Following yesterday's violent and unexpected equity selloff, driven by a so-called "tech wreck" as the FANG+ index dropped by 5.7%, the most on record, and stood on the edge of a key support line precipice... ... this morning, global stocks are predictably lower across the globe, as the tech sector fallout spreads across Asia and Europe... ... although S&P futures are off session lows, with 2,600 providing a support level for the time being, and should that fail, all eyes will be on the 200-DMA, some 15 points lower. As noted yesterday, on Tuesday US tech shares suffered their worst drop since the February rout, as investors were spooked by bad news from companies including Nvidia, Twitter and Facebook. As Bloomberg notes, the latest leg down for tech shares, which have been the driving force for much of the current bull market in global equities and represent the most popular investment for the hedge fund community, comes at a sensitive time. Stock markets trading with high valuations and tighter liquidity are already being shaken by protectionist moves by Donald Trump. His administration is mulling a crackdown on Chinese investments in technologies the U.S. considers sensitive, the latest step in his plan to punish China for violations of intellectual-property rights. The tech rout spooked Asia, where the ASX 200 (-0.7%) and Nikkei 225 (-1.3%) tumbled, while weakness in commodities also contributed to the glum. Elsewhere, KOSPI (-1.3%) pharmaceutical and metal stocks joined the tech underperformance after reports stated South Korea steel exports to US would decline 30% under the new trade agreement and that South Korea will amend its premium pricing program for pharmaceuticals to allow participation of US drug makers. Hang Seng (-2.5%) and Shanghai Comp. (-1.4%) were also dragged by the tech slide, while encouraging earnings from big 4 banks ICBC and China Construction Bank only provided brief support and was eventually engulfed by the stock rout. Europe was no better, with equities (Eurostoxx -1.0%) extending the risk-averse tone seen in the US and Asia, triggered by a tech sell-off which prompted losses within the IT sector in Europe this morning, augmented by month- end flows. As such, semiconductors are the laggards with Dialog Semiconductors (-13.0%), Infineon (-4.0%), ASML Holding (-4.4%) and STMicroelectronics (-5.2%) the worst performers whereas utilities remain slightly supported. In terms of individual movers, Shire (+15.5%) is leading the FTSE 100 and lifting the healthcare sector (+0.5%) after Takeda confirmed to be considering an offer for the company. Meanwhile, with most attention on equities, the big action overnight was in 10Y yields, where the growing tech turmoil forced 10Y yields out of the 20-bps range that’s held since early February. On Wednesday, the 10Y benchmark dropped as much as three basis points Wednesday to 2.74 percent, the lowest level since Feb. 6, following an eight basis-point drop Tuesday. The yield has broken below the key 50-day moving average for the first time since mid-December. Commenting on the move, FTN strategist Jim Vogel wrote in a note that for those caught off-guard by the extent of the bond rally, the shift is “still not alarming but definitely worth watching current rates if equities can’t find their way home. As various tech and social media stories continue to get pummeled on a regular basis, however, trading at 2.805 percent and below is gaining ground." It could get worse: as Mark Cudmore warned this morning, positioning in Treasuries signals a shakeout could be in the offing. As of last week, hedge funds and other large speculators had a net short position in 10-year Treasury futures that was the close to record highs. A break of technical levels like moving averages could shift momentum and lead them to cover their bets to protect from further losses. In this context, BMO Capital now expects 2.671% as the next level in sight for the 10-year maturity, which may pause at 2.752 percent. BMO earlier this month said they’re confident that that yields already peaked for 2018. Also notable, as Bloomberg points out it’s not just the 10-year maturity grappling with re-pricing. Eurodollars advanced by as much as five basis points on Wednesday, while the OIS market is now pricing in less than two Federal Reserve rate hikes for the remainder of the year. In FX, just like yesterday, the USD has rallied against most G-10 peers again, with month/quarter end positioning still providing support, while the Yen is at session lows, with the USDJPY trading just shy of 105.90 after overnight China officially confirmed that Kim Jong Un met with Xi Jinping and discussed the upcoming meeting with Trump and his eagerness to denuclearize the Korean peninsula. GBP an early outperformer after reports of an imminent proposal on the Irish border issue. In addition to the summit between China and North Korea, the yen also weakened following news that Japan's Takeda is hoping to acquire the now bigger Shire PLC. All core fixed income markets well supported, UST 2s10s re-approach flattest level of the year. Crude futures hold overnight losses after bearish API data, spot gold weighted by USD rally. Bulletin Headine Summary from RanSquawk European equities have extended losses after tech slipped on Wall St. and Asia USD firmer vs. all G10 approaching quarter and Japanese