Global stocks were pressured by a poor start to the second quarter in the US, where car-makers reported disappointing sales data, slamming auto stocks around the globe. The selling has persisted for a second day, with Asian stocks and European shares all partially in the red today after their biggest decline in two weeks. Car sector is biggest mover in Europe, offsetting gains in financial services and media. A modest flight to safety saw gold strengthen with the dollar edging up against a basket of major currencies but losing ground against the safe-haven Japanese yen while South Africa’s dropped on a ratings downgrade.

U.S. index futures declined after stocks fell close to their 50-day moving average and as investors weigh risks to the economy’s outlook, including whether fiscal stimulus will be carried out. S&P 500 contracts expiring in June slipped 0.2 percent to 2,351.50 at 6:36 a.m. in New York. The benchmark dropped Monday, the first day of the second quarter, with falling bond yields weighing on banks and energy companies, while automakers slid as a collapse in monthly sales offered a warning that Americans may have become more thrifty.

A gauge of stocks around the world fell a third day after auto companies’ monthly sales offered a warning that Americans may be spending less on cars even with record auto debt available. South Africa’s rand extended declines for a seventh day after the country lost its investment-grade credit rating from S&P Global Ratings for the first time in 17 years; on Tuesday the ZAR fell as much as 1.9 percent before recovering to trade down 1.1 percent at 13.83 per dollar while bank shares tumbled after the credit rating cut in response to President Jacob Zuma's dismissal of his finance minister, Pravin Gordhan, last week. Yields on South African dollar-denominated government bonds rose, with the 10-year benchmark yielding nearly 5 percent.

The concerns surrounding the big picture, and specifically reflation trade, remain the same: as Bloomberg summarizes, investors are taking stock ahead of a key U.S. payrolls report on Friday and minutes from the Federal Reserve’s latest meeting on Wednesday. After the best quarter for U.S. equities since 2013, traders are starting to question whether optimism about U.S. President Donald Trump’s pro-growth policies has gone too far. Veteran money manager Bob Doll wrote in an April 3 letter to clients that sentiment on the economy may be too high, leaving investors vulnerable to negative surprises.

“The hard data is beginning to wobble and that’s going to cause some of the Trump trades to come under pressure,” Tim Haywood, investment director at GAM (UK) Ltd. said in an interview with Bloomberg TV. “Dents in car sales are perhaps an early warning of a little bit of weakness in the U.S. economy.”

Automaker stocks were the main drag on Tokyo shares on Tuesday; the Nikkei fell 0.9 percent to a 10-week low, also hit by the impact of the strong yen on exporters. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 percent, having hit a 21-month high last week. The MSCI All Country World Index fell 0.1%, extending its longest decline in almost two weeks. The Stoxx Europe 600 index was unchanged, as gains in energy shares offset declines in auto stocks. Futures on the S&P 500 lost 0.2% . The S&P cash index slid 0.2% on Monday after a persistent rebound was catalyzed by relentless selling of VIX futs.

Gold topped $1,260 and is headed for the highest close since the aftermath of the U.S. election and the yen was the top performer among major currencies.

The dollar rallied versus all of its Group-of-10 peers except the yen as risk-off sentiment gained traction with French elections firmly back in traders’ focus. On the European political front, today we get the second live and televised French presidential debate tonight so that is worth keeping an eye on. While first round polls still heavily favour a Macron-Le Pen one-two, Melenchon has gained additional support in recent weeks largely at the expense of Fillon and Hamon. Indeed the Ifop-Fiducial poll from Mar30th-3rd April shows Macron and Le Pen as taking home 26% and 25.5% of the votes in the first round, followed then by Fillon with 17% and Melenchon with 15%. The same pollster had Melenchon with 11.5% of the votes back on March 20th and Fillon with 18%.

Japan’s currency strengthened, with local banks adding longs as the new fiscal year got under way, according to foreign- exchange traders in Europe quoted by Bloomberg. With French presidential elections getting airtime and global equities under pressure this week, the yen drew haven demand. Risk-off-dominated flows meant the Swiss franc was also stronger, albeit in tighter ranges.

"(The yen buying) is based on broad-based risk-off since yesterday. There was a tragedy in Russia and there may be some hedging-type buying ahead of the French presidential debate and also French elections in three weeks," said Yujiro Gato, currency analyst with Nomura in London.

Dollar-yen was lower a third day as increased bearish momentum threatened February lows above the psychological level of 110. The euro and the Australian dollar fell to their lowest levels versus the yen in more than four months, with price action dropping below important technical levels. Moves in yen crosses may have been partially driven by a steepening in low-delta option structures. Implied volatilities were bid as demand for long vega positions gained traction on the back of increased risk-off sentiment, said the traders. Upcoming tier-one data out of the U.S. coupled with a meeting between President Donald Trump and Chinese President Xi Jinping have also caused a lift of bids in options.

The Bloomberg dollar index, or BBDXY, rose 0.2%, higher a second day; support came as Treasury yields attempted to rebound and pare Monday’s decline.

