What was a muted overnight session, with traders wearily awaiting today’s earnings from JPM and Wells, officially starting Q1 earnings season, and with mixed Asian equities prompting a nervous start in Europe, a sharp rebound in Chinese trade data coupled with a surge in Chinese credit creation, bolstered risk assets across the board, helping underpin “signs of resilience” in the global economy, and prompted a broad bid for risk. As a result, S&P futures rallied sharply back above 2,900, the highest since September 2018m ahead of the first major bank earnings in this cycle.

Europe Stoxx 600 Index erased earlier losses and U.S. futures extended gains after China reported a sharp rebound in March exports even as imports shrank for a fourth straight month and at a sharper pace, painting a mixed picture of the economy as trade talks with the United States reach their endgame. Export growth rebounded significantly to +14.2% yoy in March,the strongest growth in five months and  well above consensus expectations,  and up from -20.8% year-on-year in February, primarily on the Chinese New Year distortion.

Shipments picked up around 3% month-on-month, suggesting some improvement in foreign demand, Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note. But he said exports have yet to fully recover from a sharp slowdown late last year.

Adding to the worries, China’s imports fell more than expected, suggesting its domestic demand remains weak: imports were down 7.6% yoy in March, below consensus. That left the country with a trade surplus of $32.64 billion for the month, much larger than forecasts of $7.05 billion.

Veteran China watchers told Reuters that export gains may be due more to seasonal factors than any sudden turnaround in lackluster global demand, as shipments were expected to jump after long holidays in February.

However, the catalyst for the spike in futures and sending the S&P sharply higher from 2894 to above 2,900 what China’s release of far stronger lending growth, signaling a further firming of its nascent economic recovery. The PBOC reported new yuan loans of 1.69 trillion, far above 1.25 trillion estimate, while total aggregate financing in March soared higher 2.86t yuan, the highest March increase on record; smashing the 1.85t yuan estimate, and more than four times the February 703BN yuan increase. In total, March M2 rose +8.6% y/y; also stronger than the est. +8.2%, and well above the February +8%. In other words, it once again appears that China is doing everything in its power to flood the economy with new credit and reversing concerns from the sharp February TSF drop.

China’s gift to markets, and the shift in sentiment came hours before the first-quarter reporting period begins in earnest Friday, with results from JPMorgan Chase & Co. and Wells Fargo & Co. The 10-year Treasury yield climbed above 2.54% and the greenback weakened versus most major currencies, particularly against the euro.

European equities moved back into positive territory, led by autos and basic resource sectors. 10Y German yields rose ~2.5bp back above 0%, with bund and UST futures snapping back towards the week’s lows in decent volume. Gilts followed, with yields up ~2bp across the curve; peripheral and semi-core European spreads tightened in tandem. WTI crude gained over 1%, lifting commodity currencies. Chinese yuan strength providing support for EMFX and metals markets.

Also of note, Chevron announced an agreement to acquire Anadarko for USD 33bln at USD 65/share; will assume estimated net debt of USD 15bln. Anadarko shares soared higher by around 20% in pre-market.

Elsewhere, the euro rose above $1.13 for the first time in more than two weeks, with its more favorable prospects reflected in options across tenors. Cable advanced before paring gains; market focus is on whether U.K. Prime Minister Theresa May can compromise on a post-Brexit customs union with the EU in talks with opposition Labour Party. Aussie rises versus the U.S. dollar; it dipped earlier after the central bank warned of the danger of a sharper global downturn and steeper losses in the local housing market in its Financial Stability Review.

In commodities, West Texas oil futures rose and headed into their sixth consecutive weekly advance, the best streak since 2016. The pound was steady after Prime Minister Theresa May accepted the European Union’s offer to push the Brexit deadline out to October.

Expected data include the University of Michigan Consumer Sentiment Index. JPMorgan, PNC and Wells Fargo are among companies reporting earnings.

