Nervous Markets Slide Ahead Of Trump’s Iran Announcement, EMs Roiled As Dollar Surge Continues

U.S. futures and European stocks are modestly lower, following a mostly green Asian session, amid growing jitters over today’s 2pm announcement by President Trump in which he will unveil the fate of the Iran nuclear deal.

Ahead of Trump’s much anticipated announcement this afternoon, it has been a case of sell the rumor and the news (for reasons Barclays explained overnight), with oil prices retreating from three-and-a-half year highs as investors weighed competing views on whether the U.S. will reimpose sanctions on OPEC producer Iran and the potential consequences of such a decision: as Bloomberg recaps, while foreign officials and analysts say Trump is likely to remove the U.S. from the pact, the president may also surprise allies by agreeing to stay in the accord a while longer as American and European diplomats forge side deals aimed at addressing his concerns.

As a result, there was some profit-taking as WTI dipped back under $70.00/bbl level following reports that European powers are close to a package deal to try and persuade Trump not to withdraw from the Iran deal; however, subsequent reports suggest that Trump may be inclined to dropping out of the agreement when he announces his decision at 2pm ET today.

Complicating matters, the potential fallout from a US withdrawal in the oil market is unclear. While consultant FGE is among industry watchers who have said renewed U.S. measures may cut production from OPEC’s third-largest member, Barclays Plc sees Iran’s output little changed in 2018, while RBC notes that “Iran’s exports could be cut by 200K bpd to 300K bpd” if the US restores sanctions. How European and Asian oil buyers deal with possible American action, as well as the effect on OPEC’s output curbs aimed at shrinking a global glut, will also be watched.

“Reaching the $70 milestone gave investors a sense of accomplishment and triggered profit-taking,” Satoru Yoshida, a commodity analyst at Rakuten Securities Inc., said by phone from Tokyo. Still, “oil is trading around $70 as the market is factoring in the possibility that the U.S. will unilaterally terminate the Iran deal and reimpose sanctions.”

Overnight Barclays published the following timeline of how we got here, and what happens next:

There was less confusion about the dollar, which continued its torrid surge since the April 17 PBOC RRR cut, rallying steadily for most of the overnight session across G-10 with the DXY hitting another high for 2018; meanwhile no fresh comments from Fed Chair Powell who spoke early in Zurich and hinted that EMs are on their own, led to a continuation of recent trend. The dollar climbed after erasing an earlier decline. The Bloomberg Dollar Spot Index rose for a third day to reach its highest level since December.

Across other G-10 currencies, the biggest slide was seen in the Canadian dollar, followed by fellow commodity currency the Australian dollar. Sterling headed for its lowest level versus the dollar since January on dismal U.K. house price data. The euro felt the heat from Italian politics, dropping to 1.1874, a new year-to-date low, while Sweden’s krona saw the biggest daily advance as the Riksbank’s minutes and policy maker comments were taken as more hawkish than markets had expected.

Meanwhile, as Bloomberg macro commentator and former Lehman trader Mark Cudmore writes, “all bullish biases neutralize amid widespread EM weakness, even PHP despite it having best overall long-term fundamentals.” Not helping ease concerns about growing turmoil among emerging markets, was Fed Chair Jerome Powell who warned that the Fed’s gradual push towards higher interest rates shouldn’t be blamed for any roiling of emerging market economies, which are well placed to navigate the tightening of U.S. monetary policy.

In a speech delivered in Zurich, the Fed chair argued U.S. decision-making isn’t the major determinant of flows of capital into developing economies, and that the influence of the Fed on global financial conditions should not be overstated, despite being blamed five years ago for the so-called taper tantrum.

“There is good reason to think that the normalization of monetary policy in advanced economies should continue to prove manageable for EMEs,” Powell said at a conference sponsored by the International Monetary Fund and Swiss National Bank in Zurich on Tuesday. “Markets should not be surprised by our actions if the economy evolves in line with expectations.”

The result: another “sea of red” day in today’s EM FX monitor.

Global equities largely followed these two concerns, with Europe’s Stoxx 600 down 0.5% amid broad risk aversion ahead of Trump’s decision on the Iranian nuclear deal later in the day. The FTSE (+0.1%) currently outperforming as UK traders return to their desks post-bank holiday, as well as being given a boost by Takeda’s GBP 46bln approach for Shire (+4.1%). FTSEMIB (-2.2%) is the worst performer due to election concerns, with the DAX (-0.4%) also underperforming, following an earnings miss for Deutsche Post (-6.1%).

Earlier, Asian equity markets traded mostly in the green, catching up with a strong Monday close on Wall Street where all 3 majors indexes closed in the green but off best levels after a late retreat in crude, while mixed Chinese trade data and a looming Trump announcement on the Iran agreement has also kept upside in the region contained. ASX 200 (+0.1%) is positive with gains led by strength in the largest weighted financials sector. Elsewhere, Nikkei 225 (+0.2%) shrugged off a firmer currency and conformed to the overall risk appetite, while Hang Seng (+1.4%) and Shanghai Comp. (+0.8%) outperformed with healthcare and financials front running the gains despite further liquidity inaction and another consecutive net neutral position by the PBoC.

The latest Chinese trade data confirmed that the March export plunge was largely a Chinese new year calendar-driven outlier:

• Chinese Trade Balance (CNY)(Apr) 182.8B vs. Exp. 189.15B (Prev. -29.8B).
  • Chinese Exports (CNY)(Apr) 3.7% vs. Exp. 4.0% (Prev. -9.8%)
  • Chinese Imports (CNY)(Apr) 11.6% vs. Exp. 10.4% (Prev. 5.9%)
• Chinese Trade Balance (USD)(Apr) 28.78B vs. Exp. 27.80B (Prev. -4.98B).
  • Chinese Exports (USD)(Apr) Y/Y 12.9% vs. Exp. 8.0% (Prev. -2.7%)
  • Chinese Imports (USD)(Apr) Y/Y 21.5% vs. Exp. 16.0% (Prev. 14.4%)

Meanwhile, political fears are once again returning to Europe, where Italian BTPs sold off with the spread to bunds wider by ~8.5bps as early Italian elections are now the most likely scenario, sending the Italian bank index -2.8%.

As Italy underperformed heavily, USTs hold in a very tight range, and were barely changed for the session trading at 2.95%.

In overnight key central bank news, Fed Chair Powell said the market is “reasonably well aligned” with the Fed dot plot, adds markets should not be surprised with the Fed’s actions. Elsewhere, Fed’s Kaplan (non-voter, neutral) said the base case remains at 3 hikes total for this year.

The Riksbank minutes were released and showed several members expressing concerns about development of inflation going forward, as well as pointing out that it is important the Krona exchange rate develops in a manner compatible with inflation stabilizing close to the target. Riksbank’s Skingsley added that he is likely to back a hike in either October or December, and that as the Krona is expected to strengthen again over the forecast period, the effects of inflation can be seen as moderate.

In the latest Brexit news, UK PM May is reportedly facing renewed turmoil regarding Brexit options and is said to be under pressure from MPs across different parties to accept EEA membership or risk defeat in Commons. Furthermore, Dozens of Eurosceptic MPs in the UK’s Conservative party are expected to express their frustration today regarding  a lack of direction for the UK’s future post-Brexit.

Disney is set to report earnings after market close, while JOLTS job openings data is in the macro calendar

Bulletin Headline Summary from RanSquawk

• WTI crude futures continue to retrace from three-and-a-half year highs
• Dollar index firming up again after another bout of consolidation, with the Dollar bid against all major counterparts bar the Jpy and Chf.
• Looking ahead, highlights include APIs, President Trump (Iranian announcement at 1400ET/1900BST) and a 3yr note auction

Market Snapshot

• S&P 500 futures down 0.3% to 2,661.50
• STOXX Europe 600 down 0.2% to 388.60
• MXAP up 0.5% to 173.62
• MXAPJ up 0.4% to 564.59
• Nikkei up 0.2% to 22,508.69
• Topix up 0.4% to 1,779.82
• Hang Seng Index up 1.4% to 30,402.81
• Shanghai Composite up 0.8% to 3,161.50
• Sensex up 0.05% to 35,227.42
• Australia S&P/ASX 200 up 0.1% to 6,091.89
• Kospi down 0.5% to 2,449.81
• German 10Y yield unchanged at 0.532%
• Euro down 0.3% to $1.1887
• Italian 10Y yield fell 3.7 bps to 1.505%
• Spanish 10Y yield rose 1.7 bps to 1.293%
• Brent Futures down 1.1% to $75.36/bbl
• Gold spot down 0.3% to $1,310.03
• U.S. Dollar Index up 0.3% to 93.04

