Ok, so it’s Monday and France didn’t elect a fascist.
So we’ve got that going for us.
That said it looks like the Street got this one right – it feels like a “sell the news” event pretty much across the board. As documented earlier the euro gave back its knee-jerk to $1.1023 to trade all the way down to $1.0936 in the European morning.
Gold flash crashed, but all’s well that ends well there:
USDJPY has kind of meandered around, but is still up from the levels we saw after last week’s flash crash in crude:
Meanwhile, oil got a bump from Novak/Khalid Al-Falih jawboning, but crude has since given it all back. Here’s the headline dump from Al-Falih:
- OPEC’s crude output cuts will likely be extended through the second half of 2017 and even beyond that into next year, Saudi Oil Minister Khalid Al-Falih says at conference in Kuala Lumpur.
- “Based on the consultations I’ve had with participating members, I am rather confident the agreement will be extended into the second half of the year and possibly beyond”: Al-Falih
- OPEC and its partners are determined to bring oil stockpiles back to the 5-year avg level
- Confident that global oil market will soon rebalance and return to healthy state
- Low seasonal demand, shale growth and financial markets slowing OPEC cut impact
- Also affected by refinery maintenance in the U.S.
- Global inventories declining and U.S. stockpiles will continue downward trend
Lost in the shuffle was “big trouble in little China,” where the latest econ data missed across the board:
- CHINA APRIL EXPORTS RISE 8.0% Y/Y IN DOLLAR TERMS; EST. 11.3%
- CHINA APRIL IMPORTS RISE 11.9% Y/Y IN DOLLAR TERMS; EST. 18.0%
Remember, that’s doubly bad. For one thing, it doesn’t bode well for the engine of global growth and trade, but additionally, it suggests that the authorities in Beijing are increasingly constrained in their ability to get a handle on rampant speculation in markets by the necessity of keeping the economy afloat with rapid credit expansion. Here’s Goldman’s take on the tightrope act:
The fall in upstream prices surely made a significant contribution to the downside surprise to April trade data, especially imports data. But partially released volume data showed meaningful slowdown as well. The softening of both price and volume compared with high March levels are likely to play out in other nominal activity growth measures as well, including industrial profit growth. These changes are related to (1) the policy tightening measures the government rolled out, which became more stringent in March, and (2) softening of global demand as indicated by the GS Global Leading Indicator, which has been moderating sequentially for 5 months. Domestic factors are likely to be more important as the moderation in import growth was much more significant than in export growth. While it is surely the right thing for the market to take the policy tightening seriously, we have been somewhat surprised by the extent of the (negative) shift in client sentiment in recent weeks. Our sense is that the near-term level of concern about overtightening is perhaps too high because policy makers are also very concerned about this risk, especially in a very politically important year. As a result there might already have been some adjustments to the policy stance, especially in terms of the quantitative controls of broad credit supply (though this is still to be confirmed by data to be released), and if not there likely would be soon. If money and credit data do surprise on the upside as we are forecasting, it will likely alleviate the concerns about very near term demand growth and policy stance.
Whatever. In the meantime, Goldman is certainly correct to say that “the market is taking the policy tightening seriously.” Indeed on Monday, 10Y yields touched 22-month highs amid the clampdown on financial leverage (more here):
So that’s something that’s worth taking pretty goddamn seriously. Especially considering its link to the commodities carnage we saw late last week.
Here’s a look across markets (Europe isn’t too happy despite Macron’s victory – again, “sell the news”):
- Nikkei up 2.3% to 19,895.70
- Topix up 2.3% to 1,585.86
- Hang Seng Index up 0.4% to 24,577.91
- Shanghai Composite down 0.8% to 3,078.61
- Sensex up 0.4% to 29,966.27
- Australia S&P/ASX 200 up 0.6% to 5,870.89
- Kospi up 2.3% to 2,292.76
- FTSE 7305.44 8.01 0.11%
- DAX 12688.89 -28.00 -0.22%
- CAC 5386.75 -45.65 -0.84%
- IBEX 35 11082.80 -52.60 -0.47%
Finally, here’s a week-ahead calendar that may come in handy: