In another quiet overnight session, the biggest – and unexpected – macro news was the surprise monetary easing by Singapore which as previously reported moved to a 2008 crisis policy response when it adopted a “zero currency appreciation” stance as a result of its trade-based economy grinding to a halt. As Richard Breslow accurately put it, “If you need yet another stark example of the fantasy storytelling we amuse ourselves with, juxtapose today’s Monetary Authority of Singapore policy statement with the storyline that the Asian stock market rally intensified on renewed optimism over the global economy. Singapore is a proxy for trade and economic growth ground to a halt last quarter.” The Singapore announcement led to a sharp round of regional currency weakness just as the dollar appears to have bottomed and is rapidly rising. The Singapore dollar slid 1 percent in the wake of the new stance.

Speaking of the Greenback, the USD rose against most major peers and base metals denominated in the U.S. currency fell to compensate for the appreciation. The dollar’s more than 6 percent drop since late January is starting to meet some resistance amid lackluster euro-area expansion and investor speculation that U.S. economic growth remains intact, strengthening the case for higher interest rates this year. To be sure, none of that speculation was actually confirmed by the data, with both retail sales and inventories missing but when did facts matter over narratives.

“We’ve seen stabilization in macro data in China, but stabilization is one point, re-acceleration is another,” said Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf, Germany.

After crude dropped as low at $40.84, it rebounded and was trading unchanged after the latest IEA forecast predicted the global supply glut would narrow to just 200k b/d in 2H, down from 1.5m b/d in 1H. Brent mirrors WTI recovery after testing support at 200-day moving avg. “The IEA report bounced the market, being quite positive for when the supply glut will disappear, seeing this happen in 2H based on demand and based on non-OPEC production,” says Saxo Bank head of commodity strategy Ole Hansen. The market also remained keenly focused on any and all “Doha” headlines ahead of the OPEC meeting in Qatar on Sunday.

Also notable are the oil technicals: “We tested the 200-day MA earlier” Hansen added, but bounced back w/ IEA report, says Hansen. “If we close today below the 200-day MA that could trigger a negative technical reaction, but at this stage we are seeing a bit of a fightback.”

In Europe, the Stoxx 600 was little changed as miners and energy producers tumbled, while investors weighed earnings reports from Burberry Group Plc and Nestle SA.  Commodity producers, the best performers among industry groups in 2016, fell for the first time in five days. Anglo American Plc and Randgold Resources Ltd. lost at least 2.7 percent. BP Plc led oil stocks lower. Lenders also declined, paced by Standard Chartered Plc and Barclays Plc, after jumping the most since 2011 on Wednesday. Burberry tumbled 5.9 percent after forecasting a revenue drop at its wholesale unit in the first half of the year. Peer Cie. Financiere Richemont SA lost 1.4 percent. Nestle rose 1.8 percent after its sales beat analysts’ estimates.

S&P500 futures fell 0.1 percent, in a modest retreat from a four-month high. Bank of America Corp. and Well Fargo & Co. are due to report earnings Thursday. Investors also await data on initial jobless claims and inflation for indications on the possible trajectory of interest rates.

Where markets stand right now

• S&P Futures down 0.1% to 2075
• Stoxx 600 down 0.2% to 342.5
• German 10Yr yield up 3bps to 0.16%
• Euro Stoxx 50 down -0.2%
• FTSE 100 down -0.2%
• DAX up 0.1%
• MSCI Asia Pacific up 1.7% to 132.2
• Nikkei 225 up 3.2% to 16911.1
• Hang Seng up 0.8% to 21337.8
• Kospi up 1.7% to 2015.9
• Shanghai Composite up 0.5% to 3082.4
• France 10yr yield up 3bps at 0.5%
• Greece 10yr yield up 4bps at 9.34%
• Dollar Index up 0.17% to 94.9
• US 10Yr yield up 1bps to 1.77%
• Brent Futures down 0.5% to $44/bbl
• WTI Futures down 0.6% to $41.5/bbl
• Gold spot down 0% to $1242/oz

