US Futures Slide On Lack Of New "Trade Deal Optimism"; Dollar Ramps Higher

In commodities, Brent (-0.2%) and WTI (-0.9%) prices are in the red following the larger than expected build in API Crude Inventories yesterday of 7.4mln vs. Exp. 1.2mln. If the API build is confirmed by EIA data later on today this would be a large contrast to the prior draw. UBS highlight that a build of this size would not mean a major deviation from the seasonal average within the context of the prior two months data, as such should not result in a lasting impact on oil prices. Elsewhere, China have canceled Canadian Co. Richardson Internationals registration to ship canola to China; following this, China’s foreign ministry state that harmful pests have been discovered in samples taken from Canadian Canola oil and a serious problem has been highlighted in one Co’s shipments. Although, it is currently not clear which company this refers to. Separately, US National Security Advisor Bolton says he is looking at fresh sanctions against Venezuela to increase the pressure on President Maduro. Gold (-0.1%) is approaching the bottom of its narrow USD 4/oz range but is largely unchanged on the day. Elsewhere, the World Platinum Investment Council stated that the global platinum market will this year experience the largest surplus since around 2013.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 5.3%
  • 8:15am: ADP Employment Change, est. 190,000, prior 213,000
  • 8:30am: Trade Balance, est. $57.9b deficit, prior $49.3b deficit
  • 2pm: U.S. Federal Reserve Releases Beige Book

Central Banks

  • 12pm: Fed’s Williams Speaks to Economic Club of New York
  • 12pm: Fed’s Mester Participates in Moderated Discussion
  • 2pm: U.S. Federal Reserve Releases Beige Book

DB's Jim Reid concludes the overnight wrap

The “March Flu” lives on with some power but I’m returning to functioning adult duties but yesterday was another day to reflect on getting older and being more out of touch. To set the scene as a music geek there was a time between around 1980 and maybe the early 2000s when I could have probably recited every number one single over the period in the UK in chronological order. However, at some point in the last 10-15 years, I lost touch with the charts even if I still try to discover new music when I can. Anyway, at the beginning of the year, I heard this great new song on a random Spotify (venue of some great DB podcasts) playlist and have played it to death on my headphones since. It was my little discovery/secret and made me feel cool that I still had an ear for music. Anyway, on randomly flicking through the newspaper yesterday, I stumbled across the U.K. singles chart and to my confusion discovered that the song I thought was my little secret is actually number 1 in the charts. Nice to be so out of touch that you’re secretly in touch. The song is called “Someone You Loved” by Lewis Capaldi. To be honest there are a lot of similarities to “Someone Like You” by Adele. So if that song is your bag then please hunt out. If it’s not you probably should avoid. But then again if you’re under 30-35 you probably know all this already.

After the trade euphoria that kick-started the week, markets have quickly become stuck in a soggy patch with no real catalysts to push them one way or the other with any conviction. The good news is that we’ve got an ECB meeting and a payrolls Friday to look forward to in the last two days of this week so hopefully, that will inject a bit of energy back into markets again. In the meantime, equity markets were a little directionless yesterday before the S&P 500 ended -0.11%. That is now five down days in the last six however the cumulative loss during that run is only -0.23% so it’s hardly been a material move. Elsewhere, the NASDAQ (-0.02%) and DOW (-0.05%) also just about closed in the red while the STOXX 600 (+0.15%) managed to finish onside having clawed back earlier losses. Part of the underperformance in the US might have been due to Secretary of State Pompeo talking about Trump being ready to walk away from a trade agreement with China unless he secures a “perfect deal” however the reality is that Pompeo has been less directly involved in talks between the two sides so the comment was taken with a bit of a pinch of salt.

Corporate headlines also impacted markets, the biggest impact coming from comments from GE's CEO Larry Culp. He said at a conference that he expects free cash flow from the firm's industrial business to be negative this year, after a healthy positive cash flow of $4.5bn last year. GE stock fell -4.72% and its 2035 bonds traded +10bps. Weakness in GE had weighed on corporate credit last year, but indexes of US IG and HY cash credit closed near flat yesterday. In broader equities, the industrials sector led declines in the S&P 500, dropping -0.64%. On the other hand, a bright spot was the US retail sector, which advanced +0.26% after Target (+4.60%) and Kohl's (+7.33%) both announced profit projections for this year that topped consensus expectations.

As for government bond markets, well Bunds traded as high as 0.1838% intraday yesterday post the more palatable PMIs (more on the below) but ultimately yields faded as sentiment turned with Bunds eventually finishing just +1.0bps higher at 0.168%. BTPs (-3.1bps) actually outperformed after Italy’s Q4 GDP reading was revised up to a slightly smaller contraction (-0.1% qoq from -0.2%) – albeit one that still left Italy in a technical recession at the end of last year.

Meanwhile, Treasuries also retraced an early selloff of +2.5bps to close the day flat at 2.72% (-1.4bps this morning). A fairly decent ISM non-manufacturing (see below) was offset somewhat by dovish comments from the Fed’s Rosengren. This was a little bit of a surprise given that he was one of the more hawkish officials who had worried about overheating risks in the past. Instead, Rosengren said that “it may be several meetings before the Fed has a clear read on whether economic risks are becoming reality”. So that puts Rosengren more in the patience camp for now.

This morning in Asia markets are trading mixed with the Nikkei (-0.69%) and Kospi (-0.32%) down while the Hang Seng (+0.31%) and Shanghai Comp (+0.94%) are up. Elsewhere, futures on the S&P 500 (-0.28%) are heading lower and the Australian dollar is weak (-0.71%) this morning as Australia’s Q4 GDP came in one-tenth lower than expected at +0.2% qoq leading to traders increasing their probability of a rate cut. In other news, the BoJ has increased the buying of bonds in the 5y-10y maturity bucket by JPY 50bn at today’s regular operation (JPY 480bn today vs. JPY 430bn in last week). However, the increase was expected after the BOJ last week tweaked its monthly bond-purchase plan and reduced the number of days it would buy 5-10yr bonds to four in March, from five in February.

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