Top Overnight News

• President Donald Trump says he will announce his decision on Iran Tuesday at 2 p.m. in Washington Geopolitical jitters — along with the start of the summer driving season and positive jobs data — had helped push oil above $70 a barrel for the first time since November 2014.
• Takeda Pharmaceutical Co. reached an agreement to buy larger rival Shire Plc for about 46 billion pounds ($62 billion) in a deal that transforms it into a top drugmaker in the lucrative business of rare diseases and boosts its heft in the U.S.
• Emerging market central banks are facing their stiffest test since the 2013 taper tantrum. Investors are increasingly betting the Federal Reserve will keep raising interest rates into 2019, sending the dollar soaring against most developing-nation currencies in the past month
• Italy’s Five Star Movement has abandoned its efforts to form a government and is gearing up for fresh elections. Italian bonds slid after Luigi Di Maio, head of the anti-establishment party, declared the campaign open
• Foreign Secretary Boris Johnson attacks Theresa May’s customs plan as crazy, as the House of Lords reminds the U.K. Prime Minister that she doesn’t have the final say on Brexit
• The Federal Reserve’s gradual push toward higher interest rates shouldn’t be blamed for any roiling of emerging-market economies, which are well placed to navigate the tightening of U.S. monetary policy, Fed Chairman Jerome Powell said
• Opposition lawmakers and rebels in Theresa May’s Conservative Party aim to push through two changes to the premier’s flagship Brexit legislation Tuesday, continuing its bruising passage through the House of Lords
• HSBC Global AM, Legal & General Group Plc are among 250 wealth managers in a group known as the Climate Action 100+ that are asking the companies they own to bring their investment programs in step with the Paris Agreement on limiting global warming, even as Trump tries to unpick the deal
• Treasury officials say they have no concern about demand for the ever-increasing slate of U.S. government debt. Bond investors are about to render their verdict

Asia equity markets traded mostly positive following a similar performance on Wall St where all 3 majors closed in the green but off best levels after a late retreat in crude, while mixed Chinese trade data and a looming Trump announcement on the Iran agreement has also kept upside in the region contained. ASX 200 (+0.1%) is positive with gains led by strength in the largest weighted financials sector. Elsewhere, Nikkei 225 (+0.2%) shrugged off a firmer currency and conformed to the overall risk appetite, while Hang Seng (+1.4%) and Shanghai Comp. (+0.8%) outperformed with healthcare and financials front running the gains despite further liquidity inaction and another consecutive net neutral position by the PBoC. Finally, 10yr JGBs were lacklustre as focus centred on riskier assets, while the 10yr JGB auction also failed to impact prices with the results somewhat inconclusive in which the b/c printed higher than previous and accepted prices declined.

Top Asian News

• China April Exports Climb, Imports Jump on Solid Global Demand
• Alibaba Buys Rocket Internet’s Daraz; No Terms

Stoxx 600 is down 0.5% amid broad risk aversion ahead of the US decision on the Iranian nuclear deal later in the day. The FTSE (+0.1%) currently outperforming as UK traders return to their desks post-bank holiday, as well as being given a boost by Takeda’s GBP 46bln approach for Shire (+4.1%). FTSEMIB (-2.2%) is the worst performer due to election concerns, with the DAX (-0.4%) also underperforming, following an earnings miss for Deutsche Post (-6.1%).

Top European News

• U.K. Home Prices Post Biggest Monthly Drop in Almost Eight Years
• German March Ind. Production Rises 1% m/m; Est. +0.8% m/m
• Takeda Clinches $62 Billion Deal to Buy Drugmaker Shire
• Folli Follie Group Launches Share Buyback Program