Top Global News

• IEA Sees Oil Oversupply Almost Gone in Second Half on Shale Drop: surplus to dwindle to 200,000 barrels a day from 1.5m
• Brexit Chance Seen at 24% by Election Analyst Who Beat the Polls: Matt Singh based forecast on likely movement of polls
• London Property Prices Feel Pressure of Brexit, Pound’s Slide: RICS says prices in the U.K. capital expected to keep falling
• U.K. Said to Be Resisting Full Disclosure on Trusts Post- Panama: British official says trusts are commonly-used vehicle in U.K.
• Burberry Sees Profit Setback Amid Declining Luxury-Goods Demand: Full-year profit will be at low end of analysts’ ests
• BP CEO’s 20% Jump in Pay Seen Sending ‘Wrong Message’ Before AGM: All shareholders should scrutinize remuneration deal, IoD says

Looking at regional markets, Asia stocks extended on recent gains following the positive lead from Wall St. where the S&P 500 closed at YTD highs, underpinned by strength in financials after JPMorgan earnings. The optimism in the banking sector supported Nikkei 225 (+3.23%) towards 17000, while ASX 200 (+1.26%) was lifted by material names after the continued increase in copper and iron ore prices. Chinese markets have conformed to the upbeat sentiment after further quasi-measures from the PBoC which provided CNY 285.5bIn of funds under its medium term lending facility. 10yr JGBs were initially higher despite the heightened risk-sentiment across the region, with prices gaining in the super long-end as the 30yr and 40yr yields fell to fresh record lows. However, prices then reversed in late trade following a poor 30yr auction in which the lowest accepted price missed expectations, b/c dropped and tail in price significantly widened.

Top Asian News

• Singapore Adopts 2008 Crisis Policy as Growth Grinds to Halt: Central bank moves to zero appreciation stance on currency
• China’s Mysterious Stock-Market King Reveals Its Trading Secrets: State rescue fund prefers banks, SOEs, consumer cos.
• Nomura Reorganizes Asia Equities Team as Nagai Starts Job Cuts: Brokerage said to cut up to 30 jobs in Asia ex-Japan equities
• RBNZ Says Journalist Leaked Surprise Rate-Cut Move in March: RBNZ to discontinue embargoed lockups for media, analysts
• TSMC Forecasts Sales Below Estimates Amid Smartphone Slowdown: Chipmaker’s net income fell for 3rd straight qtr

European equities trade mostly on the back-foot albeit in somewhat choppy fashion, with energy names underperforming in the first half of the European session amid weakness in crude futures, which has since been reversed. The initial bout of weakness was in part driven by Russia signalling that there would only be little commitments at the meeting, while the IEA noted that a production freeze will have a limited impact on physical oil supplies, how it was the same IEA comments which hinted at an earlier than expected rabalancing due to a hoped for drop in US supply which then helped oil rebound. The SMI has outperformed for much of the morning following strong earnings from Nestle. Elsewhere, Bunds have reversed the initial upside to trade in the red, underpinned by the weakness in USTs ahead of the 30y bond auction due later today.

Top European news

• ITV Said to Pursue Takeover of Canada’s Entertainment One: Entertainment One also owns rights to Peppa Pig cartoons
• Rocket Internet Drops in Frankfurt Amid $222m Net Loss: losses widen at startups including HelloFresh, Lazada
• Swiss Re, L&G Said to Mull Bids for Deutsche Bank Abbey Life: Abbey Life could fetch about GBP1b in a sale
• Steinhoff Convertibles Sale Has Interest for 60% of Deal Size: according to an emailed statement from BofAML
• Kuoni Says EQT Offer Successful as 72.6% of B Shares Tendered: additional acceptance period to start on April 20

In FX, The Bloomberg Dollar Spot Index rose 0.2 percent at 10:43 a.m. in London. The pound fell for a second day against the dollar as investors awaited the Bank of England’s latest policy decision, with analysts forecasting that the central bank will leave its key rate at a record-low 0.5 percent. Investors may focus on whether officials discussed a looser monetary policy to counter the potential economic pain of Britain voting to quit the European Union in a June referendum.  The MSCI Emerging Markets Currency Index fell 0.2 percent, dropping for the first time in six days as Singapore surprised markets by easing monetary policy, spurring speculation other central banks will follow suit. Bank of Canada Governor Stephen Poloz said this week that a stronger loonie may put export growth at risk.

