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Gold & Silver Double-Smashed Early Morning as All Eyes on Fed and Jackson Hole

U.S. stock-index futures are fractionally in the green as European shares rise, Asia is mixed and oil drops modestly. Global risk staged a rebound and markets unwound some of yesterday’s safe-haven moves as U.S. government shutdown fears receded and concerns about the Trump administration’s ability to enact its fiscal agenda were put on the back-burner in European trading. Bored investors are marking time as they wait to see whether the gathering of policy makers in Wyoming will offer any hints on the process of unwinding stimulus.

The MSCI World index, which fell to a five-week low on Monday, was flat on Thuesday while gains by cyclical stocks helped Europe’s STOXX 600 index inch up 0.5%, even as shares of UK’s Dixons Carphone plummeted up to 29% after the mobile phone retailer downgraded expectations for full-year profit, reflecting tougher conditions in the mobile market as customers hold on to handsets for longer. It was the worst-performing among European retail stocks so far this year, even before today’s decline wiped a third off its market value. British sub-prime lender Provident Financial recovered slightly from its sharp falls earlier in the week, up 2.7 percent.

MSCI’s index of Asia-Pacific shares ex-Japan gained, shaking off jitters that gripped markets after U.S. President Donald Trump threatened to shut down the U.S. government and end the North American Free Trade Agreement. Japan’s Nikkei fell 0.4%, dragged down a stronger yen and by steel makers, after reports that the country’s biggest producer was cutting prices. Japan’s Topix index fell 0.5 percent. South Korea’s Kospi index increased 0.4 percent and Australia’s S&P/ASX 200 Index added 0.1 percent. Hong Kong’s Hang Seng Index rose 0.4 percent as the market reopened after being shut on Wednesday. The Japanese yen fell 0.3 percent to 109.35 per dollar.

The dollar strengthened against major G-10 peers in another quiet overnight session; the Korea won strengthens for a fourth day as North Korea tensions appear to be blowing off. Treasury futures are modestly lower while the 10-year JGB yield fell to 0.025%, the lowest since May, following a strong auction. The Hang Seng reopened with gains after Wednesday’s typhoon-induced break, sending H-shares approach 2017 highs. Over in China, the offshore yuan climbed to its highest level since September as the PBOC strengthened the Yuan fixing and skipped open market operations, draining a net 100 billion yuan from the market. WTI crude little changed; Dalian iron ore 2.5% higher.

Oil is modestly lower despite traders starting to watch tropical depression Harvey, which could strengthen into the first hurricane to strike Texas since 2008, forcing workers to be evacuated from Gulf of Mexico platforms, and sending cotton rallying as airlines prepare for flight disruptions. On Wednesday, the EIA reported that U.S. crude and gasoline stockpiles fell while production rose.

On Tuesday, Trump said he would be willing to risk a government shutdown to secure funding for a wall along the Mexico border. Those comments came before a late-September deadline to raise the U.S. debt ceiling or risk defaulting on debt payments. As a result, Fitch said failure to raise the debt ceiling soon would lead it to review the United States’ sovereign rating with “potentially negative implications.”

Markets will be focusing on the central banking symposium in Jackson Hole, Wyoming, which kicks off today and where Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi are both due to speak on Friday, although new policy messages were considered unlikely. Still, “there are concerns about what central bankers will say as the market appears stretched, especially Wall Street, where valuations look to have reached a limit,” said Enrico Vaccari, a fund manager at Italy’s Consultinvest. Vaccari said he saw risks of a stock market correction after Jackson Hole that was unlikely to leave Europe stocks unscathed, even though valuations in the regions had become attractive again compared with their U.S. peers. “Europe can’t make it on its own, especially because of the super-euro,” he said.

As Bloomberg notes this morning, “expectations for meaningful comments from the key speakers at Jackson Hole – Federal Reserve Chair Yellen and European Central Bank President Mario Draghi – seem fairly low, but amid lackluster August trading the event is significant enough to capture the focus of most investors. If nothing else, it’s a welcome distraction from U.S. politics. All major U.S. equity benchmarks fell on Wednesday after President Donald Trump’s threat to shut down the government.”

“Major central banks, including the Fed, are in transition from providing ever more accommodation to gradually removing accommodation,” said Kevin Harris, analyst at Roubini Global Economics. “Recent Fed commentary contains hints of running a risk of pushing growth just a bit to see if more gains are available. Jackson Hole may offer further clues about this prospect.”

Across FX, the USD edged up against some other major currencies after falling on worries about a possible U.S. government shutdown. The dollar is down 14% against the euro this year. The dollar index which tracks the U.S. currency against a basket of six other major currencies, gained 0.2 percent to 93.311 on Thursday, following the previous day’s 0.4 percent slide. The euro slipped 0.1% at $1.1790, after climbing 0.4% on Wednesday on surveys that showed German and French manufacturing and services were expanding .