financial year end Looking ahead, highlights include US GDP, PCE Prices, Pending Home Sales, DoEs and Fed’s Bostic Top Overnight News The Trump administration is considering a crackdown on Chinese investments in technologies the U.S. deems sensitive by invoking a law reserved for national emergencies, among other options, according to people familiar with the matter China confirmed Wednesday that Kim met with President Xi Jinping on a surprise visit to Beijing, and said the North Korean leader would be willing to give up his nuclear weapons and hold a summit with the U.S. In this bull market alone there’s been five other corrections like this one, and it’s taken around seven months on average for equities to climb out of their hole. Based on that path, the current jitters won’t be fully eradicated until August Japan Prime Minister Shinzo Abe says sanctions against North Korea must be kept until the country takes concrete steps to abandon nuclear weapons and missiles China considers allowing more derivatives trading under bond connect and the country will steadily accelerate pace of bond market opening up, PBOC official Gao Fei says Irish officials have been told to expect new plans “imminently” from U.K. on how it plans to avoid a post-Brexit hard border, The Times reports, citing sources The U.S. Treasury finished its slate of bill auctions for the month, with their sale Tuesday of 4-week securities seeing good demand Thanks to fresh blows to companies from Nvidia Corp. to Facebook Inc., the biggest industry in the S&P 500 Index dropped 3.5 percent, the biggest decline since the broad-market selloff reached its worst point on Feb. 8 Market Snapshot S&P 500 futures down 0.2% to 2,609.75 STOXX Europe 600 down 1% to 363.90 MXAP down 1.4% to 172.41 MXAPJ down 1.6% to 562.73 Nikkei down 1.3% to 21,031.31 Topix down 1% to 1,699.56 Hang Seng Index down 2.5% to 30,022.53 Shanghai Composite down 1.4% to 3,122.29 Sensex down 0.4% to 33,035.44 Australia S&P/ASX 200 down 0.7% to 5,789.47 Kospi down 1.3% to 2,419.29 German 10Y yield fell 1.8 bps to 0.486% Euro down 0.04% to $1.2398 Italian 10Y yield fell 3.7 bps to 1.619% Spanish 10Y yield unchanged at 1.236% Brent futures down 0.6% to $69.69/bbl Gold spot down 0.3% to $1,340.98 U.S. Dollar Index up 0.1% to 89.47 Asian equity markets traded negative across the board as the region followed suit from the losses on Wall St where trade concerns lingered and tech sold-off, while some also attributed the exacerbated pressure to flows heading into month-end and Easter break. As such, ASX 200 (-0.7%) and Nikkei 225 (-1.3%) were lower as tech stocks conformed to the losses in their counterparts stateside, while weakness in commodities also contributed to the glum. Elsewhere, KOSPI (-1.3%) pharmaceutical and metal stocks joined the tech underperformance after reports stated South Korea steel exports to US would decline 30% under the new trade agreement and that South Korea will amend its premium pricing program for pharmaceuticals to allow participation of US drug makers. Hang Seng (-2.5%) and Shanghai Comp. (-1.4%) were also dragged by the tech slide, while encouraging earnings from big 4 banks ICBC and China Construction Bank only provided brief support and was eventually engulfed by the stock rout. Finally, 10yr JGBs saw a tale of two-halves as they initially tracked the gains in T-notes amid a flight to quality from the stock market sell-off and with the BoJ also present in the market under its bond buying program, before gains were then pared on return from the Tokyo break in which prices returned flat Top Asian News JPMorgan Looks Beyond Finance to Hire Tech, Math Grads in Asia Bank Indonesia’s Incoming Governor Pledges Growth, Stability Time Is Running Out for the Philippine Exchange Merger Deal Sri Lanka Plans Dollar Loans and Bonds as Maturing Debt Looms Chung Family to Overhaul Hyundai Motor Group Ownership Structure European equities (Eurostoxx -1.0%) have extended on the risk-averse tone seen in the US and Asia, triggered by a tech sell-off which prompted losses within the IT sector in Europe this morning, augmented by month-end flows. As such, semiconductors are the laggards with Dialog Semiconductors (-13.0%), Infineon (-4.0%), ASML Holding (-4.4%) and STMicroelectronics (-5.2%) the worst performers whereas utilities remain slightly supported. In terms of individual movers, Shire (+15.5%) is leading the FTSE 100 and lifting the healthcare sector (+0.5%) after Takeda confirmed to be considering an offer for the Co., although considerations are at a prelim stage and no approach has been made yet. Elsewhere, Melrose (-0.5%) have continued to defend their approach for GKN ahead of tomorrow’s deadline. Top European News Banca Carige Says Conditions Not Right for Planned Tier 2 Deal Faurecia Says Signed Record Contract for Seats With BMW It’s Back to the 80s for Brexit-Hit Broadcasters Without Deal In FX, another rebalancing model is Usd positive for month, quarter and Japanese financial year end, albeit ‘moderately’, while a separate bank is looking to buy the Greenback vs the Pound, Loonie, Aud and Nok if global stocks fall further. Hence, the Dollar retains an underlying bid on dips and is firmer vs all G10 peers bar the Gbp, which is deriving some independent support on latest Brexit headlines (reports that an Irish border resolution is in the