“Everyone else will try to push back,” said Stephen Jen, the co-founder of hedge fund SLJ Macro Partners LLP and a former International Monetary Fund economist. “The global currency war is alive and well. You can see how unhelpful the whole process is.”

Following the latest grind higher in the USD, we have seen some consolidation/profit taking going through, and after hitting lows around 1.1232, EUR/USD is now back around 1.1270 or so, but expected to hold off 1.1300 after yesterday’s break under this level. A data light morning so far, with only the Australian jobs numbers to work off, but the above forecast headline rise was tempered the composition (part time rise much of this). AUD has been relatively well supported in the meantime, and has been edging back towards the high .7600’s again. The USD/JPY recovery has stalled ahead of 109.60 resistance, but positive stocks should support for a 110.00 test unless the US inflation read later today comes in on the weaker side. EUR/JPY sales have also weighed, but recent mid 122.00 lows have held. GBP has also been recovering, with today’s BoE meeting likely to see a familiar cautious tone maintained. Cable back in the mid 1.4100’s after a dip under the figure level lower down. EUR/GBP ranging in the .7900’s for now. CAD unmoved despite a small recovery in Oil.

In commodities, heading into the North American open WTI and Brent crude futures have largely reversed early losses and trade near unchanged on the session, as market participants remain hopeful of a deal between oil producing nations to support prices. On that note, Russian Energy Minister stated that the Doha oil freeze deal will be loosely framed with few detailed commitments, according to two sources at the briefing. While the IEA expects limited impact from any potential freeze deal in Doha. As a guide, energy traders will get to digest the release of the latest EIA natural gas storage change report.

Industrial metals in London declined on concerns that recent price gains could tempt producers to restart capacity and add to global oversupply, while a stronger dollar also weighed on all commodities. Copper dropped 0.5 percent to $4,808 a metric ton, while zinc and nickel lost at least 0.8 percent.

On the US calendar today are the latest initial jobless claims data and more notably the March inflation report. Expectations for the latter are sitting at +0.2% mom for both the headline and core. Away from the data we’ll hear from the Fed’s Lockhart and Powell today, as well the IMF’s Lagarde. The highlight from the earnings releases due today are Bank of America and Wells Fargo, while Delta Airlines will also release their latest quarterly.

Bulletin Headline Summary from RanSquawk and Bloomberg

• Stocks in Europe traded choppy for much of the session as market participants digested a round of mixed earnings, with recovery in oil prices proving positive for the underlying sentiment
• The USD/JPY recovery has stalled ahead of 109.60 resistance, but positive stocks should support for a 110.00 test unless the US inflation read later today comes in on the weaker side
• Looking ahead, highlights include BoE Rate Decision & Minutes, US CPI, Initial Jobless Claims, as well as comments from Fed Powell and Lacker
• Treasuries lower in overnight trading while a stronger dollar weighs on commodity prices; week’s auctions conclude with $12b 30Y bonds, WI 2.59%, last sold at 2.72% in March.
• Global oil markets will “move close to balance” in the second half of the year as lower prices take their toll on production outside OPEC, the International Energy Agency said
• Brexit is casting a long shadow over Bank of England policy with more than two months still to go before the referendum
• Nomura Holdings Inc. is eliminating about 60 jobs at its investment banking division outside Japan as it scales back operations in markets including Switzerland and Eastern Europe
• Chinese companies canceled almost four times the amount of bond offerings in April compared with a year earlier, as defaults by state-owned enterprises increased financing costs
• Brazilian President Dilma Rousseff’s political future hangs on a vote that will take place Sunday in the lower house of Congress. Many analysts say it will be difficult for the government to block the motion in the Senate if it passes
• Hedge funds and private equity firms took the least amount of office space in central London since the start of 2012 in the first quarter as sputtering global growth and increased regulation deterred startups
• Sovereign 10Y bond yields little changed; European equity markets mixed, Asia higher; U.S. equity-index futures drop. WTI crude oil steady, precious metals and copper drop

DB’s Jim Reid concludes the overnight wrap

Moving onto markets, China has been much less of a negative influence since the devaluation risk lessened after the PBoC Governors’ remarks a couple of months back calming fears of a big fx move. The weakness in the dollar since has also helped take the pressure off. However yesterday was one of the few days it’s been a positive influence this year as the better than expected trade numbers we reported yesterday gave Europe a big boost at the open which was then aided further by a beat from JP Morgan which calmed some of the worst fears over bank earnings and pushed the rally on further.

