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Market Wrap: Whirlwind Manic-Depressive Session Sees Futures Slide Then Surge

So far it has been an overnight session which clearly forgot to take its Lexapro, with futures first tumbling after CNBC's "leak" that a Greek deal had been reached was refuted, only to surge subsequently on both the Riskbank's foray into NIRP and QE which crushed the Swedish currency and sent its stocks to recorder highs, and more importantly, on the latest ceasefire out of Minsk which has pushed Russian and European assets substantially higher. While only the most naive believe that any palpable end to Ukraine hostilities will emerge as a result of today's delay, expect for Greek headlines to return with a vengeance as today it is Tsipras' turn to speak at a summit of the 28 European Union leaders set to begin momentarily.

For now, however, the algos have been delighted to forget the latest Greek disappointment and focus on the utopia that central planners have in mind, if only for the 1%, and send US equity futures surging, and on pace to resume their grind higher to all time highs.

Looking at specific regions, Asian equity markets trade mixed after following suit from a lacklustre Wall Street close, which saw the S&P 500 finish relatively flat. The Nikkei 225 (+1.8%) outperformed bolstered by yesterday’s sharp fall in JPY which prompted the index to briefly break above the 18,000 level for the first time this year. Elsewhere, both the Hang Seng (+0.44%) and Shanghai Comp (-0.50%) fluctuated between gains and losses, with a rally in the telecoms sector helping overcome weakness across energy stocks, amid yesterday’s oil price slump.

The Eurogroup meeting on Greece failed to come to a meaningful conclusion last night and whilst this was expected amid ongoing tensions, the lack of cooperation between the two parties saw equity futures open lower this morning. However this trend reversed at the open of the cash markets, with stock specific news, such as positive earnings from the likes of Renault (+9.4%) and Credit Suisse (+9.6%), pushing European indices higher.

Sentiment was further bolstered through the morning after a technical break in the DAX future, where a spike took out stops out through the high before the EUREX close yesterday (10800) and the high on Tuesday’s session (10816). The move higher also prompted rumours of a deal being brokered between Greece and the Eurogroup, however these reports were not based on any information of substance. Another contributing factor has been Russia's President Putin stated that a cease-fire has been agreed with Ukraine and is to start on Sunday (15th Feb).

Elsewhere, Gilts (-60 ticks) are underperforming in fixed income markets on the back of the BoE Quarterly Inflation Report, while T-Notes and Bunds are also lower, partially due to equity strength, with US traders await the final Treasury auction of the week in the form of USD 16bln in a 30yr note.

In FX, markets have seen abnormal volatility today, with the key event being the BoE’s Quarterly Inflation Report in which the MPC members revised down their short term CPI forecasts as a consequence of the fall in oil prices however stated that they expect inflation to rise back above the 2% target in the 2 year horizon. Other factors of the report that were perceived to be hawkish were that both growth and wages are set to increase and spare capacity will be eliminated within 18 months, compared to a forecast of 2-3 years at the last report. This saw GBP/USD climb above 1.5300 to mark the pairs highest level of the week while the EUR/GBP cross trades at 7 year lows.

Elsewhere, SEK weakened aggressively on the back of an unexpected 10bps rate cut from the Riksbank to -0.10%, after 12 of the 18 surveyed predicted that rates would be held. The announcement also saw the central bank state that they are to buy SEK 10bln of government bonds further exacerbating the weakness in the currency. Meanwhile, JPY strengthened this morning after comments from sources claiming that the BoJ thinks any additional stimulus will be 'counter-productive', which saw USD/JPY fall by over 60 pips in an initial fast money move to break back below the 120.00 level.

Finally, looking at commodities, oil prices have been strengthening during this morning’s session, aided by the weakening USD (-0.3%) to rebound from the lows yesterday, which saw WTI crude futures fall below the USD 50.00 handle after DoE inventories showed a larger build than expected (4868K vs. Exp. 3750K, Prev. 6333K).

Elsewhere, the metals complex sees gold experiencing a mild gain amid continued Greece concerns with prices remaining near 5 week lows after USD strength pressured the precious metal yesterday. Elsewhere, silver prices were notably lower amid technical selling with spot prices breaking below both the 50 DMA (USD 16.76/oz) and 100 DMA (USD 16.72/oz). JP Morgan sees gold falling by year end because of stronger USD, low inflation and low commodity prices however it may see some support on geo-political risks and seasonal demand. JPM think palladium and platinum looks cheap and palladium could be the best performer this year.