offing). Cable and Eur/Gbp are bucking the broader trend, with the former hovering just below 1.4200 after a retreat to test the first layer of bids said to be macro-related in the 1.4135-25 area, and the latter seeing some resistance around 0.8750. Eur/Usd is also holding up relatively well near 1.2400 where decent option expiry interest lies (1.6 bn), but also as tech support at the 100 HMA (1.2379) holds. In fact, the Eur is defying some end of March ‘strong’ selling calls and outperforming other majors, like the Sek and Nok in wake of weaker than expected retail sales data from both Scandi nations overall. Even the Chf is weaker despite the resurgence of risk aversion, while its traditional safe- haven counterpart, Jpy, is caught between the aforementioned downturn in sentiment and more positive geopolitical vibes on the NK-SK-US front. Usd/Jpy rangy between 105.69 and 105.96 200 HMA and Fib levels respectively. Usd/Cad is back around 1.2900 despite constructive NAFTA negotiations, while Aud/Usd and Nzd/Usd remain bearish, as the former has breached its recent 0.7672 low and the latter tests support/bids at 0.7250. In commodities, the commodities complex continues to be subdued amid the dampened risk appetite. WTI (-0.9%) and Brent (-0.6%) futures are extending losses with prices pressured by the surprise build in API crude inventories (5.321M vs. Exp. -0.300M). Additionally, the Iraqi oil Minister Luaibi stated that Iraq will not deviate from any OPEC decisions on crude supply; this follows the Saudi Crown Prince stating OPEC seeks a 10 to 20-year supply co-operation with Russia as well as other producers. Gold (-0.1%) slipped from a 5-week high as a firmer dollar is weighing on the yellow metal. Fears of a trade war continue to cast a shadow over the base metal market with copper (-0.6%) lower and Dalian iron ore futures slipping to their lowest since June shortly after the open. Looking at the day ahead, datawise all eyes will be on the US with the third and final revisions due to be made for Q4 GDP, while the February advance goods trade balance, wholesale inventories and pending home sales data are also due out. The Fed's Bostic is due to again make comments in the late afternoon. US event calendar 8:30am: GDP Annualized QoQ, est. 2.7%, prior 2.5% Personal Consumption, est. 3.8%, prior 3.8% GDP Price Index, est. 2.3%, prior 2.3% Core PCE QoQ, est. 1.9%, prior 1.9% 8:30am: Advance Goods Trade Balance, est. $74.4b deficit, prior $74.4b deficit, revised $75.3b deficit 8:30am: Retail Inventories MoM, prior 0.8%, revised 0.7%; Wholesale Inventories MoM, est. 0.5%, prior 0.8% 10am: Pending Home Sales MoM, est. 2.0%, prior -4.7%; NSA YoY, prior -1.7% DB's Craig Nicol concludes the overnight wrap Well, at least we can say that we’re getting used to this now. After things appeared eerily quiet throughout the morning and all the way up until the European close, US equities suffered more huge falls last night, undoing much of the good work on Monday. The S&P 500 finished -1.73% - although stayed just above the 200-day moving average - and the Dow ended -1.43%. To put some perspective on things, the last four days have seen points moves for the Dow of 345, 669, 425 and 724. That’s an average of 541 points. The average daily move in 2017 was just 68 points and there were only 3 days last year when there was a move of at least 300 points. Incredible. What was striking about yesterday though was that bonds also finally got in on the act with 10y Treasury yields finally snapping out of a 22-day range to close below 2.80% for the first time since February 5th, eventually finishing at 2.776% (-7.7bps). The curve flattened too with 2s10s 7.0bps flatter. That puts it at the flattest since early January. Bunds also crept under 0.50% for the first time since January and they are now down 26bps from the 2018 high. We also couldn’t help but notice that the value of negative yielding bonds around the globe is back up to $8.8tn. This is after the combined value fell below $7.0tn in early February. Anyway, the blame yesterday for equity markets – and the broader risk-off tone - was firmly placed at the hands of the tech sector again where it appears that there are more than a few chinks in the armour now. Indeed, tech names were down -3.47% in the S&P 500 while the Nasdaq tumbled -2.93% and notched up its fourth consecutive session whereby the index has moved at least 2% in either direction. The last time that happened was in late September 2011. The NYSE FANG index – which includes 10 of the largest global tech names – fell a whopping -5.63% and the most since 2014 when the index first started. It also lost a combined $134bn in market cap yesterday, which now means those names have lost $320bn in value since the index peaked back on March 12th. Facebook tumbled -4.87% and seems to be at the centre of any selloff related to the sector at the moment however news that Nvidia was suspending self-driving car testing and Tesla was undergoing another investigation related to a crash last year just compounded the pain. The Nasdaq equivalent of the VIX rose to 29.01 last night (up nearly 4 points from Monday) and is closing back in on the February high of 33.89. Overnight, some of the focus has shifted to the news that China has confirmed North Korea’s leader Kim Jong Un has indeed visited Beijing and met with China’s President