The Asian selloff was driven by concerns on the implementation of the consumption tax. The Nikkei said Abe has asked for a second opinion on the economic impact of raising the consumption tax and will entertain various ideas for changing the timing or size of the increase, and the move in the JPY which was hitting exporters hard. China closed for lunch off 1.57% and led south by the banks after the government said they were going to start a nationwide audit of local government borrowings, Xinhua saying this is going down to the village level. The industrial profits number out over the weekend also not helping. JGB10y yields are +0.014pts to 0.801% from 0.8% this time Friday.
The Great Rotation has been embraced by end investors, pushing the 4-week average gap between equity and bond fund flows to a 6-year high. The selloff in bonds is not inducing a flight from bonds into cash, but instead into equities as consumer confidence is growing. (source)
Today started with 152k ESU and 700 SPU traded on Globex, SPU trading range was 1687.70 – 1680.90. Friday’s pit session trading range was 1687.50 – 1670.50 before settling at 1686.60, up 2.6 handles. Say hello to M&A Monday. Media giants – [OMC] and Publicis…raising their combined market cap to $35B and Canada’s Hudson Bay, Lord & Taylor parent, buying luxury retailer [SKS] for about $2.4B. However, this week’s focus will be on the central banks’ decisions. The FOMC, BoE and ECB are all on deck, along with GDP, PMI’s, ISM data and the U.S. jobs report on Friday. Earnings including Pfizer, Merck, Procter & Gamble, Exxon and Chevron.
Today’s pit hours gapped 4 handles lower to 1682.00 – 1682.50 before reversing, but failed to close the morning’s gap, trading a high of 1686.00. Pending home sales checked in down 0.4 vs exp of down 1.0 – the prior data was revised from 6.7 to 5.8 and the Dallas Fed manufacturing data checked in at 4.4 vs June’s 6.5. The spoos traded sideways in the 1682 area before losing the bid just before the European close. Also, following headlines that Fed Chairman Ben Bernanke may testify in the lawsuit by [AIG] former chief Maurice “Hank” Greenberg against the United States over the insurer’s 2008 bailout. The SPU printed an intraday low of 1676.70 by 10:38 before slowly grinding back up to retest/hold the opening range.
Treasuries prices hovered in lower range midday Mon in quiet two-way trading after 1) Tsys opened NY mildly higher after overnight range trade, weaker Japanese and Chinese stocks; 2) Tsys initially in NY saw early sales in Tsys 10-year futures, US real money sales too in US intermediates and corporate rate-lock hedges done too; 3) Then Tsys market stabilized amid dip buyers and news of -0.4% NAR Jun pending home sales, 4) End-users also bought US T-bills; 5) Tsys aided too midmorning as US stocks indexes turn negative across board; 6) also was a large 5/10Y Tsys flattener trade done, after black-box related sales in 5Y Tsys futures; 7) US interest rate swap spreads mostly tighter, 2yr bucking move at wider but well off overnight high of 18.0. Flows very light but revolving around better deal-tied paying. 8) Many traders hug sidelines due to this week’s event risk listed above. 9) German govt bonds end Mon mixed, yield curve flatter amid month-end duration buying.
Kathy DX commentary http://mrtopstep.com/2013/07/2378/ The early afternoon session saw the equities grinding sideways to higher briefly breaching the opening range going into the last hour of trade and hold above 1680. The U.S. dollar trades below 98 Japanese yen, extending its losing streak to three days in a row. Two tires blow out on an American Airlines jet on landing at O’Hare and the [DJT] trades a new daily low.
The closing imbalance was a light $64M to the buy side before trading 1680.70 area on the cash close and settling at 1682.50, down 4.1 handles on the day. TUESDAY: S&P Case-Shiller home price index, consumer confidence, FOMC mtg begins, Google Nexus 7 on sales and earnings from Barclays, BP, Chrysler/Fiat, Deutsche Bank, Merck, Pfizer, UBS, Aetna, NYSE Euronext, Amgen and Aflac.
We have a bunch of big “macro” events this week – including an FOMC decision Wednesday 1:00 pm CT, BOE decision Thursday 6 am CT, ECB decision 6:45 am CT, followed by the U.S. jobs report, 185k consensus on Friday at 7:30 am CT. Also, the final PMIs will check in – China (Wed night) and the US/Europe (Thurs morning). Data from these latter two countries has generally been moving in the right direction and the formal July prints will likely continue that trend.China is the big wild card – the Markit flash reading deteriorated further in July, although the official government NBS calculation is a bit different and thus could hold in better.