After initially tumbling in the aftermath of the U.S. missile attack on Syria which jolted financial markets, boosting haven assets and temporarily shifting investor focus from today’s jobs data , S&P futures have managed to recoup all losses (the Nikkei closed up 0.4% after sliding earlier in the session), with Europe also just fractionally lower and climbing fast.
A U.S. defense official told Reuters the missile strike was a “one-off”, helping to calm market nerves. “The U.S. missile strike on a Syrian air base overnight caused a knee-jerk shift into safe havens, although the impact was moderate as it is being interpreted as a one-off proportionate response,” said Ian Williams, a strategist at Peel Hunt in London.
Gold, crude and government bonds were among the biggest winners following the first military strike undertaken by Trump’s administration, as some traders sought safety and others judged increasing tension in the Middle East would spur crude. Russia’s ruble dropped the most in almost a month and its bonds fell as optimism over a detente with the U.S. evaporated. The lira and stocks retreated in Turkey, which shares a border with Syria.
The U.S. dollar recouped all of its losses against a basket of major currencies and was last trading little changed. S&P 500 futures were down 0.1%. European stocks fell 0.3% weighed down by weakness in mining stocks as investors locked in some profits following the sector’s stellar run this year.
While volatility also spiked across global stock markets in the wake of the attacks, the initial impact began to fade for some assets as investors resume digesting a week of developments, from a meeting between Trump and President Xi of China, to Fed signals it may reduce its balance sheet this year and the ECB underscoring its dovishness as Bloomberg notes. Attention now turns to payroll data, after a strong private reading and weak automaker sales gave conflicting signals on the U.S. economy.
As of 6:40am ET, S&P 500 futures slipped less than 0.1% percent, while the Stoxx Europe 600 Index dropped 0.3 percent. Volatility measures from Hong Kong to Europe increased. Asian stocks shook off declines to follow Japanese equities higher, with yen rallying along with Treasuries after Syria strikes. Gilt futures gained after soft U.K. manufacturing data, some buying from domestic accounts being seen, with Russia’s ruble falling most among major global currencies and the nation’s borrowing costs surging as U.S. airstrikes dash hopes for an improvement in ties under Donald Trump.
Spot gold was up a percent while high-rated euro zone government bonds edged lower. The yield on Germany’s 10-year government bonds fell to a one-month low. Overnight, U.S. Treasury yields dropped to their lowest level in over four months at 2.29 percent
“Safe-haven flows are always affected by political events, and when it affects countries where the U.S. and Russia are interested, then investors become even more nervous because of relations (between those two),” said DZ Bank strategist Daniel Lenz.
While it will be of secondary importance today, overnight China reported that its FX reserves rose fractionally for a second consecutive month.
Looking at the day ahead, non-farm payrolls may rise by 180k, according to economists (a full preview can be found here) slightly less than the six-month and 12-month averages. Fed’s Dudley speaks on financial regulation. Elsewhere, euro zone finance ministers are due to meet with a discussion on Greece’s progress in implementing reforms needed to unlock aid part of the agenda.
Bulletin Headline Summary from RanSquawk
- US launched cruise missiles against targets in Syria, with about 60 tomahawk missiles fired towards a military airfield in near Homs
- European equities followed the soft lead from Asia, with all sectors trading in the red with the exception of energy names
- Looking ahead, highlights include US and Canadian Jobs reports, Fed’s Dudley, ECB’s Coeure and Constancio
- S&P 500 futures down less than 0.1% to 2,351.25
- STOXX Europe 600 down 0.3% to 379.17
- MXAP up 0.3% to 146.61
- MXAPJ down 0.1% to 479.55
- Nikkei up 0.4% to 18,664.63
- Topix up 0.7% to 1,489.77
- Hang Seng Index down 0.03% to 24,267.30
- Shanghai Composite up 0.2% to 3,286.62
- Sensex down 0.2% to 29,867.43
- Australia S&P/ASX 200 up 0.1% to 5,862.47
- Kospi down 0.05% to 2,151.73
- German 10Y yield fell 1.6 bps to 0.247%
- Euro down 0.06% to 1.0638 per US$
- Italian 10Y yield unchanged at 1.975%
- Spanish 10Y yield fell 1.9 bps to 1.613%
- Brent Futures up 1.4% to $55.67/bbl
- Gold spot up 1% to $1,264.36
- U.S. Dollar Index up 0.1% to 100.76
