Markets: Cold Weather

On the face of it, today isn’t much different than yesterday. News was light with speeches from RBA, ECB and BOE headline grabbers but insufficient to heat up a cold equity market still reeling from US/China trade problems with fear that tech leads the pain trade there bleeding into the FAANG index dropping 22% from its highs. No one is warmed up by the Carney quip that another rate hike will follow if GBP weakness drives more inflationary growth or that RBA Lowe sees 4.5% unemployment. ECB talk about market discipline for Italy isn’t helpful either. The only positives are that the worst case scenarios haven’t hit – the UK still has a government, the Brexit plan isn’t dead, the US isn’t in another war. But the mood for safe-havens is the driver and price action is all that matters right now. This makes it key to pay attention to the safe-havens for the turn in mood as the weather can change faster than a computer algo can trade. 

Question for the Day: What isn’t in a bear market? The gloom over stocks seems to have masked the seasonal push for buyers and robust 3Q earnings. Even hopes for Black Friday consumer spending are failing to spur markets. The BTC drop below $5000 is opening calls for $1500 tests. The drop in oil again opens $50 WTI talk. The weakness in HY bonds is the first since 2008. Markets are scared and worried. The explosion of fear has made it cold. Perhaps that is the only bull to consider today as the predictions for a very cold Thanksgiving drive Nat Gas futures higher.  

Market Recap:

Equities: The S&P500 futures are off 0.7% after losing 1.66% yesterday. The August to now 13% drop is the largest peak to trough move since 2015. The Stoxx Europe 600 is off 0.7% with tech and banks the focus. The MSCI Asia Pacific fell 0.95% with tech the focus – notable break in Tencent tech support. 

• Japan Nikkei off 1.09% to 21,583.12
• Korea Kospi off 0.86% to 2,082.58
• Hong Kong Hang Seng off 2.02% to 25,840.34
• China Shanghai Composite off 2.13% to 2,645.85
• Australia ASX off 0.47% to 5,759.20
• India NSE50 off 1.00% to 10,656.20
• UK FTSE so far up 0.10%
• German DAX so far off 0.65%
• French CAC40 so far off 0.75%
• Italian FTSE so far off 0.75% to 18,686

Fixed Income: Risk off brings bonds bid, with focus on curve flattening. UK and Italy remain in EU crosshairs.  German Bund 10-year yields off 1.5bps to 0.355%, French OATs off 1.5bps to 0.765%, UK Gilts up 2bps to 1.395% - as Carney and UK May headlines drive – while periphery suffers further Italy up 1.5bps to 3.61%, Spain flat at 1.647%, Portugal flat at 1.975% and Greece up 9bps to 4.61%. – waiting for central bank bad loan plan for banks. 

• The ESM sold E1.999bn of 6M May 2019 bills at -0.563% with 2.91 cover. 
• Finland sold E475mn of 5Y 0% Sep 2023 bonds at -0.12% with 1.94 cover, also sold E500mn o0f 30Y 1.375% Apr 2047 bonds at 1.2777% with 1.17 cover. 
• Spain sells E537m of 3M bills at -0.604% with 3.95 cover– previously -0.649% with 8.40 cover - and E2.42bn of 9M bills at -0.349% with 2.43 cover – previously -0.311% with 2.52 cover. 
• US Bonds see bull curve flattening tracking equity sell-off– 2Y off 0.4bps to 2.785%, 5Y off 1bps to 2.859%, 10Y off 1.5bps to 3.048%, 30Y off 1.6bps to 3.306%. 
• Japan JGBs sold off despite equities, 20Y as expected. The MOF sold Y806bn of 20Y 0.7% JGBs at 0.612% with 3.91 cover – down from 4.23 previously. Cut-off price 101.50 as expected. Closes with curve steeper – 2Y up 0.4bps to -0.149%, 5Y up 0.5bps to -0.105%, 10Y up 1.1bps to 0.93%, 30Y up 1.1bps to 0.838%. 
• Australian bonds sold with focus on RBA– 3Y up 2bps to 2.08%, 10Y up 3bps to 2.69%. 
• China PBOC skips open market operations, leaves liquidity neutral. 7-day repo up 4bps to 2.67%, O/N up 5bps to 2.6%, 10Y swaps off 1bps to 2.77% and 5Y off 1bps to 3.16% but 10Y bonds up 1bps to 3.38% 

Foreign Exchange: The US dollar index up 0.2% to 96.36 with range 96.04-96.37. In EM USD mostly bid – EMEA: ZAR off 0.35% to 14.07, TRY off 0.9% to 5.36, RUB flat at 65.64; ASIA: TWD flat at 30.897, KRW up 0.25% to 1125.7, INR up 0.15% to 71.46. 

• EUR: 1.1420 off 0.3%.Range 1.1417-1.1472 with Italy and UK and stocks dragging, focus is on 1.1380 and 1.12 still.
• JPY: 112.35 off 0.2%.Range 112.32-112.66 with risk-off opening 111.80 and 110.50 again – EUR/JPY 128.30 off 0.45%. 
• GBP: 1.2845 off 0.1%. Range 1.2823-1.2883 with EUR/GBP .8890 off 0.25% - all about BOE Carney support for Brexit plan and UK May surviving so far.
• AUD: .7270 off 0.35%.Range .7518-..7549 with China and RBA competing for A$ direction with .7320-50 resistance opening .7150 again. NZD up 0.15% to .6850 with focus on milk auction.
• CAD: 1.3195 up 0.2%.Range 1.3156-1.3195 with BOC and data driving along with oil and crosses – 1.3250 pivotal.
• CHF: .9920 off 0.15%.Range .9909-.9942 with EUR/CHF off 0.45% to 1.1345 – all about risk mood and safe-haven status with .9820 back in play. 
• CNY: 6.9280 fixed 0.06% weaker from 6.9245, trades weaker on RMB index. Now flat at 6.94435 with 6.9498-.69340 range. 

Commodities: Oil lower, Gold lower, Copper off 0.3% to 2.8240

• Oil: $57.00 off 0.2%. Range $56.51-$57.44 with focus on supply and demand info as equities slump and reverse Asia bid. Focus is on technical $55 WTI and Brent off 0.55% to $66.26 with $65.80 pivot. 
• Gold: $1226.10 up 0.15%.Range $1224-$1227. Silver up 0.2% to $14.45 with $14.50 pivot. Platinum off 0.4% to $850.20 and Palladium off 0.45% to $1160. 

Economic Calendar:

• 0600 am US Oct NFIB business optimism 107.9p 107e
• 1130 am US 1M, 3M, 6M bill sales
• 0200 pm US Oct budget statement $119bn p -$980bn e