Futures Flat Despite China Scare As Oil Rebounds Over $47

The main risk over the weekend was that markets, which have now dropped for three consecutive weeks the longest negative streak since January, would focus their attention on the latest batch of negative Chinese economic news released over the weekend, which missed expectations across the board, most prominently in Retail Sales (10.1% vs. Exp. 10.6%, down from 10.5%) and Industrial Production (6.0% vs. Exp. 6.5% down from 6.8%), and following Friday’s disappointing new credit loan data, would sell off as the Chinese slowdown once again becomes a dominant concern. However, after some initial weakness, the risks were all but gone when first the USDJPY jumped on another round of deflationary Japanese economic data (PPI Services -4.2%, Exp. -3.7%) which led to renewed hopes of more BOJ easing and a jump in the USDJPY and thus US futures.

Shortly thereafter a bearish report on oil by Goldman was misreported as bullish on oil prices (Goldman explicitly stated that the global rebalancing is taking longer than expected, but recent supply disruptions have taken off more oil from the market than expected, as a result of which Goldman cut its 2017 forecast prices while pushing up near-term expectations, a move that will also assure that 2017 prices are lower as more near-term production comes online.

With few upside anchors, traders and analysts quickly focused on oil as the driver of risk on strength: “The firmer oil price is helping emerging-market equities today despite the weaker China data over the weekend,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP. “Oil is being driven by what’s happening in Nigeria at the moment – that’s changed sentiment towards Brent and has brought an expected recovery forward,” said John Meyer, an analyst at broker SP Angel Corporate Finance LLP in London. “Rising oil prices tend to support the commodities complex.”

As a result of the confusion, Brent rose to a six-month high, leading a rebound in commodities and boosting the ruble and mining companies, as supply disruptions in Nigeria added to production woes, while WTI was trading above $47 for the first time since November. Precious metals rallied with aluminum and commodity producers climbed, while almost all of the other industry groups in the Stoxx Europe 600 Index fell. Irish bonds advanced, outperforming their euro-area peers, while the Polish zloty strengthened after favorable reports from Moody’s Investors Service. Asian stocks rose from a one-month low.

And so, after last week’s US market losses and renewed recession concerns, the selloff was halted courtesy of the pickup in raw-materials prices which, as Bloomberg wrote, provides support for global equities after about $1.8 trillion was wiped off the value of the securities in the first two weeks of May amid weaker economic data and disappointing earnings reports.

“Concerns over the strength of the global economy are back on investors’ minds,” said Jasper Lawler, a London-based analyst at CMC Markets Plc. “The resources and oil sectors have been outperforming since the February low and both of them are performing OK today. But they need to continue to outperform for us to have a sustained rally.”

Elsewhere, China’s central bank issued a weekend statement saying monetary policy would continue to support growth, after data on new lending, retail sales, industrial production and fixed-asset investment missed economists’ estimates. A Friday report showing a jump in American retail sales bolstered the case for the Federal Reserve to raise interest rates.

Across global stock markets, the Stoxx Europe 600 Index declined 0.4 percent, falling for a third time in four days. German and Swiss markets were among those shut for the Whit Monday holiday, and volume of shares changing hands was about 45 percent lower than the 30-day average. Almost all industry groups in the Stoxx Europe 600 Index dropped after Chinese reports on new lending, retail sales, industrial production and fixed-asset investment missed economists’ estimates. The volume of Stoxx 600 shares changing hands was 44 percent lower than the 30-day average as German and Swiss markets were among those shut for a holiday

The MSCI Emerging Markets Index added 0.2 percent after falling as much as 0.4 percent. Benchmark gauges in Russia, Poland, South Africa and the Philippines climbed at least 0.9 percent. Shenzhen and Hong Kong stocks climbed amid speculation the start date of an exchange trading link between the two cities will be announced this week.

Futures on the S&P 500 Index expiring next month added 0.1% after the gauge completed a third weekly decline, its longest streak since January.Announced stock buybacks dropped 38 percent to $244 billion in the last four months, the biggest decline since 2009, data compiled by Birinyi Associates and Bloomberg show. Is the buyback spree officially coming to an end?

Global Market Snapshot