Market Snapshot

• S&P 500 futures up 0.4% to 2,902.00
• STOXX Europe 600 up 0.03% to 387.04
• MXAP unchanged at 162.14
• MXAPJ up 0.3% to 541.62
• Nikkei up 0.7% to 21,870.56
• Topix down 0.07% to 1,605.40
• Hang Seng Index up 0.2% to 29,909.76
• Shanghai Composite down 0.04% to 3,188.63
• Sensex up 0.2% to 38,695.19
• Australia S&P/ASX 200 up 0.9% to 6,251.32
• Kospi up 0.4% to 2,233.45
• German 10Y yield rose 1.7 bps to 0.008%
• Euro up 0.4% to $1.1303
• Italian 10Y yield fell 4.2 bps to 2.017%
• Spanish 10Y yield fell 0.4 bps to 1.0%
• Brent futures up 0.8% to $71.37/bbl
• Gold spot little changed at $1,293.38
• U.S. Dollar Index down 0.3% to 96.93

Top Overnight News from Bloomberg

• China’s exports rebounded after the Lunar New Year holiday amid a pickup in trade talks optimism, while a continued slide in imports underscored the fragility of the domestic economy
• Federal Reserve Chairman Jerome Powell asserted the central bank’s independence in remarks to Democratic lawmakers, telling them the Fed doesn’t consider political pressure in any way, according to two people in the room for the closed-door event
• President Donald Trump has said privately that he knows Herman Cain will have trouble getting confirmed to the Federal Reserve Board, people familiar with the matter said Thursday

Asian equity markets traded mixed following an indecisive lead from Wall St. with participants tentative ahead of the latest Chinese trade data and big bank earnings in US. ASX 200 (+0.8%) benefitted from early outperformance in its largest weighted financials sector as top lender CBA gained on the reports it plans to reduce 10k workers, while Nikkei 225 (+0.7%) exporters found solace from favourable currency flows. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp (U/C) lagged amid weakness in tech and gambling names, as well as cautiousness heading into the latest Chinese trade data. Finally, 10yr JGBs were lower as stocks in Japan remained afloat although downside for bonds was stemmed amid the BoJ’s presence in the market for nearly JPY 1tln of JGBs and with SoftBank pricing a record JPY 500bln offering.

Top Asian News

• Philippines Central Bank Chief Says Rate Cut on the Table in May
• Singapore Central Bank Keeps Policy Settings as Growth Slows
• Arcelor’s $6 Billion Essar Deal Stymied by Fight Between Lenders
• Another Warning on Asia’s $4 Trillion Stock Rally Is Flashing

European equities are marginally higher thus far [Eurostoxx 50 +0.2%] after having erased losses seen at the open. Broad-based gains are being seen across major bourses given the recent upturn of risk appetite wherein DAX breached 12k to the upside. Similarly, E-mini Jun’19 futures reclaimed the 2900 level ahead of the all time high just under 2940, last seen in October 2018. Back to Europe, sectors are mixed with outperformance in material names given the spike higher in sentiment-driven base metals. In terms of notable movers, Plus500 (-25%) fell over 40% at one point after reporting an 82% drop in revenue Y/Y, with IG Group (-3.0%) dragged lower in sympathy. Finally, markets are awaiting earnings from JP Morgan (11:55BST) and Wells Fargo (13:00BST) to kick off US earnings season.

Top European News

• Thomas Cook May Have Inadvertently Breached Borrowing Limits
• Stadler Rail Soars in Swiss Trading Debut After $1.3 Billion IPO
• Carl Zeiss Meditec Boosts Full Year Ebit Margin Forecast
• Plus500 Plummets After Losing $28 Million on Clients’ Bets

In FX, Eur/Usd and Usd/Jpy are both testing big figure levels, at 1.1300 and 112.00 respectively where decent option expiries lie (1.2 bn and 1.1 bn), but the move appears to be M&A driven and via the Eur/Jpy cross that spiked through 126.00 at the Tokyo fix overnight. Specifically, a 3 bn buy order is said to have been filled between 125.70 and 126.29, with the proceeds touted to be related to MUFJ’s purchase of a DZ Bank unit. Note, Eur/Jpy has now extended gains to circa 126.60 and the single currency is seeing spill-over buying across the board to around 1.1310 vs the Dollar and 0.8656 against Sterling where stops were expected on a break of 0.8650. Technically, 1.1316 in Eur/Usd may cap the upside as it forms 55 DMA and Fib resistance, while for Usd/Jpy several chart levels reside not far above 112.00, including the 200 WMA (112.04), a Fib (112.06) and the 112.13-16 ytd peak.