Xi. Local Chinese press Xinhua reported Kim as saying that “the issue of denuclearization of the Korean Peninsula can be resolved, if South Korea and the United States respond to our efforts with goodwill, create an atmosphere of peace and stability while taking progressive and synchronous measures for the realization of peace”. While there is no sign that an agreement has been made, the language is clearly a lot more conciliatory ahead of a proposed meeting between Kim and President Trump. Despite that development, bourses in Asia have followed the negative US lead from last night and are trading lower with the Nikkei (-1.77%), Kospi (-1.32%), Hang Seng (-1.03%), ASX 200 (-0.68%) and Shanghai Comp (-0.61%) all down as we type. The Yen is a shade weaker while the Korean won has been the biggest gainer this morning. Moving on. As we noted at the top the wave of selling really started after Europe went home yesterday with the Stoxx 600 and DAX actually rebounding with +1.21% and +1.56% gains. There was a slight mid-afternoon blip which came after headlines hit the wires saying that the US was moving to curb Chinese investments in the US. However, that news was nothing new and it was pointed out that the share of foreign direct investment held by China in the US, while growing, is still very small and the bigger issue remains trade policies in this ongoing game of chess between the two nations. So, while the moves late in the evening for the tech sector dominated, there were some other snippets worth highlighting from the last 24 hours. Over at the Fed, an interview by the WSJ with Atlanta Fed’s Bostic (neutral/voter) revealed that the Fed President is an advocate of gradually raising rates, however cited that he was unsure over how the economy might respond to the planned tax cuts and increased government spending next year, which in turn could complicate the outlook for monetary policy. The ECB’s Nowotny also spoke yesterday morning and stuck to the largely consensus playbook that the ECB should be able to cut stimulus after September, with a decision likely to be made in the summer. Nowotny also cited that there are two lessons to learn from the Fed, one being to act when necessary and the other is to be careful and communicate in a timely fashion. There was also some data in Europe yesterday and it was a touch on the softer side. The first was the economic sentiment index for the Euro area which fell a little bit more than expected in February to 112.6 (vs. 113.3 expected) from 114.2 in January – matching the decline in the PMIs somewhat. The money and credit aggregates report from the ECB also showed a deceleration in M3 money supply to 4.2% yoy from 4.6% while on the credit side growth slowed to 3.0% from 3.2%. It’s worth pointing out that a measure of economic surprises in the Eurozone is hovering at the lowest since March 2016 right now which is in contrast to a similar measure in the US which is only just off the December 2017 highs and the highest since the GFC. Staying with Europe, local Italian press and Bloomberg reported yesterday morning that Five Star was supposedly offering some ministerial positions to the Northern League. The read-through was that this showed 5SM’s intention to win support from the NL and in turn pressing the latter to form a government, but without the whole centre-right. The bigger question is how the NL balance potentially trying to reach a deal with the 5SM, but without losing centre-right support, which could jeopardize Salvini’s (leader of the NL) ability to become prime minister. As we said yesterday there is still a long way to go so it’s likely that this ebbs and flows for some time. Here in the UK, the Times newspaper has reported overnight that the UK is to offer a hard border resolution imminently, with details beyond just the so-called backstop plan. Sterling is up another +0.22% this morning and is approaching the February highs again of $1.426. For completeness, in terms of the remaining data flow from yesterday, in the US the March conference board consumer confidence index fell 2.3pts from last month’s 17 year high to a still solid level of 127.7 (vs. 131.0 expected), with a modest mom decline in both the present situation and expectations index. The Richmond Fed manufacturing index was below consensus at 15 (vs. 22 expected) while the January S&P Corelogic house price index was above market at +0.75% mom (vs. +0.6% expected), leading to annual growth of +6.4% yoy. Back in Europe, the final reading on the Euro area’s March consumer confidence was unrevised at 0.1 while the business climate index was a touch below at 1.34 (vs. 1.36 expected). Elsewhere, Spain’s March CPI was below market at +1.3% yoy (vs. 1.5% expected). Looking at the day ahead, datawise all eyes will be on the US with the third and final revisions due to be made for Q4 GDP, while the February advance goods trade balance, wholesale inventories and pending home sales data are also due out. The Fed's Bostic is due to again make comments in the late afternoon. In Europe consumer confidence prints in Germany and France as well as March CBI retail sales data in the UK is due.
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The Zacks Analyst Blog Highlights: Microsoft, Apple, Micron Technology, Lam Research and ASML Holding
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