lloyds must raise GBP 8.6bln of additional capital.
Barclays must raise GBP 3bln additional capital.
HSBC need not raise additional capital, BOE says
BOE confirms Co-operative bank must raise GBP 1.5bln
Nationwide must raise GBP 0.4bln
**Note: Please refer to the European Morning Opening News on the websiteFX
Unsurprisingly, the USD is one if the few assets to have gained this morning as markets react to the FOMC, with the USD index up 0.74% at 81.99 and on path to make a test on the 100DMA line at 82.18. As a result, USD/JPY trended higher overnight in Asia and Europe this morning as markets switch to long USD positions, while EUR/USD and GBP/USD traded sharply lower. Commodity linked currencies also seen sharply lower, as gold prices fell to a 2 and a half year low, while the latest SPDR Gold Trust GLD holdings now stand at its lowest since 2009.
Also of note:
- SNB 3-Month Libor Target Rate (Q2) Q/Q unchanged at 0.00-0.25%, as expected; maintains EUR/CHF floor at 1.2000
- Norwegian Deposit Rates (Jun 20) M/M 1.50% vs. Exp. 1.50% (Prev. 1.50%), says the analysis suggests that the key policy rate be kept lower than projected earlier.
UBS downgrades 1-month gold price forecast to USD 1250 from USD 1425 and 3-month forecast to USD 1350 from USD 1500.
Chinese Gold Consumption (Jan-Apr) Y/Y +36.4%, according to China Gold Association Vice Chairman.
India is unlikely to ban gold imports or hike gold import duties further as this will lead to gold smuggling, according to a senior finance ministry official. Gold imports by India in June seen falling 40% from May, according to Bombays Bullion Association.
Goldman Sachs forecasts iron ore at USD 134 per tonne in H2 2013.
*Please see today's 'Energy Commentary' report for more energy news.
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.