On today's calendar, we get the retail sales print for January with the market expecting more energy related weakness at the headline. Jobless claims data is also due up and it’ll be interesting to see if the four-week average stays below 300k. Finally business inventories rounds off today’s releases.

Bulletin Headline Summary

  • Russia-Ukraine ceasefire helps boost sentiment around Europe after Greek stalemate overnight
  • GBP spikes higher as the BoE’s Quarterly Inflation Report had a hawkish tone with growth and wages set to rise and slack in the economy to be eliminated faster than previously forecasted
  • Looking ahead, out of the US today we have Advanced Retail Sales, weekly jobless data and a host of earnings, including AIG
  • Treasuries fall, 30Y yields rise for sixth day before before quarterly refunding concludes with $16b long bonds; WI bid yield 2.63%, second lowest on record, vs record- low 2.43% award in January.
  • USTs in mid-January began a seasonally bearish period lasting into the May refunding; 10Y yields breaking above 2% could target 2.08%, then 2.19% near term, ED&F Man head of rates and credit Tom di Galoma writes in note
  • The leaders of Russia, Ukraine, Germany and France agreed on a cease-fire to stem the conflict that’s devastated eastern Ukraine and triggered the worst crisis in more than 20 years between Russia and its former Cold War foes
  • EU leaders will take up the baton on Greece when they gather in Brussels today after finance ministers postponed decisions on country’s future financing until next week
  • Greek lenders have almost exhausted Emergency Liquidity Assistance they received from the European Central Bank via the Bank of Greece, Skai Television reports in its evening news bulletin, without saying how it got the information
  • Sweden’s central bank cut its main rate below zero and unveiled additional measures designed to jolt the largest Nordic economy out of a deflationary spiral
  • Bank of England Governor Mark Carney signaled rates may increase faster than investors had anticipated as Britain’s economy gathers pace
  • Bank of Japan policy makers view further monetary easing to shore up inflation as a counterproductive step for now, amid concern it could trigger declines in the yen that damage confidence, people familiar with the talks said
  • The number of energy jobs cut globally have climbed well above 100,000 as once-bustling oil hubs in Scotland, Australia and Brazil, among other countries, empty out, according to Swift Worldwide Resources, a staffing firm
  • Kaisa Group Holdings bonds slid after co. said lenders and bondholders “should not expect payments of principal and interest according to existing terms”
  • Sovereign yields mostly lower; Greece 10Y falls ~23bps. Asian, European stocks gain, U.S. equity-index futures higher. Brent and WTI higher, gold and copper gain

US Economic Calendar

  • 8:30am: Retail Sales, Jan., est. -0.4% (prior -0.9%)
    • Retail Sales Ex Auto, Jan., est. -0.5% (prior -1%)
    • Retail Sales Ex Auto and Gas, Jan., est. 0.4% (prior -0.3%)
    • Retail Sales Control Group, Jan., est. 0.4% (prior -0.4%)
  • 8:30am: Initial Jobless Claims, Feb. 7, est. 287k (prior 278k); Continuing Claims, Jan. 31, est. 2.4m (prior 2.4m)
  • 8:45am: Bloomberg U.S. Economic Survey, Feb; 9:45am: Bloomberg Consumer Comfort, Feb. 8 (prior 45.5)
  • 10:00am: Business Inventories, Dec., est. 0.2% (prior 0.2%)

Hoping to make some more sense of the overnight depressive euphoria is DB's Jim Reid with his overnight recap

There may also be some sleepless nights ahead for European leaders after a stalemate yesterday after a late session and hours of talks at the Eurogroup meeting. The result largely lived up to our expectations with both Greece and Eurozone finance ministers failing to agree on an outcome. Instead, talks now move onto Monday’s Eurogroup meeting. The lack of any material outcome was summed up in a very short press conference shortly after in which both Greece and the Euro officials failed to agree on a joint statement – the Greek side rejecting language that might be seen as agreeing to an extension of the current programme. Head of the Eurogroup finance ministers Dijesslbloem said in the press conference after that ‘we covered a lot of ground but didn’t actually reach a joint conclusion on how to take the next steps’ and that ‘there has to be political agreement on the way forward’. Varoufakis meanwhile was quoted in the Greek press Ekathimerini shortly after the meeting as saying that ‘we explained why this bailout is not working’ and that ‘we want a new contract with Europe’.