In commodities, oil was steady, holding on to most of their recent gains after another fall in U.S. crude inventories indicated a tighter market, and as a tropical storm headed towards oil producing facilities in the Gulf of Mexico. Brent was flat at $52.58 per barrel

Economic data include initial jobless claims and existing home sales. Broadcom, CIBC, Autodesk, VMware, Dollar Tree, Ulta Beauty, Hormel and Tiffany are among companies reporting earnings.

Overnight Bulletin Summary

  • EU bourses slightly higher this morning, however Dixons Carphone loses 1/3 of its value
  • NZD fails to be supported by firm trade balance, while GBP dips as household spending hits lowest since Q4 2014
  • Looking ahead, highlights include US existing home sales, jobless claims and the beginning of the Jackson Hole Symposium,

Market Snapshot

  • S&P 500 futures up 0.1% changed at 2,444.25
  • STOXX Europe 600 up 0.5% to 375.80
  • VIX Index down 2.7% to 11.92
  • Brent futures down 0.2% to $52.45/bbl
  • Gold spot down 0.4% to $1,286.23
  • U.S. Dollar Index up 0.2% to 93.35
  • MSCI Asia down 0.07% to 159.95
  • MSCI Asia ex Japan up 0.4% to 530.03
  • Nikkei down 0.4% to 19,353.77
  • Topix down 0.5% to 1,592.20
  • Hang Seng Index up 0.4% to 27,518.60
  • Shanghai Composite down 0.5% to 3,271.51
  • Sensex up 0.1% to 31,602.08
  • Australia S&P/ASX 200 up 0.1% to 5,745.48
  • Kospi up 0.4% to 2,375.84
  • German 10Y yield rose 0.3 bps to 0.38%
  • Euro down 0.1% to $1.1790
  • US 10Y yield rose 1.4 bps to 2.18%
  • Italian 10Y yield rose 1.8 bps to 1.827%
  • Spanish 10Y yield fell 0.3 bps to 1.569%

Top Overnight News

  • Donald Trump’s threats to shut down the government in October over border wall funding triggered concerns on Capitol Hill and could complicate Congress’s job of raising the debt ceiling
  • OPEC Joint Ministerial Monitoring Committee: oil market moving in the right direction as stockpiles drop in July; see compliance with output cuts at 94%
  • Qatar said it will return its ambassador to Iran and seek stronger relations with its Persian neighbor as the gas-rich nation’s standoff with four Arab countries drags on
  • U.K. 2Q P GDP unrevised q/q 0.3%; household spending 0.1% vs 0.3% est; ONS notes weakest 1H growth since 2012
  • U.K. consumer-spending growth slowed in the second quarter as car sales fell and business investment stagnated
  • Norway 2Q GDP q/q: 1.1% vs 0.6% est; Statistics Norway highlight a broad rise in consumer spending at +1.2%
  • Elliott Is Said to Buy More Stada Shares to Win Higher Price
  • Deutsche Bank Is Said to Halve MiFID Fixed- Income Research Price
  • Hedge Funds’ MiFID Defection Highlights Limit of EU Rule Revamp
  • Amazon’s Whole Foods Deal Wins Swift U.S. Antitrust Approval
  • ECB’s Hansson Shrugs Off Euro Gains for Now as QE Talks Near
  • Hedge Fund Crusade Stymied as Japan Inc. Clings to Cross-Shares
  • Schneider, Eaton Are Said in Race to Buy L&T Electrical Unit: ET
  • Ex-Intel CFO’s Exit ‘Highly Negative’ for Chipmaker: Rosenblatt
  • Crackdown Risk Has China’s Hottest Stocks Looking Vulnerable

Asia equity markets traded with an indecisive tone following the downbeat finish on Wall St. where sentiment was dampened by Trump’s threats to shut down the government and terminate NAFTA. ASX 200 (+0.2%) was mildly positive amid strength in material names and with the largest movers in the index driven by recent earnings, while Nikkei 225 (-0.3%) declined as exporters suffered from USD/JPY’s brief slip to below 109.00. Elsewhere, Shanghai Comp. (Unch.) and Hang Seng (+0.1%) were choppy as the PBoC refrained from operations which resulted to a CNY 100bln daily net liquidity drain, while participants also digested a slew of earnings. Finally, 10yr JGBs saw mild support from the cautious tone in Japanese stocks and as yields declined in which the 20yr yield fell to its lowest since December. PBoC refrained from open market operations today. (Newswires) PBoC set CNY mid-point at 6.6525 (Prey. 6.6633)