In FX, the DXY has again firmed up after another bout of consolidation, with the Dollar bid against all major counterparts bar the Jpy and Chf. The index has now printed above 93.000 vs 92.974 at best yesterday, with little reaction to latest comments from Fed Chair Powell who merely stressed the need for clear policy communication to avoid market turbulence, He also claimed that EMs can cope with US normalisation, but the Try for one continues to struggle at new record lows vs the Greenback circa 4.3000. CAD: A relatively sharp pull-back in crude prices amidst speculation that the UK, France and Germany are on the cusp of a plan that might tempt US President Trump not to abandon the Iranian nuclear treaty, plus ongoing NAFTA uncertainty as negotiations resume are weighing heavily on the Loonie, as Usd/Cad spikes through the top of recent ranges and more convincingly above 1.2900. In fact, the pair is testing the water above 1.2950 at fresh multi-week peaks, with early March highs around 1.3000 next on the  upside. SEK: Extending gains vs the Eur (to sub-10.5000 levels) and Nok (also undermined by the retreat in oil) in wake of Riksbank minutes reaffirming year end rate hike guidance and the broad Swedish Central Bank view that the Krona will rally over time after a temporary period of weakness. JPY/CHF: Both showing relative resilience vs the Usd around 109.00 and within a 1.0000-50 band respectively, with perhaps some underlying safe-haven demand evident ahead of Trump’s eagerly-awaited Iran deal or no deal announcement (14.00ET/19.00BST). AUD: Another laggard on broadly weaker commodity prices and softer than forecast Aussie retail sales data overnight, with Aud/Usd back under the 0.7500 mark and Aud/Nzd losing 1.0700+ status again. GBP: Volatile as UK participants return from May Day to confirmation of a mega M&A deal that lifted Cable towards 1.3600 at one stage, and Gbp/Jpy up through 148.00, but the Pound now beating a retreat to retest 1.3500 vs the Usd and back below its 200 DMA (1.3542).

In Commodities, WTI crude futures continue to retrace from three-and-a-half year highs, back below the USD 70.00/bbl level following reports that European powers are close to a package deal to try and persuade Trump not to withdraw from the Iran deal. That said, later reports suggest that Trump may be inclined to dropping out of the agreement when he announces his decision at 1900BST today, a move that can disrupt global oil supply. “Iran’s exports could be cut by 200K bpd to 300K bpd” says RBC if the US restores sanctions. Elsewhere, gold prices have been choppy, tracking fluctuations in the USD, while 3-month copper on the LME was up 0.3% and zinc climbed 1.5% on expectations for strong Chinese data in the coming weeks. Iran has set June’s light crude official price for Asia USD 2/bbl above Oman/Dubai quotes.

US Event Calendar

• 3:15am: Fed’s Powell to Speak at SNB/IMF Event in Zurich
• 6am: NFIB Small Business Optimism, est. 104.5, prior 104.7
• 10am: JOLTS Job Openings, est. 6,100, prior 6,052

DB’s Jim Reid concludes the overnight wrap

As the UK felt like the Middle East yesterday it was apt that Oil stole the headlines. Originally WTI futures traded above $70 (around 1.61% higher for the day at the peak – $70.84) for the first time since November 2014. However another market moving Trump tweet late in the US session led to a reversal as he suggested that he would make a statement at 2pm today Washington time as to whether the US will remain in the Iran nuclear accord. The fact that he didn’t slam the deal again seemed to encourage thoughts that he might stay in the agreement to some degree and some risk premium disappeared. At the close WTI dipped back near $70 but still +0.40% higher on the session.

The recent run up in commodity prices is interesting for inflation which this week’s sees the all-important US CPI print on Thursday as its next major signpost. We’ll preview fully on Thursday. Elsewhere this week, EM will continue  to take some focus, in particular events with regards to Argentina. As a reminder, interest rates were hiked a further 675bps to 40% on Friday – the third hike in eight days which brings the cumulative increase to 12.75ppt from 27.25% over that period. The Peso weakened 0.4% against the Greenback yesterday, while the Turkish Lira fell 0.9%, as concerns for potential US sanctions on Iranian oil exports seemed to outweigh initiatives by the Turkish central bank to shore up the currency as it lowered the upper limit for foreign exchange. So another market that will look at Trump’s announcement today quite closely.