• AUD/CAD/NZD – All benefiting from a more risk-on tone unfolding during the EU session and rebounding from lows vs their US counterpart, with the Aussie retesting 0.7150+ and Loonie paring losses from 1.3390 through 1.3350, but the Kiwi hampered to a degree by some weak NZ data overnight as it falls short of 0.6750. Note, Aud/Usd is now back within the realms of 1 bn expiries between 0.7150-55, as the DXY slips back under 97.000 again, albeit mainly due to the aforementioned Eur’s ascent and its biggest weighting in the index.
• CHF/GBP – Also firmer vs the Greenback, as the Franc pares more losses from multi-week lows and inches closer to parity and Cable retains the bulk of its Brexit extension optimism within a 1.3050-80 range, but remains toppy on approaches to 1.3100 or just above given resistance around earlier April highs.
• EM – Usd/Try has advanced further amidst the political turmoil and uncertainty over recent regional elections as the official Board has deferred a decision on a recount in one area of Istanbul that the ruling AK Party is contesting. The Lira lurched down below 5.8100 at one stage and closer to lows seen last month around 5.8490.

In commodities, WTI and Brent recently received a bout of demand as risk-on sentiment took the wheel, wherein the former reclaimed USD 64/bbl whilst the latter gained more ground above USD 71/bbl. Oil is poised for its third consecutive week of gains, as the benchmarks price in potential supply disruptions emanating from Libyan tensions. NOC Head Sanala warned that a renewal of fighting could wipe out the nation’s crude production which stood at 1.1mln BPD in March, according to secondary sources. Elsewhere, Europe’s largest oil refinery, Shell’s 404K BPD Pernis remains restricted at 65% of its normal output amid strikes conducted by a Dutch trade union which is expected to last until at least Monday. Finally, China’s trade report noted that the country’s crude oil imports in the first quarter rose 8.2% Y/Y, although March imports fell to the lowest since 2018. In the metals complex, gold remains below the USD 1300/oz level after having lost the mark as the Greenback recouped some recent losses. Elsewhere, copper prices received a boost from the risk appetite around the market. The red metal breached its 100 DMA to the upside at 2.8974/lb before briefly trading above the 2.950/lb level. Libya NOC chief said oil and gas exports face biggest threat since 2011 given the recent fighting, subsequently stating that a renewal of fighting could wipe out the nations crude production

US Event Calendar

• 8:30am: Import Price Index MoM, est. 0.4%, prior 0.6%; Export Price Index MoM, est. 0.2%, prior 0.6%
• 10am: U. of Mich. Sentiment, est. 98.2, prior 98.4; Current Conditions, prior 113.3; Expectations, prior 88.8

DB’s Jim Reid concludes the overnight wrap

Happy Friday. Given that we barely had a moment to catch our breath on Wednesday the duller last 24 hours in markets has been most appreciated. Volumes in equities were certainly lower than of late. Indeed a bit of a lull in newsflow means we’ve been broadly back to trading a narrow range in equities with the S&P 500 last night closing with the smallest of gains that didn’t quite round up to +0.01% but technically ensured 10 winning days out of 11 now. It was a similar low key story for the DOW but that fell (-0.05%) slightly along with the NASDAQ (-0.21%) while the STOXX 600 nudged up +0.06%. Needless to say vol has been depressed as a result with the VIX (-2.1%) back down to around 13 at the close again yesterday and testing the YTD lows. The V2X in Europe is now at 12.60 and the lowest since August. So Q2 so far has very much been more of the same for vol. It’s worth noting though that we’re due to get results from JP Morgan and Wells Fargo today so there’s always the possibility of a bit of earnings headline news to inject some energy back into markets again. It’s worth noting that banks have been the worst performing sector over the past month. Those results are due out just prior to the US open.