Indeed JPM exceeded both earnings and revenue street expectations in its Q1 report as some improved trading conditions in March and better than expected cost control helped the bank to set an early positive tone ahead of the Bank of America and Wells Fargo results today. Combined with a massive rally for Italian banks too – seemingly in further response to the bank bailout fund announcement after PM Padoan weighed in with some positive comments – equity markets surged higher with the Stoxx 600 (+2.52%) rising for the fourth consecutive session and by the most in over a month. The Italian FTSE MIB gained +4.13% (Banks were up over +8%) before the S&P 500 capped off an overall positive day for equities with a +1.00% gain. European credit wasn’t left behind with Crossover rallying 11bps, although a weak late hour of trading across the pond saw credit indices in the US give up early gains to close flat.

In fact and in what feels like a rare occurrence, yesterday’s rally didn’t even get the benefit of an oil-injected boost as WTI retreated back below $42/bbl and down close to 1% on the day after Russia’s oil minister suggested that any deal signed at the Doha meeting this Sunday will be loosely framed. The announcement that coal mining giant Peabody Energy has filed for bankruptcy in the US also did little to dampen the overall mood (but in fairness it was expected), neither did some softer retail sales data which came out in the early afternoon.

More on some of those snippets shortly, but first to the latest in markets this morning where the focus is back on Central Banks and specifically in Singapore after the MAS delivered a surprise easing. The MAS has announced that it is to slow the pace of appreciation in the Singapore Dollar by moving to a neutral policy of zero percent (after the Bank had previously allowed the currency to appreciate) with policy makers warning that the ‘Singapore economy is projected to expand at a more modest pace in 2016 than envisaged in the October policy review’. According to Bloomberg only 6 of 18 economists had expected a change in policy and you have to go back to 2008 to find the last time the MAS moved to a 0% appreciation rate – this is also the first time they have done so outside a recession. The Singapore Dollar has weakened close to 0.9% post the news, the biggest decline in three months while other currencies in the Asia region have weakened similar amounts (with the Kiwi Dollar in particular under pressure after the RBNZ confirmed that the March rate cut announcement was leaked early).

Notably our FX strategists highlight that this Singapore move could have implications for the region giving the forward looking nature of the MAS. They note that MAS’ views on weaker trade-related activity and moderating growth momentum in China could refocus attention on the challenges for Asia, and the need for currency adjustment to be part of policy situations.

Meanwhile, despite our earlier comments regarding China’s calmer FX policy of later, the strength yesterday in the US Dollar has in fact seen the PBoC react by fixing the reference rate for the CNY 0.46% weaker and by the most since January 7th. So let’s hope we haven’t spoken too soon.

Weaker currencies and the positive lead from Wall Street last night has seen Asian bourses extend gains again this morning however. It’s the Nikkei leading the way again, currently up +2.93%, while the Hang Seng (+0.89%), Shanghai Comp (+0.17%), Kospi (+1.32%) and ASX (+1.26%) are also flashing green with another strong bounce for base metals this morning also helping to keep the tone positive. Credit markets in the region are a touch tighter.

Back to those retail sales numbers out of the US yesterday. Headline sales were reported as declining -0.3% mom in March and well below market expectations of +0.1% mom. There were downside misses also for the ex auto (+0.2% mom vs. +0.4% expected), ex auto & gas (+0.1% mom vs. +0.3% expected) and control group (+0.1% mom vs. +0.4% expected) components – the latter of course which goes into the GDP accounts. On the plus side there were upward revisions to those previously weak February numbers but that doesn’t take away from the data this month being clearly disappointing. Also soft were the March PPI data. Headline producer prices came in below market at -0.1% mom (vs. +0.2% expected), with the core of 0.0% also missing by a tenth. That means headline PPI is now back in negative territory (-0.1%) on a YoY basis for the first time since October last year.