This morning in Asia, markets have followed a positive US lead from yesterday and are trading higher, with the Hang Seng (+1.17%), Nikkei (+0.16%), Kospi (+0.15%) and Shanghai Comp. (+0.91%) all up. The yield on UST 10y are little changed while WTI oil is down c1% as we type. Elsewhere on trade, following last week’s visit by the US delegation to Beijing, China’s Vice Premier Liu is expected to visit the US next week for more trade talks. Datawise, China’s April trade surplus was stronger than expected at US$28.8bn (vs. US$27.8bn) as growth in imports outpaced exports (21.5% yoy vs. 12.9%)

Now recapping markets yesterday. European bourses were all higher, buoyed  by the lower Euro, M&A activity and higher oil prices, as the latter traded before President Trump’s tweet. Across the region, the Stoxx 600 (+0.64%) and DAX (+1.0%) were both higher, with gains led by the energy and tech sectors. The S&P pared back earlier gains but was still up for the second consecutive day (+0.35%), while the Dow (+0.39%) and Nasdaq (+0.77%) also advanced. The VIX dipped 0.1% to the lowest since early March (14.75).

Over in government bonds, core 10y bond yields were little changed with UST 10y flat at 2.951% while Bunds and OATs both fell c1.3bp. Conversely, peripherals outperformed with 10y yields down 1.5-3.5bp, partly reversing Friday’s losses. In FX, the US dollar index firmed for the second day (+0.20%) while the Euro fell to the lowest since early January (-0.32%). Elsewhere, precious metals softened slightly (Gold -0.02%; Silver -0.34%) while other base metals were little changed.

Away from the markets and moving onto central bankers speak now. In Europe, the WSJ noted the ECB’s Smet said the ECB is likely to phase out its QE program over the summer, possibly announcing a decision after its July policy meeting. Elsewhere, the ECB’s Praet noted that the recent economic softening is to be expected after a strong 2H17, albeit the “slowdown has come sooner than anticipated”. However, he added “there is so far no evidence that the moderation….reflects a durable softening in demand”. On rates, he said it will “evolve in a data-dependent and time consistent manner” while reaffirming that ample degree of monetary stimulus remains necessary.

Following on, the Fed’s Bostic echoed his peers’ comments on inflation, he said “we’re fluctuating around the 2% target, I’m comfortable with that….some overshoot is fine”. On the stronger oil price, he believe it should have a “less dramatic” impact on the US economy than before, in part as he is “not hearing from anybody right now that they are expecting this trend in oil prices to fundamentally change the trajectory of the economy”. Elsewhere, the Fed’s Kaplan’s base case for rates is still “three rate hikes for this year” and added that the path of raising rates should be “flatter than what we’re historically accustomed to”. Then he also noted that wage pressures are building and “it wouldn’t surprise me to see more wage pressure in the coming months”. Finally, Mr Barkin has made his inaugural speech after taking the helm as the Richmond Fed President. He said that US monetary policy is still accommodative and “it’s hard to argue that accommodation is appropriate when unemployment is low and inflation is effectively at our target”. Further, he said “you probably ought to go to neutral in that environment”.

Over at Italy, c2 months after the general election, efforts to form the next government are still in a gridlock. Bloomberg has cited an unnamed senior state official who noted that fresh elections in July is “probable” if a new Premier (yet to be appointed) fails to win a parliamentary confidence vote.

Before we take a look at today’s and the rest of the week’s calendar, we wrap up with other data releases from yesterday. In the US, the March consumer credit was weaker than expected at $11.6bln (vs. $16bln), in part as credit card debt fell the most since the end of 2012. Notably, annual growth for consumer credit was steady at 5% yoy, Elsewhere, the Euro area’s May Sentix investor confidence edged down 0.4pt mom and was below expectations at 19.2 (vs. 21). Germany’s March factory orders was below market and fell for the third consecutive month, leaving growth at 3.1% yoy (vs 5% expected).

Looking at today’s calendar, the early focus today will be in Germany with March trade data due along with the March industrial production print. In the UK the April Halifax house price index is due while in the US the NFIB small business optimism reading for April is due along with March JOLTS data. Away from the data Fed Chair Powell is due to speak in the morning in Zurich at a SNB/IMF event while the ECB’s Liikanen and the Riksbank’s Deputy Governor Jansson will also speak. EU27 envoys are also due to gather in Brussels to discuss the state of play in Brexit talks.

Original source: http://feedproxy.google.com/~r/zerohedge/feed/~3/-xSit2ATEtI/nervous-markets-slide-ahead-trumps-iran-announcement-ems-roiled-dollar-surge