Top Overnight News
- U.S. Strikes Syria After Gas Attack, Raising Stakes With Russia
- Putin Calls U.S. Syria Strike Aggression, Stops Air Cooperation
- Trump Hails ‘Friendship’ With China’s Xi Before Syria Attack
- Carney Urges Banks to Prepare for All Potential Brexit Outcomes
- U.K. Manufacturing, Construction Point to Loss of Momentum
- Medtronic Says Heart Pump Prelim. Results Met Primary End Point
- Medtronic Says Recall of Adjustable Valves, Shunts Began Feb. 22
- Hologic Gets $721.1m Defense Logistics Agency Radiology Contract
- GM China March Sales Volume Rise at Fastest Pace Since August
- Alphabet Moves Two Top Google Fiber Executives Off Project
- Arconic Reports Sale of Fusina, Italy Rolling Mill
- TD Ameritrade Investors Sue Board Over Scottrade Acquisition
Asia markets shrugged off the early gains from the gains on Wall St. as sentiment in the region soured after the US conducted strikes in Syria. This saw ASX 200 (+0.1%) and Nikkei 225 (+0.4%) trimmed opening gains, although the latter staged a recovery with outperformance in Toshiba shares on reports Hon Hai is to submit a near JPY 3tln bid for the Co.’s chip unit. Hang Seng (-0.1%) and Shanghai Comp. (+0.2%) were mixed despite the PBoC continuing to hold off on open market operations which resulted to a weekly net drain of CNY 100bIn. 10yr JGBs and T-notes were underpinned by safe-haven demand resulting from the Syria strike, which saw the US 10yr yield drop to a 4-month low and under 2.3%. PBoC refrained from conducting open market operations for a weekly net drain of CNY 100bIn vs. Prey. net drain of CNY 290bn.
Top Asian News
- China’s FX Reserves Pick Up for Second Month on Weakening Dollar
- Philippines to Follow Indonesia With Tax Amnesty to Spur Revenue
- Abe Adviser Calls for Push Back If U.S. Attacks Yen Policy: Rtrs
- Dymon Said to Wind Down Aventia Hedge Fund in Restructuring Move
- India Rising as Steelmakers to Beat Japan in Global Rankings
- China Says Syria Issue Should Be Solved Via Political Means
European equities followed the soft lead from Asia, with all sectors trading in the red with the exception of energy names. Syria has dictated play here in a similar fashion to other asset classes amid light equity specific news, and with participants now awaiting the US jobs data or any comments from president Trump this afternoon on any future action in Syria, as well as continued attention on the progress of his talks with China President Xi. The miss of Exp. in UK data was relatively shrugged off by Gilts, which continued to trade in line with the rest of European paper. Bunds opened higher as European participants reacted to the aforementioned overnight developments, however the German benchmark has spent much of the session paring its opening gains, albeit remaining modestly higher by mid morning. Periphery yields continued to trade in a tight range, with participants keeping an eye on any Greece related developments from the Eurogroup meeting, although with volatility more likely to hold off until this afternoon’s NFP report from the US.
Top Asian News
- Merkel, Hollande Say Assad Alone Bears Responsibility for Strike
- Greece Bailout Deal Said to Be a Step Closer as Ministers Meet
- German Industrial Output Unexpectedly Rose in February
- Another Euro Peg Feels the Heat as Fixed Currency Regimes Fall
- Linde’s Reitzle Avoids Trading Probe Amid Praxair Deal
- Santander Proposes Dividend Hike as Botin Sees Brighter Future
- EU Jobs Carve Up Starts Again With Dijsselbloem Under Threat
- U.K. House-Price Growth Slows to Weakest in Almost Four Years
- Diamond Miner Ends Large Gem Drought With 114-Carat Find
- Kloeckner Pentaplast Said to Buy Linpac to Bolster Food Packaging
In currencies, the ruble dropped 0.9 percent as of 11:16 a.m. in London. The currency has been trading near the highest since July 2015. President Vladimir Putin believes the U.S. airstrikes caused “considerable damage” to relations with Russia, a Kremlin spokesman said. The Bloomberg Dollar Spot Index was little changed. The yen rose 0.2 percent, paring gains of as much as 0.6 percent. The euro slipped 0.1 percent, the British pound dropped 0.4 percent, and the Turkish lira pared losses to trade 0.5 percent lower. Focus today has fallen on the overnight airstrikes by the US on Syria, with safe havens the notable benefactors. The likes of JPY and CHF have both been the notable movers in FX markets in a flight to safety. Elsewhere in FX, the only notable data of the morning has come in the form of the UK industrial and manufacturing production, with the downbeat reading weighing on GBP as GBP/USD slipped back below 1.2450.