The only other data out of the US yesterday was February business inventories which offered no surprises after printing at -0.1% mom. Later in the evening saw the release of the Fed’s Beige Book with a mixed assessment probably being a fair refection. The report showed that ‘economic growth was in the modest to moderate range’ but on a district by district basis there was alot more variation. Labour market conditions were cited as strengthening along with expansion in business spending, although prices were only seen as increasing ‘modestly’. A positive takeaway we noted was the overall pickup in manufacturing which appears to be benefiting from the recent softness in the Dollar.

Staying with the macro, with one eye on the ECB policy meeting in just a week’s time, negative rates appeared to be a topical discussion for ECB officials yesterday. Nowotny played up the impact of how the implementation of a negative deposit rate in Europe has helped spur lending in the Euro area, before later in the evening we heard from Constancio. The ECB official appeared to cool expectations of the overall impact of negative rates in Europe, citing that it is ‘important to recall that there are clear limits to the use of negative deposit facility rates as a policy instruments’ and that ‘tier systems that simply pass direct costs at the margin can mitigate this concern but cannot dispel it altogether’. Constancio also went on to say that the early signs of the ECB’s easing measures are showing positive effects for the Euro area, but that the full effects have yet to fully materialize.

Moving on. Peabody Energy – the world’s largest private sector coal producer by output – became the latest name to buckle under the pressure of tumbling coal prices after the announcement that it has filed for Chapter 11. According to the FT, that announcement now means that 50 US coal miners have filed for bankruptcy protection since 2012. The move now means that the company will look to restructure its roughly $10bn debt load, and seek to reorganize its US operations.

Just wrapping up the data yesterday and specifically in Europe where we saw the Euro area industrial production reading come in a tad softer than expected at -0.8% mom (vs. -0.7% expected). That was in fact the single largest monthly decline in 18 months. Meanwhile, the other data yesterday was out of France where we saw the final March CPI report confirmed at +0.7% mom, unchanged on the earlier initial estimate.

Turning our focus to the day ahead now then, this morning in Europe will see the final confirmation of the March CPI report for the Euro area as well as the inflation numbers out of Italy. Around lunchtime we’ll get the Bank of England rate announcement where we’re not expecting any surprises, before attention turns to the US session with the latest initial jobless claims data and more notably the March inflation report. Expectations for the latter are sitting at +0.2% mom for both the headline and core, while our US economists expect a similar headline number but just +0.1% mom gain for the core. Away from the data we’ll hear from the Fed’s Lockhart (3.00pm BST) and Powell (3.00pm BST) today, as well the IMF’s Lagarde (2.30pm BST). As noted earlier the highlight from the earnings releases due today are Bank of America and Wells Fargo, while Delta Airlines will also release their latest quarterly.

After weeks of “stability,” and following two emergency Fed meetings in 3 days (and an unexpected ease by MAS), The PBOC decided today was the right time to drastically slash the Yuan fix by 300 pips. This is the largest devaluation of the Chinese currency since January 7th (and second largest since August’s world-market-turmoiling devaluation). Offshore Yuan had been tumbling all day (shrugging off the supposedly better trade data as FX traders saw through the colossal spike in imports from HK as indicative of capital outflows), and is falling further following PBOC’s cut.

As Bloomberg’s Tom Orlik notes, China’s March imports from Hong Kong soared an implausible 116% YoY! As it is clearly disguising capital flows…

Trade mis-invoicing as a way to hide capital flows remains a factor. In the past, over-invoicing for exports was used as a way to hide capital inflows.

 

The latest data show the reverse phenomenon, with over-invoicing of imports as a way of hiding capital outflows.

And Offshore Yuan – after an initial modest rally on the trade data – plunged all day…

Which seemingly prompted PBOC to slash its Yuan Fix…by the most in 3 months…

As it appears it is time for the USD to take its punishment (as JPY and EUR has in the last few weeks of divergence between Yuan basket and USDCNY)…

All of this chaos amid the biggest short-squeeze in US stocks in 6 months makes us wonder if something serious is not breaking behind the scenes and every effort is being made to put lipstick on this pig.