As for other markets yesterday, Treasuries made a bit of 180 degree turn with yields creeping back up towards 2.50% again and closing at 2.497% and up +3.2bps on the day with the move coming despite a softish PPI print beneath the high headline print (more below) which as a reminder followed a similarly soft CPI reading on Wednesday. A fresh 49-year low on jobless claims seemed to be more important. There were some comments from the Fed however. Vice-Chair Clarida spoke and said that the outlook means current policy and the patient stance to further changes remains appropriate. He also said that he’s seeing some slowing in global macro data and that inflation remains muted but that he expects an upturn in global growth later in 2019. So by and large consistent with what he’s said in the past. Later on Williams spoke and said that the US economy still has positive momentum and that worries about a slowdown had receded. He was a bit more dovish on inflation however, and highlighted concerns about inflation expectations heading lower still.

Staying with the Fed, proposed Trump Fed nominee Herman Cain received a fourth GOP Senate rejection yesterday meaning that if Democrats all vote against them his nomination wouldn’t pass. This shows how difficult it will be for Mr Trump to deviate too far from the mainstream in terms of potential Fed board members.

In Europe yesterday we heard from a number of ECB speakers. Visco confirmed that the ECB is discussing and analysing the effects of negative rates and that the precise parameters of the new TLTRO will be clearly defined by June. There was a similar comment from Knot who also added that the next TLTRO needs to be more conservative and less generous relative to the last. Meanwhile Villeroy confirmed that there was a consensus within the ECB to analyse the effects of negative rates for banks. Bunds traded back up at the dizzying heights of -0.009% yesterday (+1.7bps) while BTPs (-4.2bps) were strong following a fairly solid auction.

This morning in Asia markets are trading mixed with the Hang Seng (-0.36%) and Shanghai Comp (-0.44%) down while the Nikkei (+0.44%) and Kospi (+0.10%) are up. Elsewhere, futures on the S&P 500 are up +0.09%. Crude oil prices (WTI +0.31% and Brent +0.25%) are again up this morning after falling yesterday (WTI -1.59% and Brent -1.25% ) as data indicated a 7.03 million-barrel jump in the US crude inventories last week to the highest levels since 2017.

Overnight, Bloomberg reported that Fed Chair Powell made an appearance at a Democratic retreat in Leesburg Virginia to address the concerns of lawmakers around the Fed’s independence. He asserted the Fed’s independence saying that the Fed doesn’t consider political pressure in any way while adding that interest rates are at about the right level given current economic conditions and that the benefits of U.S. economic growth haven’t been as widely spread as the Fed would like. He also endorsed the Earned Income Tax Credit as a way to distribute wealth more widely.

As for the latest on Brexit, there isn’t much to report. Theresa May confirmed in her statement that her government is to push for a deal by the European Parliamentary elections which in theory would enable the UK to leave before June. Opposition leader Corybn talked up the cross party talks while May also indicated that the gap on trade proposals between the Conservatives and Labour is actually fairly minimal. Sterling was fairly directionless yesterday and this morning trades at $1.3075 which is roughly where it started the day yesterday. Elsewhere, The Times reported that the DUP leader Arlene Foster and DUP deputy leader Nigel Dodds met Boris Johnson and members of his team in the commons for 40 minutes on Wednesday.

As for the latest data, fresh off a soft but albeit distorted CPI report on Wednesday, yesterday’s PPI report for March in the US was also disappointing at the core level (0.0% mom vs. +0.2% expected) even if the headline came in well above expectations at 0.6%. It’s worth flagging was the healthcare component, which at +0.07% mom was also soft and therefore will likely result in a drag to the core PCE health care reading. On a more positive note, claims set a new 49-year low record after dropping to 196k. More notably, the four-week average is now down to 207k and also more or less at a 49-year low. It’s possible that there is some distortion due to the timing of Easter this year however the data continues to paint a picture of a sturdy labour market.

Prior to this on the continent we had final March CPI revisions in Germany and France, however no changes were made to the +0.5% mom and +0.9% mom readings for each, respectively.

Finally to the day ahead, where this morning there should be some focus on the February industrial production print for the Euro Area. Expectations are for a -0.5% mom reading however much better than expected readings for France and Italy this week raise the risk of an upside surprise and something more akin to only a marginal decline. Meanwhile in the US this afternoon we’ve got the March import price index reading, and preliminary April University of Michigan consumer sentiment survey. Away from that we’re expecting comments from the BoE’s Carney at the IMF meetings this afternoon, while the ECB’s Praet is also due to speak. The aforementioned US bank earnings will also be worth a watch.

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