*RBA leaves cash rate unchanged at 1.75% as expected, Aussie stronger:
RBA left cash rate unchanged at 1.75%. Decision was widely expected, but lack of dovish forward guidance a tailwind for Aussie dollar (bond yields also higher). RBA's accompanying statement again omitted forward guidance, noting only that holding policy unchanged would be consistent with sustainable growth and inflation returning to target over time. Added overall growth is continuing and other areas of domestic demand, as well as exports, have been expanding at or above trend. Regarding jobs market, labor indicators consistent with continued expansion of near-term employment. RBA said housing prices had begun to rise again, but qualified by noting considerable apartment supply was expected come on stream over next couple of years.
*China FX reserves largely in line:
China’s foreign-exchange reserves fell by ~$28B to $3.19B in May. Marked biggest monthly decline in since February and lowest level since December 2011, but was largely in line with $3.20T consensus. Decline largely attributed to impact of stronger dollar. In addition, fairly orderly nature of the yuan’s depreciation despite renewed policy divergence traction, put focus on Beijing’s heightened emphasis on stability, seemingly helping to dampen need intervention needs. On that front, MNI noted China Foreign Exchange Trade System (CFETS), a PBoC unit that runs interbank forex market, said in its yuan monthly review that market stability has improved after central bank stepped up communication with market and improved policy transparency.
*China press downplays Yuan concerns:
Dampened expectations of a near-term Fed rate hike a positive for worries that policy divergence trades could drive another wave of speculation about potential for a meaningful yuan depreciation. In addition, Chinese officials and mainland press have continued to deliver a more upbeat message. US Treasury Secretary Lew noted Beijing reiterated to him no basis for sustained depreciation. Financial News also cited comments from PBOC research bureau head Yao Yudong, who said yuan will remain basically stable and it is healthy to see some fluctuation in the exchange rate. Elsewhere, Shanghai Securities News cited comments from Wang Yong, a professor at a PBoC training school, who said next phase of liquidity management by central bank expected to focus on stabilizing yuan.
*Energy best performer:
Energy best performer with likely help from continued oil strength. Telecom stronger, but other defensive weaker despite yields resuming Friday’s post-NFP move lower. Industrials outperformed. Airlines the standouts following recent scrutiny on RASM headwinds. JPMorgan noted recent fare increases. NAV-US turnaround plan helped drive unexpected profitability. Tech a slight outperformer. HDDs and semis provided some upside leadership. WDC-US upgraded. TSMUS said industry M&A to accelerate. Consumer discretionary a bit better. Retail, builders (Elliott stake in PHM-US) and autos largely outperformed. Deutsche Bank out positive on TLRD-US ahead of earnings. Materials lagged. Precious metals mostly lower. Copper selloff a drag on FCX-US. Regional banks weighed on financials. Healthcare worst performer on VRX-US guidance and disappointing trial results from BIIB-US and ALXN-US.
*Healthcare lags on biotech, pharma weakness:
Healthcare worst performer today. Specialty pharma in focus with VRX-US hit by a more aggressive than expected guidance reset. Dermatology franchise faring worse (limited help from Walgreen’s deal) and analysts flagged renewed focus on debt. Biotech a big drag following recent rally. BIIB-US a big decliner after opicinumab, the company’s drug for MS, did not improve overall physical and cognitive function and progression of disability in patients in Phase 2 study. ALXN-US also under pressure after Phase 3 study of Soliris, company’s drug to treat an unmanageable form of the muscle-weakening illness myasthenia gravis, failed to meet primary endpoint. Street out cutting price targets, but some suggested buying on weakness. Elsewhere, ZBH-US another drag on the sector following $1B acquisition of LBRH-US.
*Oil up, copper down:
Mixed day for some growth commodities. Oil has posted solid gains throughout better part of the session following a rally Monday that was largely chalked up to continued concerns about supply outages in Nigeria. Recent bout of dollar weakness also flagged as supportive. Nothing specific behind today’s push higher that ended with oil above $50 a barrel for first time since July. Some focus on news that Saudis plan to keep crude capacity unchanged until 2020 under a new economic reform plan. WSJ also discussed support from surge in demand for autos in India. Copper a big decliner today, off more than 3% after hitting a four-week high on Monday. Bloomberg blamed data that showed biggest two-day increase in stockpiles (nearly 30%) since 2004. However, better day for steel and iron ore futures in China. Latter seemingly helped by higher price forecast out of Citi.
