TradeTheNews.com Weekly Market Update: Passive ECB and Hawkish Fed Finally Jar Markets

Fri, 09 Sep 04:05 PM EST/09:05 PM GMT

September trade finally ushered in some volatility after the long slog higher for much of the summer. Early on in the week volumes remained light and movement remained minimal coming on the heels of a disappointing August employment report last Friday. An uptick in M&A announcements after the Labor Day holiday did little to juice equity markets. Corporate debt offerings surged as company’s looked to roll over financing costs ahead of a potential Fed rate hike. US data continued to come in soft, highlighted by the August ISM Services reading that touched its lowest level since 2010. The weaker readings helped push Treasury markets higher, keeping a lid on yields through midweek.

By Wednesday traders focus turned decidedly towards Europe. With August (post-Brexit) economic readings holding up generally better than some officials admittedly had forecasted, expectations that much would come of Thursdays ECB meeting were diminished. Nevertheless, markets responded when the ECB held pat on rates and stimulus measures and Draghi was decidedly more hawkish than many had expected in his commentary. Notably Draghi said the ECB did not discuss extending its QE timeframe, even as the nominal end date is looming in March. The reverberations were felt most potently in the rates complex. Sovereign bonds sold off globally pushing benchmark rates in Europe and the US up to levels not seen since the Brexit vote. The pressure was amplified by a more hawkish tone from a slate of Fed speakers that spooked markets about the possibility the Fed could actually make its next rate move this month. Boston Fed President Rosengren said there is a reasonable case for gradual tightening, and even the usually cautious dove Governor Tarullo said he would not rule out a rate hike this year. Stock markets came under pressure and the selling accelerated into week’s end. The S&P, Dow and Nasdaq Composite each fell below their 50-day moving averages on Friday for the first time since the post Brexit swoon, and the S&P500 saws its first daily move of greater than 1% for the first time in over 40 sessions. For the week, the DJIA lost 2.2%, the S&P500 dropped 2.4%, and the Nasdaq fell 2.4%.

Energy futures pushed higher for most of the week after Russia and Saudi Arabia agreed to form a working group on oil price stability and other oil producers including Iran made constructive comments about a potential oil production freeze agreement. Weekly energy inventory data also provided a boost for crude futures as the 12% of US Gulf of Mexico oil production that was shut in by tropical storm Hermine resulted in the largest weekly draw in crude since 1999.

In the realm of corporate news, the most anticipated event this week was Apple’s product unveiling. CEO Cook divulged the new ‘water-resistant’ iPhone 7 model, which features larger hard drives, an upgraded camera, and a somewhat controversial removal of the headphone jack, but the announcement revealed few features that surprised any tech-watchers. The consumer electronics giant also introduced the Apple Watch 2, with built-in GPS, and Airpod wireless earphones. While the event disappointed some, Apple’s week was considerably better than competitor Samsung’s; the Korean electronics maker announced a global recall of its Galaxy Note 7 phones on reports of battery fires. M&A began to pick up from the relatively quiet pre-Labor Day holiday period. Hewlett Packard Enterprise announced it would spin off and sell its non-core software assets to Micro Focus in a deal valued at $8.8B, creating one of the world’s largest pure-play enterprise software companies. Reports indicated Monsanto is could announce a deal to be acquired by Bayer next week at price a little below $130/share. And Liberty Media Corp agreed to acquire motorsports league Formula One for an equity value of $4.4B.

Sun 9/4
(CN) CHINA AUG CAIXIN PMI SERVICES: 52.1 V 51.7 PRIOR

Mon 9/5
(EU) EURO ZONE SEPT SENTIX INVESTOR CONFIDENCE: 5.6 V 5.0E
(RU) SAUDI ARABIA AND RUSSIA SIGN AGREEMENT ON OIL MARKET; discussed cooperation on oil and gas to avoid catastrophe and achieve stability; could include possible production freeze (as speculated)