Top Asian News

  • No. 1 China Equities Fund Bought Only Three Stocks This Year
  • Mitsui Buys Fairfax Stake in First Capital for $1.6 Billion
  • Billionaire Porn King Reinvents Himself as Japan’s Startup Guru
  • Toshiba, WD Are Said to Seek Signing Chip Deal on Aug. 31: Asahi
  • Ford Names Jason Luo Chairman, CEO for Ford China
  • Infosys Founders Are Said to Plot Board Coup to Retake Control
  • Dividends Frozen as Santos Takes Razor to $2.9 Billion Debt Pile
  • Japan Shares Dip as Steelmakers Drop on Toyota Price- Cut Reports
  • Vietnam Asks Taiwan to Stop Live Military Drills on Spratlys

European markets are slightly higher this morning, with the Eurostoxx trading higher by 0.2%. Notable mover this morning is the shares of Dixons Carphone which has slumped as much as 32%. This came after a surprise profit warning from the company amid a tough phone market and lower earnings from its software division.  EGBs are modestly lower today with German yields ticking higher. The curve showing a slight flattening bias with the short-end underperforming marginally. Recent weakness in peripheral debt relative to German debt has come to a halt with spreads tightening, Bono’s and BTPs narrower by 0.3bps and lbps respectively.

Top European News

  • Dixons Carphone Plunges as Mobile Slowdown Leads to Warning
  • U.K. Consumer Spending Barely Grows, Restraining Economy
  • Hungary’s NBH ‘Closely Examining’ More Monetary Easing

In currenices, narrow ranges overnight with many looking towards the Jackson Hole Symposium. However, price action had been dictated by the recovery in the USD¬index. Elsewhere, NZD continues to be pressured from yesterday’s GDP downgrade in the government forecasts and as such last night’s better than expected trade balance data failed to support the currency. GBP fell in the wake of the secondary GDP report, which showed household spending falling to its lowest level since Q4 2014 as consumers grapple with negative real earnings growth.

In commodities, crude prices have held onto yesterday’s gains, while major oil producers, including Shell and Exxon announced that they were curbing some oil and gas output at facilities in the Gulf of Mexico ahead of a storm expected to hit the Texas coast. Additionally, the committee of OPEC and Non-OPEC stated that all options for a possible cut and or extension is on the table for the next monitoring meeting in September 22nd.

Looking at the day ahead, the UK’s preliminary Q2 GDP came in line with expectations at +0.3% qoq and +1.7% yoy, as expected. Data on France’s business and manufacturing confidence index printed at 111, beating expectations of 108 and above July’s revised 108. In the US, there is the Kansas City Fed manufacturing index, initial jobless claims, continuing claims and existing home sales data. Away from the data, as noted earlier the Jackson Hole symposium kicks off. Back in Italy, the ECB governing council member Visco (governor of Italy) will speak.

US Event Calendar

  • Aug. 24-Aug. 26: Kansas City Fed hosts annual Jackson Hole Policy Symposium
  • 8:30am: Initial Jobless Claims, est. 238,000, prior 232,000; Continuing Claims, est. 1.95m, prior 1.95m
  • 9:45am: Bloomberg Consumer Comfort, prior 52.1
  • 10am: MBA Mortgage Foreclosures, prior 1.39%; Mortgage Delinquencies, prior 4.71%
  • 10am: Existing Home Sales, est. 5.55m, prior 5.52m; MoM, est. 0.54%, prior -1.8%
  • 11am: Kansas City Fed Manf. Activity, est. 11, prior 10

DB’s Jim Reid concludes the overnight wrap

we’ve got a more reliable event to look forward to today with the annual Jackson Hole symposium kicking off this evening. While it does officially start tonight the heavy hitters (Yellen and Draghi) are actually scheduled to speak tomorrow so it’s unlikely we get much of interest today. As we’ve been saying over the last few days it does feel like expectations have been pegged back a bit for a number of reasons. This appears to be particularly the case for the ECB and after Mario Draghi’s damp squib of a speech in Lindau yesterday morning there isn’t much reason for that view to change.

That said it probably won’t stop markets spending today second guessing what we may or may not hear, but away from that the other theme resonating around markets at the moment seems to be the various chatter about a possible US government shutdown. The latest threat from President Trump in which he vowed to shut down the government should Congress not fund the border wall, in addition to the talk about ending NAFTA, seemed to undo much of the optimism around the tax reform talk and resulted in risk assets taking a few chips off the table yesterday. A NY Times report suggesting a rift in the relationship between Trump and Senate Majority Leader Mitch McConnell seemingly didn’t help either although McConnell has since issued a statement saying that he and Trump are working towards a unified agenda. Notwithstanding all of the noise and bluster, developments and headlines out of Washington continue to be the main driver for markets for the time being as investors by and large appear fairlyrelaxed around the general central bank message for now.

