Futures Flat Despite More Weakness Among European Banks, Volkswagen; Another Apple Supplier Warning

So far today’s trading session has been a repeat of what happened overnight on Monday, when following a weak start on even more weak Chinese data, US equities soared on the first trading day of the month continuing their blistering surge since that dreadful September payrolls report, which as we showed was mostly catalyzed by a near record bout of short’s being squeezed and covering, which accelerated just as the S&P broke the 2100 level.

So will we see another centrally-planned USD/JPY-driven, low volume marketwide levitation, with another VIX smash and a short squeeze as kicker today? One thing we won’t get is a boost from the RBA, which kept its benchmark interest rate unchanged at a record-low 2 percent as reported previously, despite 12 out of 29 economists predicting a rate cut.

RBA Governor Glenn Stevens talked up the prospects for an improvement in economic conditions, causing traders to push back bets on when the next cut might happen into the first quarter of 2016. The Aussie rose against all 16 of its major peers. In 2015 it’s dropped 12 percent against the U.S. dollar. What was most interesting about the RBA announcement, however, was not what happened after the announcement, but the usual HFT mockery in the AUD/USD just before as shown in the chart before. We are confident the Australian regulators will once again find nothing wrong with this attempt by HFT algos to gauge market depth and set momentum, and head fake other algos, in what is an increasingly observed phenomenon ahead of key data.

Also notable out of Asia was the news reported here first that key Apple supplier Pegatron has halted hiring on weak iPhone sales, refuting the contents of the infamous email Tim Cook sent to Jim Cramer on August 24 to halt the market crash. For now AAPL stock is clearly ignoring the China Daily news, although that may change during the day.

Elsewhere in Asia, equity markets traded higher following the strong close on Wall Street amid outperformance in energy and health care sectors, with risk sentiment further supported by encouraging PMI and construction data from the US. KOSPI (+0.5%) and ASX 200 (+1.2%) were lifted by the energy sector as it tracked the performance seen in the US, while Hang Seng (+0.9%) was supported by casino names, following reports that China may relax the visa regulation in Macau. Shanghai Comp. (-0.25%) trade was reserved as margin debt declined for the 2nd day, with the nation also continuing to the digest the recent soft Chinese PMI figures, while markets in Japan are closed due to Culture day.

European stocks are little changed as auto, real estate, financial equities declines offset by travel & leisure, insurance, oil & gas gains. 5 out of 19 Stoxx 600 sectors fall with autos, banks underperforming and travel & leisure, oil & gas outperforming. 47% of Stoxx 600 members decline, 49% gain.

Notable movers are Volkswagen, which is currently down over 3% in German trading after the EPA said yesterday that it has discovered more Volkswagen cars containing software that helped them cheat emissions tests. The most recently discovered batch of 10,000 vehicles that the EPA says are equipped with “defeat device” technology are 3-liter diesel engine cars, including several Volkswagen, Audi and Porsche 2014 to 2016 model years.

There were even bigger moves among Europe’s bank which have continued their disappointing trend of late, with Standard Chartered falling under the hammer overnight, with its shares plunging as much as 8 percent after announcing 15,000 job cuts and a $5.1 billion rights issue. The bank reported a surprise third-quarter loss as loan impairments in India surged. Standard Chartered is aiming for savings of $2.9 billion by 2018 and will restructure or exit $100 billion of assets. New CEO Bill Winters is picking up the pieces from his predecessor’s push into emerging markets. Standard Chartered derives most of its revenue from Asia. The shares have slumped 31 percent in 2015.

Then there was the largest Swiss Bank UBS, which several weeks after #2 Swiss bank Credit Suisse announced a major business overhaul and capital raise, also postponed a profitability target sending its shares 5% lower. The plan now is to achieve 15 percent return on tangible equity by 2017.

In Forex, the re-pricing of risks surrounding the ECB meeting in December saw the 1-month EUR/USD vol surge higher, with spot also under pressure given the sizeable cluster of expiring option strikes at 1.1000, said to be equivalent to around 1.6bIn. Also of note, the RBA refrained from announcing further monetary policy easing overnight which prompted broad based AUD strength, with the pair testing the 21 DMA line in the process. Unlike yesterday’s stellar UK manufacturing PMI release, today’s construction PMI data came inline and somewhat failed to reinforce growing calls for hawkish BoE.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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