In commodities, West Texas Intermediate crude climbed 1.4 percent to $52.41, the highest in a month. Oil is up 3.6 percent for the week. Gold jumped 1.1 percent to $1,264.92, the highest since November, following two days of declines. As well as the safe haven currencies, the strikes in Syria also saw upside in gold, with the yellow metal reaching 5 month highs amid concerns of further aggression in the future. The strikes in Syria also pushed the energy complex higher, with WTI futures trading around USD 52.50/bbl amid concerns that global tensions could cause obstacles in the supply chain.
Looking at the day ahead, in the US the aforementioned March employment report will be the main point of focus while wholesale inventories and consumer credit data are the other releases due in the US. Away from the data the Fed’s Dudley is due to give a talk on the state of financial regulation in the US. Away from that BoE Carney speaks this morning at 10am BST while the Euro area finance ministers meeting also kicks off in Malta today. Clearly any headlines which emerge from Trump’s meeting with Xi Jingping are also worth watching.
US Event Calendar
- 8:30am: Change in Nonfarm Payrolls, est. 180,000, prior 235,000
- Unemployment Rate, est. 4.7%, prior 4.7%
- Average Hourly Earnings MoM, est. 0.2%, prior 0.2%; Average Hourly Earnings YoY, est. 2.7%, prior 2.8%
- Average Weekly Hours All Employees, est. 34.4, prior 34.4
- Labor Force Participation Rate, prior 63.0%
- Underemployment Rate, prior 9.2%
- Wholesale Trade Sales MoM, prior -0.1%; Wholesale Inventories MoM, est. 0.4%, prior 0.4%
- Consumer Credit, est. $15.0b, prior $8.79b
DB’s Jim Reid concludes the overnight wrap
We’re straight to breaking news this morning where overnight, President Trump has taken the first military action of his young Presidency, launching a cruise missile attack at Syria following the gas attack within the country earlier this week. The headlines emerged at about 2.15am BST and reports suggest that 59 missiles were fired, targeting an air base, with President Trump confirming the order a short time ago. Trump released a statement saying that it is in “the vital national security interest of the United States to prevent and deter the spread and use of deadly chemical weapons. There can be no dispute that Syria used banned chemical weapons and violated its obligations under the chemical weapons conventions”. According to Bloomberg the White House was said to have notified Russian forces in Syria prior to the attack. The attack also comes after US secretary of state Rex Tillerson warned last night that a “serious response” was needed and that “steps are underway” for the removal of Syria’s Assad regime. Since the attack we’ve seen House Speaker Ryan and Senator McCain both come out with messages of support.
Markets initially reversed early gains and moved into risk-off mode after the strikes but we are seeing a recovery as we go to print. At the time of writing, the Nikkei is back to +0.52% having been up as much as +1.00% initially then down as much as -0.44% following the news. The Shanghai Comp (+0.25%) is now at its highs after initially fluctuating between gains and losses while the Kospi is back to -0.07% after being down as much as -0.47%. The Hang Seng (-0.56%) has also partially recovered earlier heavier losses. The rebound is partly being helped by a further rally for Oil (WTI +1.62% to $52.23/bbl) following the news of the attack. Gold (+0.87%), the Yen (+0.20%) and 10y Treasuries (-3.0bps to 2.310%) are firmer but have also pared some initial stronger gains.
Needless to say it’ll be important to see how Europe opens on the back of the overnight news. In addition to digesting these developments, today is payrolls Friday in the US. As we said earlier in the week, it does seem the emphasis for the timing and pace of global hikes has shifted away from employment to inflation in recent months so it’s perhaps not as much of a focal point as some recent prints but the 263k on ADP on Wednesday creates some intrigue. The market is at 180k and DB at 150k with our economists below market on the basis of weather effects as a result of the Winter Storm Stella. As always keep an eye on the other components of the report including the unemployment rate (consensus for no change at 4.7%), average hourly earnings (+0.2% mom expected) and average weekly hours (expected to hold steady at 34.4hrs).