Back to the debt ceiling, the federal government has until sometime between late-September and mid-October in order to avoid a technical default by raising the ceiling and it feels like the story has plenty of room to run until then when Congress returns to Washington in early September. Previous experience in 2011 and 2013 showed that the debates became important fiscal turning points so it’s not to be underestimated. So the next six weeks have the potential to be interesting.

Staying with politics, yesterday the UK government released a position paper on judicial arrangements post Brexit. DB’s Oliver Harvey noted that the paper confirmed that the UK will leave the direct jurisdiction of the CJEU after Brexit, but has proposed a new dispute-resolution mechanism to govern the transitional agreement and any disputes arising from the future partnership. Oliver notes that the mechanism is conceptually very similar to the EFTA court that guarantees the EEA agreement. In his view the paper is a positive step, particularly as the question of legal enforceability is probably the largest sticking point in upcoming negotiations.

For all the politics talk, there was some good news to report from yesterday’s economic data and specifically the August flash PMIs. Germany surprised to the upside with the manufacturing PMI moving back to 59.4 (vs. 57.6 expected) and not far from the recent peak of 59.6. The services PMI recovered slightly to 53.4 (vs. 53.3), bringing the composite PMI to 55.7 and a full point above July. Our economists believe the stronger PMI readings confirm their view that the German economy should continue to expand at a robust pace in the next quarters, but at the same time signal growing capacity pressures and, hence, rising overheating risks.

Meanwhile the Euro-area flash PMI remained stable with manufacturing gains compensating a small services decline. The composite PMI edged up slightly to 55.8 which continues to suggest that the economy is growing at an annual rate of c.2.5% yoy. The details also suggest a slight decline in the data for the periphery. Our economists also noted that despite recent Euro appreciation, the input prices print was up, suggesting that price pressures in the euro-area are not falling (contrary to what some people have suggested).

The ECB’s Hansson didn’t appear to have much concerns about the recent Euro rally either, noting that it is largely a reflection of the region’s economic momentum. Elsewhere, he said he doesn’t yet have a firm view on how the stimulus package should be in design after 2017. On inflation, he noted “Let’s be a bit more patient…it’s just going to take us a bit more time…it will come eventually, have faith that these relationships (Phillips curve) exist..”.

Those PMIs helped the Euro climb another +0.38% versus the Greenback yesterday, while against Sterling the single currency rallied +0.57% yesterday and edged +0.06% higher this morning to the highest level since October 2009. Sovereign bond yields were briefly higher however reversed in the afternoon as risk aversion turned. 10y Bunds ended 2bp lower to 0.374% and Treasuries were around 5bp lower to 2.167%, although yields are slightly higher this morning. Meanwhile in equity land, the S&P 500 and Dow closed -0.35% and -0.40% respectively. European markets also ended weaker with the Stoxx 600 down -0.50%. Notably, WPP, the world’s largest advertising group fell 11% yesterday (the worst trading day in 19 years), after cutting its’ fully year sales outlook post a drop in customer demand.

This morning in Asia, trading volumes have been fairly light and markets opened a bit mixed. The Nikkei has dipped -0.19% and China bourses are down a similar amount while on the other hand the Kospi (+0.49%), ASX (+0.16%) and Hang Seng (+0.61%) have all edged higher with the latter in particular resuming trading after a day off following typhoon Hato.

Wrapping up the rest of the data from yesterday. In the US, the August manufacturing PMI was lower than expected at 52.5 (vs. 53.5), but the services PMI increased 2.2pts to 56.9 (vs. 55.0), the highest level since April 2015. Overall the composite index rose to 56.0 (last seen in May 2015). New home sales for July fell 9.4% mom (vs. 0% expected), but on a three-month average, new home sales are still up 4.2% yoy, with the recent slowdown in growth likely reflecting underlying building activity. Elsewhere, MBA mortgage applications fell 0.5% last week.

Looking at the day ahead, the UK’s preliminary Q2 GDP (+0.3% qoq and +1.7% yoy expected) will be out, then data on private consumption (0.4% qoq expected), export / import, index of services and total business investment are due. France’s business and manufacturing confidence index will also be due. Over in the US, there is the Kansas City Fed manufacturing index, initial jobless claims, continuing claims and existing home sales data. Away from the data, as noted earlier the Jackson Hole symposium kicks off. Back in Italy, the ECB governing council member Visco (governor of Italy) will speak.

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