The overnight session has been one of alternative weakness and strength: it started in China where stocks tumbled 2.8% to a two month low following an unexpected warning in the official People’s Daily mouthpiece that debt and NPLs are too high, not to expect more easing will come, and that the Chinese Economy’s performance won’t be U- or V-shaped but L-shaped.

 

This took place after another month of disappointing, sharply weaker trade data as fears about China’s slowdown returned. An expected freefall in key commodity prices led by a crash in the iron ore complex did not help Chinese sentiment, as China’s latest commodity bubble has by now clearly burst.

 

Concerns about China, however, were promptly forgotten and certainly not enough to keep global assets lower, with European stocks gapping higher at the open and rallying from a one-month low, shaking off the Chinese trade data drag that pushed Shanghai shares lower along with industrial metals, driven by a “surprising” surge in the USD/JPY which has moved nearly 200 pips higher since its post-payrolls low. Another driver is the jump in oil, which rallied just shy of $46 a barrel, buoyed by Canadian wildfires that are curbing production and speculation that the Saudi Arabian oil minister succession will be bullish for oil prices.

Certainly helping Europe rebound was the latest Goldman trade recommendation which came out about an hour ago, and was as follows:

  • GOLDMAN SACHS CUTS STOXX 600 12-MONTH TARGET TO 345 FROM 380
  • GOLDMAN SACHS CUTS EURO STOXX 50 12-MOS. TARGET TO 3070 VS 3500

    • As is common knowledge always do the opposite of what Goldman recommends and at last check, the Stoxx Europe 600 Index advanced 1.4% with health care and technology companies leading the gains. Apart from mining companies, all of the 19 industry groups on the Stoxx Europe 600 Index advanced. Copper fell to its lowest in almost a month after imports into China slipped from a record, while iron ore tumbled following an increase in stockpiles at Chinese ports. Oil climbed as high as $45.94 a barrel in New York and gold retreated as a gauge of dollar strength rose for a fifth day.

    S&P 500 futures added 0.3 percent, after U.S. stocks Friday halted a three-day decline amid investor speculation that the payrolls data will encourage the Federal Reserve to raise interest rates gradually. Traders are pricing in little chance of higher borrowing costs next month, with December the first month with more than even odds of a hike.

    Putting the global rebound in perspective, consider that Chinese trade figures released over the weekend showed exports fell in dollar terms in April and imports dropped for the 18th month in a row, while U.S. jobs figures on Friday were weaker than economists forecast, several Federal Reserve officials have said over the past week that U.S. interest rates are headed higher, comments that have given a boost to the greenback; this happens as earnings season is set to conclude the worst quarterly report in decades.

    In other words, lots of central bank multiple expansion, and lots of buybacks are taking place behind the scenes.

    Euro-area finance ministers and International Monetary Fund officials are meeting Monday to decide whether Greece’s government has done enough belt-tightening to gain another aid disbursement. Germany reported a bigger increase in March factory orders than economists forecast, while companies including Enel SpA and Tyson Foods Inc. are scheduled to announce earnings.

    Global Markets Snapshot

  • Stoxx 600 up 1.4% to 336.3
  • Eurostoxx 50 +1.6%,
  • FTSE 100 +0.8%, CAC 40 +1.4%,
  • DAX +1.9%, IBEX +1.5%
  • FTSEMIB -0.1%
  • SMI +1.3%
  • S&P 500 futures up 0.3% at 2058
  • Brent Futures up 1.5% to $46.1/bbl
  • Vstoxx Index down -2.1% at 24.6
  • MSCI Asia Pacific down 0.2%
  • Nikkei 225 up 0.7% to 16216
  • Hang Seng up 0.2% to 20156.8
  • Kospi down 0.5% to 1967.8
  • Shanghai Composite down 2.8% to 2832.1
  • Euro down 0.09% to $1.1394
  • Dollar Index up 0.07% to 93.96
  • German 10Yr yield up 2bps to 0.16%
  • Italian 10Yr yield down 1bps to 1.49%
  • Spanish 10Yr yield down 1bps to 1.59%

    • Top Global News

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  • Bill Gross, Mohamed El-Erian Warn Against Counting the Fed Out: Gross says Fed rate increase may come in June as wages rise
  • Bloomberg Editorial: The IMF Is Right About Greece’s Need for Debt Relief: any plan to resolve its financial crisis has to involve debt relief
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    • Looking at regional markets, Asia stocks started the week mostly lower following Friday’s NFP miss coupled with weak Chinese trade data in which exports and imports printed below estimates. ASX 200 (-0.4%) was pressured with sentiment soured by a decline in imports from its largest trading partner, although advances in oil amid uncertainty after Saudi replaced oil minister Al-Naimi helped stem losses. Nikkei 225 (+0.7%) outperformed after a 6-day losing streak as JPY weakness boosted exporter names, while the Shanghai Comp (-2.8%) led the region lower amid weak trade data and the PBoC decreasing its liquidity injection. 10yr JGBs traded lower amid increased appetite for riskier assets in Japan, while mild support was seen early in the long-end as the 20yr yield declined to fresh record lows, with the BoJ also in the market to purchase around JPY 1.2trl of government debt.

    Asian Top News

  • Takata Projects Second Annual Loss on Air-Bag Recall Charges: Company forecasts 13 billion yen loss; had estimated profit
  • Soros Chart Signals BOJ Bond Buying Already Enough to Weaken Yen: Japan monetary base rises to 96% that of U.S. in dollar terms
  • Japan Finance Minister Fires Another Verbal Salvo at Strong Yen: Aso says Japan has means to intervene
  • Chinese Imports From Hong Kong Raise Red Flag Amid Yuan Worries: Import surge from Hong Kong may show capital exit, OCBC says
  • Goldman Fund Manager Bearish on Aussie as Dollar Bets Falter: Fund bearish Aussie against kiwi, loonie after RBA rate cut
  • Rajan Stimulus Working as Rare Issuers Revive Rupee Bond Market: Issuance in May has second-best start for month in 11 years
  • Mitsubishi Heavy Surges After Profit Outlook Beats Estimates: Forecasts 13% increase in op. profit this fiscal year to 350b yen, exceeding est. of 334b yen
  • Commonwealth Bank Profit Gains 4.5%, Bad-Debt Charges Rise: Provisions for impaired loans up 67% on corporate defaults
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