*Sterling recovers after latest Brexit polls:
Sterling well supported today, trading above $1.4550, compared with yesterday's three-week low at ~$1.4350. Improvement in sentiment comes as two polls show marginal lead for Remain camp. ORB/Telegraph poll put Remain at 48% vs Leave at 47%. Times/YouGov poll has Remain at 43% vs 42% for Leave. ORB poll is narrowest gap between two camps since EU referendum campaign began, while YouGoV poll showed deterioration in support for those in favor of Brexit. Takeaways from latest polls shows there is little to separate the sides and more than 10% of undecided voters still up for grabs. Of note, six million people have still not registered to vote, with the last chance to do so today. BBC reported 1.65M expected to apply to vote today.
*AP says Clinton secures Democratic nomination:
Ahead of today’s contests in California and five other states, AP reported Hillary Clinton secured delegates needed for Democratic nomination. While Clinton was just 23 delegates shy of the 2,383 needed for victory following Sunday’s victory in Puerto Rico primary, she received commitments from additional super delegates late Monday. WSJ noted no victory lap from Clinton campaign amid focus on notching win’s in Tuesday’s contests, particularly in California, where she is still neck-and-neck in polls with Bernie Sanders. Paper also discussed some mixed messages from Sanders’ camp in recent days. Noted last weekend, he predicted July convention would be a contested one. However, in remarks Monday, did not make any explicit promises to continue campaign through the convention.
*Verizon to bid ~$3B for core Yahoo assets:
YHOO-US exploration of potential strategic alternatives remains one of the more widely followed corporate stories. WSJ reported VZ-US on Monday planned to submit a second-round bid of ~$3B for YHOO’s core internet business. Added VZ not interested in non-core assets, which YHOO has said could fetch more than $1B. Monday marked deadline for second-round bid. Last month, WSJ said VZ and other potential suitors expected to bid ~$2B-$3B in second round, down from reports in April that said core business could fetch ~$4B-$8B. Paper discussed how VZ still seen as front-runner given ability to combine YHOO’s web properties with recently acquired AOL. However, did note that private equity firm TPG also expected to make second-round bid.
Verizon 30亿美元竞购雅虎核心资产：
*BofA Merrill Lynch clients net buyers of US stocks for first time since mid-January:
Flow data continue to get a lot of attention amid seeming obsession with sentiment/positioning. BofA Merrill Lynch said its clients were net buyers of US stocks for first time in 19 weeks last week, breaking widely discussed record-long selling streak that began in mid-January. Firm said net buying of $800M was led by institutional clients, who have been biggest sellers of US stocks this year. However, hedge funds and private clients remained net sellers. In addition, four-week average of firm’s client flows remained negative, as has been case since February. Added other sentiment indicators, including its Sell Side Indicator, suggest still-bearish equity sentiment (note this dynamic has been flagged as keeping pain trades to the upside).
*Wage pressure a headwind for consumer discretionary:
More focus on impact of higher wages. JPMorgan (strategist Dubravko Lakos-Bujas) noted wage pressures gradually building with average hourly earnings up 2.5% y/y in May with trend showing signs of acceleration. Pointed out greatest impact to profitability will likely be felt by companies with lower revenue per employee (higher labor intensity), net income margins (pricing power) and market-cap (lower economies of scale). Added consumer discretionary sector (which firm is underweight) most likely to be pressured by these factors. Within consumer discretionary, leisure and hospitality companies most at risk of seeing minimum-wage driven cost increases. Firm believes consumer discretionary sector’s 2016 consensus earnings growth of 9% at risk with commodity and USD trends reverting.
*ECB’s corporate QE program scares away yield hunters:
More discussion about yield compression surrounding ECB’s corporate bond-buying program, which is set to commence tomorrow. Bloomberg cited BofA Merrill Lynch data that showed average yield in euro denominated investment-grade paper tumbled to 1% yesterday, lowest in more than a year. Noted investors worried ECB will crowd them out and make it even tougher to find yield. Added some investors pushing back on prices and even the most conservative firms are turning to speculative-grade debt, traditionally among the riskiest of fixed-income assets. Also discussed how companies benefiting from lower borrowing costs are issuing debt at an increasing clip. May marked second-biggest month of issuance on record at more than€50B.
*Former official says BoJ should scrap two-year inflation target:
Former BoJ executive director Kazuo Momma told Bloomberg central bank should abandon its two-year time frame for achieving 2% inflation to avoid the pressure of having to take more drastic measures. BoJ has pushed back expected time frame for reaching inflation target to some time in fiscal 2017, which most economists think is too ambitious. Momma suggested it would be better to make target a longer term goal, as is the case with many central banks, echoing similar suggestion by policy board member Takehiro Sato in last week's speech. Sato, who is one of nine board members and a dissenter in the two stimulus expansions, also said last week that BoJ should explore more flexible approaches to the monetary base target.
