Futures Levitate Following Worst Chinese Mfg PMI In One Year, Brent At 2015 Highs; Bund Slide Continues

The good news for stocks started overnight when the final Chinese HSBC Manufacturing PMI printed well below the 49.4 expected, or at 48.9, the biggest contraction in one year, which meant calls for more easing would be imminent. And naturally, after starting off eark, the Shanghai Composite closed near its highs, up 0.9%. However, the good news (for stock) out of China’s deteriorating economy was partially overshadowed by “bad news” for stocks following the final Eurozone Mfg PMI which rose from 51.9 to 52.0, with Germany rebounding from 51.9 to 52.1 even as France missed expectations and continued contracting at a 48.0 PMI.

Finally, a more positive tone out of the Greek negotiations ahead of the country’s May 6 payment to the IMF, should have pushed the Stoxx into the red (because a “fixed” Greece means less ECB liquidity injections and intervention) but a nearly 100 pip swing lower in the EURUSD on no news and no volume to its day lows at 1.113 appears to have kept the sellers in check.

But the best news is twofold: volumes continue to be lethargic with both the UK (May Day bank holiday) and Japan closed until Thursday (Golden Week), while the bulk of the S&P500 has now exited the stock buyback quiet period. As such, ignore record equity outflows – all the matters is that corporate CFOs, flush with brand news bond issuance cash, will tell their favorite Wall Street trading desk to buy stocks at just the right inflection point sending the market surging just as shorts once again test the downtrend and the 50 DMA.

Meanwhile, the bond (and Bund) rout continues, with the 10Y Bund trading wide of 0.40% at last check as Mario Draghi is delighted that he will be able to continue QE much longer than if the entire German curve was trading at -0.2% and thus no longer eligible for purchases.

A deeper look at global markets shows Asian equities mostly rose with Chinese bourses at the forefront in the wake of disappointing Chinese data, with the final Chinese HSBC Mfg PMI posting its largest contraction in a year at 48.9 vs. Exp. 49.4. Shanghai Comp (+0.9%) and Hang Seng (+0.3%) both trade in the black as the poor data led to speculation the government would add to monetary stimulus. ASX 200 (+0.1%) fluctuated between gains and losses as strength in basic materials offset weakness in financials, after Westpac’s earnings (-3.5%), indexes 2nd largest bank, missed street expectations. Of note, Japanese stock markets are closed for the Golden Week holiday.

With the UK out of the market due to the bank holiday, European equities trade higher in a relatively muted session so far, following on from positive closes in Asia. Meanwhile, Syngenta (+7%) leads the gainers in Europe with US listed company Monsanto said to be an interested party in the Swiss agricultural giant. Separately, Infineon (+3.2%) and Dialog Semiconductor (+5.7%) are among the outperformers in Europe with the latter retracing some of last week’s losses and are said to have been awarded a contract to supply a power management socket for the Apple iWatch. According to a note from Deutsche Bank, Infineon are expected to boost guidance on tomorrow when reporting Q2 numbers.

Focus remains on Greece with talks continuing to gain traction following the shake-up of the Greek cabinet, which has helped the GR/GE spread to be the tightest in Europe. Meanwhile, Bunds play catch-up with UST’s due to the Labour Day holiday in Europe with 10y yields sitting above 0.4% for the first time since the start of the ECB’s bond buying programme. Meanwhile, UST trade relatively range-bound amid a lack of fundamental news driving much price action.

The USD-index bounced back off 2 week lows following hawkish comments on Friday prompting broad-based weakness in the EUR, with Greek optimism not yet filtering through to FX markets as uncertainty behind Greece having adequate funds continues to weigh ahead of their IMF payments due on Wednesday and May 12th. However, GBP/USD remains flat despite the heightened expectations of a hung parliament as Labour and the Conservatives look less likely to gain a sole majority heading into Thursday’s election. Ahead of tomorrow’s RBA rate decision, AUD fell for a 4th consecutive session, as participants continued bringing forward rate cut expectations, with OIS pricing in an 80% chance of a 25bps rate cut.

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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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