Moving on I’ve had a few emails saying that the story I told about my school partnership with golfer Paul Casey in yesterday’s EMR was one I’d told before so apologies for that. I’m either running out of anecdotes, losing my memory or spending too much time watching ‘In The Night Garden’. Or all three. Talking of repetition, yesterday I published a Credit Bites on a similar theme to that I’ve published on a couple of times already this year. Recycling anecdotes and research at the moment. The piece was called “Euro Credit – more expensive than it looks” and highlights that although EU IG spreads to Bunds have been broadly flat since mid-August, Euro Stoxx 50 and peripheral equities are up around 15% and 20% respectively over the same period. US IG credit is also around 25bps tighter since mid August. So it looks as if there’s some catch up potential. However the reality is that the benchmark (bunds) has been the star performer in the DM government bond world over this period.
Against a ‘weighted’ government benchmark that we created that matches the geographical split of the corporate index, current spreads are actually fairly close to their post crisis tights and with it close to the tightest they’ve been in a decade. The point we’ve been trying to get across over the last few months is that although the technicals for credit are strong with CSPP, we think the technicals for Bunds are even stronger. See the note at around 1.15pm BST yesterday or ask Sukanto.Chanda@db.com for a copy.
It’s likely that the other focus for markets today will be the headlines that emerge from the meeting between President Trump and China President Xi Jingping. So far we haven’t heard much aside from some reports in the press suggesting that Xi will offer Trump a number of sweeteners including further opening of Chinese markets to US companies. Unsurprisingly the Syria news has taken over as the main story for now and it may make for interesting discussions on North Korea given Trump’s actions overnight and his comments last weekend about taking action on North Korea unilaterally if he had to. Separate to this but staying with politics, Supreme Court nominee Neil Gorsuch is expected to be confirmed by the Senate today after majority leader Mitch McConnell scrapped the requirement for nominees to receive 60 votes in the 100 seat Senate in what is called rather extremely the “nuclear option”. Instead a simple majority is all that is required now.
Over in markets, geopolitical concerns and the prospect of a payrolls Friday looming helped to keep markets mostly in check yesterday. Both the S&P 500 (+0.19%) and Stoxx 600 (+0.18%) finished with similar modest gains helped by a bit of a boost from the energy sector after WTI Oil (+1.08%) headed back up towards $52/bbl again (above it this morning as we mentioned earlier). Credit indices were also marginally tighter although sovereign bond markets were incredibly muted. 10y Treasuries finished the day a small 0.5bps higher in yield at 2.342% while 10y Bunds were a similar amount higher at 0.259%.
Moving on. While markets weren’t particularly exciting yesterday there was plenty of focus on the ECB with the release of the March minutes and also comments from Draghi and his colleagues at the ‘ECB and its watchers’ conference. In terms of the minutes, the text revealed that “looking ahead, it was recalled that, if the euro area economy were to recover further and as inflation proceeded further on its path towards the Governing Council’s inflation aim in a sustained manner, a discussion on policy normalisation would become warranted in the future”. This passage was probably the most significant insofar as it suggested that a likely change to language is coming from the Bank. ECB President Draghi emphasised however that the ECB is still in a steady as we go mode for now after saying that “I do not see cause to deviate from the indications we have been consistently providing in the introductory statement to our press conferences” and that “we have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook which remains conditional on a very substantial degree of monetary accommodation”. Meanwhile ECB Chief Economist Peter Praet said that “forward guidance implies a sequencing between the interest rate policy and the quantitative policy that can most efficiently internalize and exploit the intimate complementarities between these two key components of our current stance”.
For completeness, yesterday’s data did little to move the dial. In the US initial jobless claims fell to 234k last week which lowered the four-week average to 250k. In Europe the only notable data came from Germany where factory orders printed at +3.4% mom in February following a sharp decline in January.
Looking at the day ahead, this morning in Europe the main focus will likely be on the February industrial production reports which are due to come from Germany, France and the UK. We are also due to get February trade data from those countries as well as house prices data in the UK. Over in the US the aforementioned March employment report will be the main point of focus while wholesale inventories and consumer credit data are the other releases due in the US. Away from the data the Fed’s Dudley is due to give a talk on the state of financial regulation in the US this evening at 5.15pm BST. Away from that BoE Carney speaks this morning at 10am BST while the Euro area finance ministers meeting also kicks off in Malta today. Clearly any headlines which emerge from Trump’s meeting with Xi Jingping are also worth watching.