RBA left cash rate unchanged at 1.75%. Decision was widely expected, but lack of dovish forward guidance a tailwind for Aussie dollar (bond yields also higher). RBA's accompanying statement again omitted forward guidance, noting only that holding policy unchanged would be consistent with sustainable growth and inflation returning to target over time. Added overall growth is continuing and other areas of domestic demand, as well as exports, have been expanding at or above trend. Regarding jobs market, labor indicators consistent with continued expansion of near-term employment. RBA said housing prices had begun to rise again, but qualified by noting considerable apartment supply was expected come on stream over next couple of years.
*China FX reserves largely in line:
China’s foreign-exchange reserves fell by ~$28B to $3.19B in May. Marked biggest monthly decline in since February and lowest level since December 2011, but was largely in line with $3.20T consensus. Decline largely attributed to impact of stronger dollar. In addition, fairly orderly nature of the yuan’s depreciation despite renewed policy divergence traction, put focus on Beijing’s heightened emphasis on stability, seemingly helping to dampen need intervention needs. On that front, MNI noted China Foreign Exchange Trade System (CFETS), a PBoC unit that runs interbank forex market, said in its yuan monthly review that market stability has improved after central bank stepped up communication with market and improved policy transparency.
*China press downplays Yuan concerns:
Dampened expectations of a near-term Fed rate hike a positive for worries that policy divergence trades could drive another wave of speculation about potential for a meaningful yuan depreciation. In addition, Chinese officials and mainland press have continued to deliver a more upbeat message. US Treasury Secretary Lew noted Beijing reiterated to him no basis for sustained depreciation. Financial News also cited comments from PBOC research bureau head Yao Yudong, who said yuan will remain basically stable and it is healthy to see some fluctuation in the exchange rate. Elsewhere, Shanghai Securities News cited comments from Wang Yong, a professor at a PBoC training school, who said next phase of liquidity management by central bank expected to focus on stabilizing yuan.
*Energy best performer:
Energy best performer with likely help from continued oil strength. Telecom stronger, but other defensive weaker despite yields resuming Friday’s post-NFP move lower. Industrials outperformed. Airlines the standouts following recent scrutiny on RASM headwinds. JPMorgan noted recent fare increases. NAV-US turnaround plan helped drive unexpected profitability. Tech a slight outperformer. HDDs and semis provided some upside leadership. WDC-US upgraded. TSMUS said industry M&A to accelerate. Consumer discretionary a bit better. Retail, builders (Elliott stake in PHM-US) and autos largely outperformed. Deutsche Bank out positive on TLRD-US ahead of earnings. Materials lagged. Precious metals mostly lower. Copper selloff a drag on FCX-US. Regional banks weighed on financials. Healthcare worst performer on VRX-US guidance and disappointing trial results from BIIB-US and ALXN-US.
*Healthcare lags on biotech, pharma weakness:
Healthcare worst performer today. Specialty pharma in focus with VRX-US hit by a more aggressive than expected guidance reset. Dermatology franchise faring worse (limited help from Walgreen’s deal) and analysts flagged renewed focus on debt. Biotech a big drag following recent rally. BIIB-US a big decliner after opicinumab, the company’s drug for MS, did not improve overall physical and cognitive function and progression of disability in patients in Phase 2 study. ALXN-US also under pressure after Phase 3 study of Soliris, company’s drug to treat an unmanageable form of the muscle-weakening illness myasthenia gravis, failed to meet primary endpoint. Street out cutting price targets, but some suggested buying on weakness. Elsewhere, ZBH-US another drag on the sector following $1B acquisition of LBRH-US.
*Oil up, copper down:
Mixed day for some growth commodities. Oil has posted solid gains throughout better part of the session following a rally Monday that was largely chalked up to continued concerns about supply outages in Nigeria. Recent bout of dollar weakness also flagged as supportive. Nothing specific behind today’s push higher that ended with oil above $50 a barrel for first time since July. Some focus on news that Saudis plan to keep crude capacity unchanged until 2020 under a new economic reform plan. WSJ also discussed support from surge in demand for autos in India. Copper a big decliner today, off more than 3% after hitting a four-week high on Monday. Bloomberg blamed data that showed biggest two-day increase in stockpiles (nearly 30%) since 2004. However, better day for steel and iron ore futures in China. Latter seemingly helped by higher price forecast out of Citi.