Tues 9/6
(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET AT 1.50%; AS EXPECTED
(EU) EURO ZONE Q2 FINAL GDP Q/Q: 0.3% V 0.3%E; Y/Y: 1.6% V 1.6%E
CPHD: To be acquired by Danaher for $53/shr valued at $4B
SE: To combine companies with Enbridge in an all stock for stock merger, EV at C$165B; values Spectra common stock at ~C$37B
NAV: Confirms wide-ranging strategic alliance with Volkswagen Truck & Bus; VW to invest at $15.76/shr for 19.9% stake
(US) AUG ISM NON-MANUFACTURING COMPOSITE: 51.4 V 55.0E (lowest since Feb 2010)
(US) Aug Labor Market Conditions Index Change: -0.7 v +1.0 prior
FDML: Enters into definitive merger agreement with Icahn Enterprises L.P. at $9.25/shr in all-cash offer
CMG: Pershing Square discloses new 9.9% stake; intends to engage in discussions with management – 13D filing
(AU) AUSTRALIA Q2 GDP Q/Q: 0.5% V 0.6%E (1-year low); Y/Y: 3.3% V 3.3%E (annual pace hits a 2-year high)

Wed 9/7
(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; AS EXPECTED
(CN) CHINA AUG FOREIGN RESERVES: $3.185T V $3.190TE (lowest level since Dec 2011)
(UK) JULY INDUSTRIAL PRODUCTION M/M: +0.1% V -0.2%E; Y/Y: 2.1% V 1.9%E
(UK) JULY MANUFACTURING PRODUCTION M/M: -0.9% V -0.3%E; Y/Y: 0.8% V 1.7%E
(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED
AAPL: Introduces iPhone 7 and Apple Watch 2 – product event
(US) FEDERAL RESERVE RELEASES BEIGE BOOK: ECONOMY CONTINUED TO EXPAND AT MODEST PACE THROUGH LATE AUGUST; UPWARD WAGE PRESSURES INCREASED FURTHER
(JP) JAPAN Q2 FINAL GDP Q/Q: 0.2% V 0.0%E; ANNUALIZED GDP: 0.7% V 0.2%E (2nd straight expansion both quarterly and annualized)
(CN) CHINA AUG TRADE BALANCE: $52.1B V $58.4BE

Thrs 9/8
(CN) China Passenger Car Association (PCA): China July vehicle sales 1.8M units, +24.5% y/y; YTD 14.2M units, +12.7% y/y
(EU) ECB LEAVES MAIN 7-DAY REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED
(EU) ECB Statement: Reiterates to continue €80B/month asset purchases program until Mar 2017 or beyond if necessary (no change in current timeline)
(US) INITIAL JOBLESS CLAIMS: 259K V 265KE; CONTINUING CLAIMS: 2.14M V 2.15ME
(EU) ECB chief Draghi: Sees rates at present or lower level for extended period; to preserve very substantial amount of support – prepared remarks
(EU) ECB chief Draghi: Did not discuss extension of QE; working on smooth implementation of policies, changes are needed – Q&A
(EU) ECB chief Draghi: Have not discussed helicopter money or equity buying
(US) DOE CRUDE: -14.5M V +0.5ME; GASOLINE: -4.2M V -0.5ME; DISTILLATE: +3.4M V +1ME (largest crude draw since 1999)
(PE) PERU CENTRAL BANK (BCRP) LEAVES REFERENCE RATE UNCHANGED AT 4.25%; AS EXPECTED
(KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 1.25%; AS EXPECTED (3rd straight puase in current easing cycle)
(CN) CHINA AUG CPI Y/Y: 1.3% V 1.7%E; 10-month low
(CN) CHINA AUG PPI Y/Y: -0.8% V -0.9%E; 54th consecutive month of decline; smallest decline since Apr 2012

Fri 9/9
(FR) FRANCE JULY INDUSTRIAL PRODUCTION M/M: -0.6% V +0.3%E; Y/Y: -0.1% V +1.0%E
(FR) FRANCE JULY MANUFACTURING PRODUCTION M/M: -0.3% V +0.7%E; Y/Y: 0.4% V 1.8%E
GILTS: (UK) 10-year Gilt yield approaching 0.81%; highest since BOE announced new QE measures back on Aug 2nd – dealers
(US) Fed’s Rosengren (moderate, FOMC voter): Sees reasonable case for gradual tightening
(CA) CANADA AUG NET CHANGE IN EMPLOYMENT: +26.2K V +14.0KE; UNEMPLOYMENT RATE: 7.0% V 7.0%E
(US) Weekly Baker Hughes US Rig Count: 508 v 497 w/w (+2%)