Our resident expert George Saravelos believes that irrespective of today’s outcome, we now have some more visibility over how Monday could potentially play out. On the one hand Europe is offering a technical extension of the existing program and on the hand Greece is looking for maximum flexibility and the least amount of up-front commitments attached to completing the program review. George still believes that an agreement to move forward should be achievable but that successful completion in agreeing on the terms will be a close call given the large distance still clearly between Greece and European officials. Of course, failure to agree on moving forward on Monday or a deadlock will shift focus to next Wednesday’s ELA review by the ECB, where, in the event of failure we could see the ECB become more explicit on timing of potential ELA withdrawal.

The other focus last night was the Ukraine and Russia talks and as we go to print reports are breaking that leaders from France, Germany, Russia and Ukraine are set to sign an agreement according to Reuters. The talks have gone on for most of the night but the early signs appear to be positive and we are expecting a conference imminently. Staying on the Ukraine, we also heard from the IMF’s Lagarde yesterday who was quoted on Bloomberg saying that the IMF is ‘very close’ to a bailout agreement for Ukraine. An official announcement is expected this morning at 9am CET.

With the outcome of the meeting coming after close in the US, markets this morning have rebounded off the early weakness from the Greece news and bourses are trading firmer as we type – reflecting the breaking headlines from the Ukraine talks. The Hang Seng (+0.45%), Shanghai Composite (+0.33%) and Nikkei (+1.53%) are all firmer – the latter in part benefiting from strong machine orders data – whilst bourses in Taiwan and Korea have also rebounded off the day’s lows in recent moments. The Euro is 0.2% weaker versus the Dollar in trading this morning, having initially swung around last night with various headlines.

Before the Eurogroup meeting yesterday, markets were subdued in the US with the S&P 500 eventually closing unchanged on what turned out to be the third lowest volume day this year. The index did in fact trade as low as -0.5% intraday before paring losses into the close. It did cross into positive territory briefly as headlines over Greece began to emerge from the Eurogroup meeting. Energy stocks (-0.66%) declined as oil markets fell for a second consecutive day. WTI (-2.36%) and Brent (-3.14%) fell to $48.84/bbl and $54.66/bbl respectively after the latest IEA report which showed crude supplies rising to record levels once again last week. The earlier hopes of US production cuts do appear to have been put to one side for now.

Treasuries were also quiet up until the Eurogroup headlines started to leak. Although the 10y benchmark yield closed 2bps wider at 2.018%, the yield did at one point touch an intraday low of 1.969% during the meeting. Meanwhile the Dollar ended the day unchanged with the DXY having earlier traded some +0.36% firmer before declining in the last hour of trading. Data-wise it was quiet with just the monthly budget statement for January which saw a smaller than expected deficit at $17.5bn (vs. expectations of a deficit of $19bn). Fedspeak caught the eye once more however. The Dallas Fed’s Fisher was quoted on Bloomberg with regards to raising rates saying that ‘I wanted it to happen in March, and I lost the argument’.

It was a similar subdued picture in Europe earlier in the day. The Stoxx 600 finished the day 0.24% weaker whilst the DAX (-0.02%) finished more or less unchanged. Credit markets also closed generally flat. Greek assets were notably weaker in the lead up to the meeting however with Greek equities closing 4% weaker and 3y yields widening some 130bps. With little in the way of data, the market appeared to be in something of a wait and see mode for Greece. 10y Bund yields finished 1.5bps tighter at 0.353% and Spanish and Italian yields were 2-4bps wider. The Euro meanwhile finished 0.13% firmer at $1.1335 however in reality it bounced around with the end of day headlines. Elsewhere, having highlighted some examples of record low yields in recent reports, Switzerland yesterday sold CHF 10y bonds at a yield of just 0.011% - the lowest of any country on record.

It’s a busier day data wise today as the calendar picks up. The final inflation reading for Germany will likely be the highlight this morning with the market expecting a -0.3% yoy headline print. Industrial production for the Euro-area will also be worth keeping an eye on and we also get the BoE inflation report out of the UK and the Riksbank monetary policy decision. In the US this afternoon we’ve got the retail sales print for January with the market expecting more energy related weakness at the headline. Jobless claims data is also due up and it’ll be interesting to see if the four-week average stays below 300k. Finally business inventories rounds off today’s releases.