*Sterling recovers after latest Brexit polls:
Sterling well supported today, trading above $1.4550, compared with yesterday's three-week low at ~$1.4350. Improvement in sentiment comes as two polls show marginal lead for Remain camp. ORB/Telegraph poll put Remain at 48% vs Leave at 47%. Times/YouGov poll has Remain at 43% vs 42% for Leave. ORB poll is narrowest gap between two camps since EU referendum campaign began, while YouGoV poll showed deterioration in support for those in favor of Brexit. Takeaways from latest polls shows there is little to separate the sides and more than 10% of undecided voters still up for grabs. Of note, six million people have still not registered to vote, with the last chance to do so today. BBC reported 1.65M expected to apply to vote today.
*AP says Clinton secures Democratic nomination:
Ahead of today’s contests in California and five other states, AP reported Hillary Clinton secured delegates needed for Democratic nomination. While Clinton was just 23 delegates shy of the 2,383 needed for victory following Sunday’s victory in Puerto Rico primary, she received commitments from additional super delegates late Monday. WSJ noted no victory lap from Clinton campaign amid focus on notching win’s in Tuesday’s contests, particularly in California, where she is still neck-and-neck in polls with Bernie Sanders. Paper also discussed some mixed messages from Sanders’ camp in recent days. Noted last weekend, he predicted July convention would be a contested one. However, in remarks Monday, did not make any explicit promises to continue campaign through the convention.
*Verizon to bid ~$3B for core Yahoo assets:
YHOO-US exploration of potential strategic alternatives remains one of the more widely followed corporate stories. WSJ reported VZ-US on Monday planned to submit a second-round bid of ~$3B for YHOO’s core internet business. Added VZ not interested in non-core assets, which YHOO has said could fetch more than $1B. Monday marked deadline for second-round bid. Last month, WSJ said VZ and other potential suitors expected to bid ~$2B-$3B in second round, down from reports in April that said core business could fetch ~$4B-$8B. Paper discussed how VZ still seen as front-runner given ability to combine YHOO’s web properties with recently acquired AOL. However, did note that private equity firm TPG also expected to make second-round bid.
Verizon 30亿美元竞购雅虎核心资产：
*BofA Merrill Lynch clients net buyers of US stocks for first time since mid-January:
Flow data continue to get a lot of attention amid seeming obsession with sentiment/positioning. BofA Merrill Lynch said its clients were net buyers of US stocks for first time in 19 weeks last week, breaking widely discussed record-long selling streak that began in mid-January. Firm said net buying of $800M was led by institutional clients, who have been biggest sellers of US stocks this year. However, hedge funds and private clients remained net sellers. In addition, four-week average of firm’s client flows remained negative, as has been case since February. Added other sentiment indicators, including its Sell Side Indicator, suggest still-bearish equity sentiment (note this dynamic has been flagged as keeping pain trades to the upside).
*Wage pressure a headwind for consumer discretionary:
More focus on impact of higher wages. JPMorgan (strategist Dubravko Lakos-Bujas) noted wage pressures gradually building with average hourly earnings up 2.5% y/y in May with trend showing signs of acceleration. Pointed out greatest impact to profitability will likely be felt by companies with lower revenue per employee (higher labor intensity), net income margins (pricing power) and market-cap (lower economies of scale). Added consumer discretionary sector (which firm is underweight) most likely to be pressured by these factors. Within consumer discretionary, leisure and hospitality companies most at risk of seeing minimum-wage driven cost increases. Firm believes consumer discretionary sector’s 2016 consensus earnings growth of 9% at risk with commodity and USD trends reverting.
*ECB’s corporate QE program scares away yield hunters:
More discussion about yield compression surrounding ECB’s corporate bond-buying program, which is set to commence tomorrow. Bloomberg cited BofA Merrill Lynch data that showed average yield in euro denominated investment-grade paper tumbled to 1% yesterday, lowest in more than a year. Noted investors worried ECB will crowd them out and make it even tougher to find yield. Added some investors pushing back on prices and even the most conservative firms are turning to speculative-grade debt, traditionally among the riskiest of fixed-income assets. Also discussed how companies benefiting from lower borrowing costs are issuing debt at an increasing clip. May marked second-biggest month of issuance on record at more than€50B.
*Former official says BoJ should scrap two-year inflation target:
Former BoJ executive director Kazuo Momma told Bloomberg central bank should abandon its two-year time frame for achieving 2% inflation to avoid the pressure of having to take more drastic measures. BoJ has pushed back expected time frame for reaching inflation target to some time in fiscal 2017, which most economists think is too ambitious. Momma suggested it would be better to make target a longer term goal, as is the case with many central banks, echoing similar suggestion by policy board member Takehiro Sato in last week's speech. Sato, who is one of nine board members and a dissenter in the two stimulus expansions, also said last week that BoJ should explore more flexible approaches to the monetary base target.
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