Wednesday, January 13, 2016

Across the Curve: Capital Markets

From Across the Curve:
Via Marc Chandler at Brown Brothers Harriman: 
Hump Day Bump  
– Many of the capital markets are enjoying reversals today
– The most important economic news that appears to have helped foster the “risk-on” activity was China’s trade figures
– The North American calendar is light
– Brazil reported November retail sales at -7.8% y/y; iron ore company Vale reportedly drew down $3 bln from a revolving credit line to boost liquidity

Price action:  The dollar is mixed against the majors.  The dollar bloc is outperforming, while the yen and the Swiss franc are underperforming.  The euro is trading lower near $1.08, while sterling is trading near $1.4430, unable to break below yesterday’s cycle low around $1.4350.  Dollar/yen trading back above 118.  EM currencies are mostly firmer.  ZAR, RUB, and MYR are outperforming while PHP and TWD are underperforming.  MSCI Asia Pacific was up 1.9%, with the Nikkei rising 2.9%.  MSCI EM is up 1.1%, though the Shanghai Composite was down 2.4% and the Shenzen Composite down 3.5%.  Euro Stoxx 600 is up 1.25% near midday, while US futures are pointing to a lower open.  The 10-year UST yield is up 3 bp at 2.13%, while European bond markets are mostly firmer.  Commodity prices are mostly higher, with oil up around 2.5%.
  • Many of the capital markets are enjoying reversals today.  Equity markets are mostly higher. The MSCI Emerging Market equity index is up more than 1%.  Several key commodities, like oil and copper, are firmer.  Bond markets outside the US are firmer, with Japan’s 10-year yield slipping to new record lows slightly below 20 bp.  The dollar is mixed, as the dollar-bloc currencies firm, as are most of the freely traded emerging market currencies, with the beleaguered South African rand leading the pack (~1.1%) and the Russian ruble a close second (~0.9%).  The European complex, including sterling, and the yen are heavier.  
  • The most important economic news that appears to have helped foster the “risk-on” activity was China’s trade figures.  We suspect that after the sharp and persistent moves to start the year, the market was vulnerable to a counter-trend move, and almost any spark may have been sufficient.  
  • China reported a considerably larger than expected trade surplus.  How this was achieved depends on how the data is denominated.  Specifically, China reports its trade figures in both yuan and dollars.  In yuan terms, the surplus jumped to CNY382.05 from CNY343.10.  The consensus had expected a small decline.  The record large trade surplus was recorded in October at CNY393.20 bln.  
  • The larger trade surplus in December was driven by stronger than expected exports.  Exports, in yuan terms, rose 2.3%.  The consensus was for a 4.1% decline after a 3.7% fall in November.  It is the first year-over-year increase since June and only the second positive reading for all of last year.  Imports fell 4.0% year-over-year, which is about half of the pace the market expected.  
  • A somewhat different picture emerges if the figures are in US dollars.  The trade surplus widened to $60.09 bln from $54.1 bln.  It was the fifth largest for 2015.  In dollar terms, exports did not rise but fell 1.4%, which was still considerably better than the Bloomberg consensus (-8%).  Imports fell 7.6% in dollar terms.  This compares with an 8.7% fall in November and expectations for an 11% decline in December....