Yields on low risk U.S. and German government bonds fell. falls. Benchmark 10-year U.S. Treasury yields were down 2 basis points at 2.33 percent after falling as low as 2.31 percent, its lowest in more than a month, in Asian trade. German 10-year yields touched their lowest level since March 1 and last stood at 0.26 percent, down 1.6 bps. Italy's bonds outperformed the rest of the euro zone on the prospect of help for two struggling Italian lenders.

Yields on the bonds of Banca Popolare di Vincenza and Veneto Banca fell sharply after a European Commission spokesperson said late on Monday said there could be a solution on a bailout. talian 10-year government bond yields fell 2.7 bps to 2.3 percent.

"Italy's banking sector has been a never-ending story, so any news pointing towards state support reduces the risk of a more severe development that could be the beginning of a banking crisis," said DZ Bank strategist Daniel Lenz.

Today we get factory orders and durable goods data while the sole Fed spearker, Tarullo speaks in Princeton.

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Bulletin Headline Summary from RanSquawk

• The subdued start to Q2 continues today, with equities picking up today where they left off yesterday, trading mixed with little in terms of firm direction
• Mixed trade across the board in FX to a larger degree, with the JPY buying finding its limits, notably ahead of 110.00 against the USD as Treasuries top out for now.
• Looking ahead, highlights include US Trade Balance, ECB's Draghi, ECB's Liikanen and Fed's Tarullo

Market Snapshot

• S&P 500 futures down 0.2% to 2,351.5
• STOXX Europe 600 donw 0.03% to 379.19
• MXAP down 0.3% to 147.25
• MXAPJ down 0.3% to 479.88
• Nikkei down 0.9% to 18,810.25
• Topix down 0.8% to 1,504.54
• Hang Seng Index up 0.6% to 24,261.48
• Shanghai Composite up 0.4% to 3,222.51
• Sensex up 1% to 29,910.22
• Australia S&P/ASX 200 down 0.3% to 5,856.55
• Kospi down 0.3% to 2,161.10
• German 10Y yield fell 1.5 bps to 0.262%
• Euro down 0.1% to 1.0657 per US$
• Brent Futures down 0.4% to $52.92/bbl
• Italian 10Y yield rose 0.6 bps to 2.028%
• Spanish 10Y yield fell 0.6 bps to 1.637%
• Gold spot up 0.4% to $1,258.85
• U.S. Dollar Index up 0.1% to 100.70

Top Overnight Nights

• Trump Cracks Down on Visa Program That Feeds Silicon Valley
• Seadrill Drops to Record Low as It Warns of Shareholder Losses
• ECB Said to See Vicenza, Veneto as Solvent, Needing $6.8 Billion
• Amazon Launches Business Procurement Service in U.K.
• Microsoft Reports Licensing Partnership With Casio
• CenterPoint Proposes $250m Transmission Project to Regulator
• Celgene Says Teva Submitted Application to Make Pomalyst Generic
• Kate Spade Falls on Report That Takeover Process Is Bogging Down
• BMW’s First 2017 Win Over Mercedes Narrows U.S. Luxury Race
• Bob Diamond Mounts Latest Comeback From U.K.’s Minor Leagues
• Intesa Insurance Unit Signs Partnership Deal With Aon
• Indonesia to Grant Freeport 8-Month License to Resume Exports

Asian equity markets traded subdued amid holiday-thinned trade and following a lacklustre US close where sentiment was dampened by poor auto sales data for March. ASX 200 (-0.2%) was weighed by weakness in telecoms and financials, although the downside has been stemmed by buoyant commodity-related sectors. Nikkei 225 (-0.9%) lagged in the region amid a stronger JPY with Japanese auto makers also feeling the brunt from poor US sales, while markets in Mainland China and Hong Kong remained closed due to public holiday. 10yr JGBs trade higher with demand supported by safe-haven flows and after an encouraging 10yr auction where the b/c and accepted prices increased from last month, while the curve steepened with underperformance observed in the super long end. RBA kept the Cash Rate unchanged at 1.50% as expected and commented that unchanged policy is in line with growth and inflation targets. RBA also stated that the pick-up in inflation is expected to be gradual and that China faces medium term economic risks.

Top Asian News

• U.S. Car Demand Collapses in Threat to Trump’s Factory Push
• FX OPTIONS: Yen Volatility Spread Shows France Risks Dominate
• CYBG/Virgin Money Have Strategic Reasons for Buying Co-Op: Citi
• Investa Office Gets Non-Binding Offer From Cromwell Property
• Topix Drops to Four-Month Low as Stronger Yen Pummels Exporters
• U.S. Curve Flattest in 5 Months as Fed Outlook Lifts Short End

In European bourses, the subdued start to Q2 continues today, with equities picking up today where they left off yesterday, trading mixed with little in terms of firm direction. The energy sector continues its strong start to the quarter, with financials weighed on today by Deutsche Bank (-2.8%) as they enter their final day of their rights issuance, while Investec and Old Mutual are also at the bottom of the Stoxx 600 as they continue to feel the damage of their South African exposure. Fixed income markets have been pushing up across the board so far today, with European participants keeping an eye out for this evenings second French presidential election. With Macron seen as firm favourite after his performance in the last debate, a poor performance or any doubts of his ability to cross the finish line could see a widening of the GE/FR spread.

Top European News

• French Candidates Return to Debate With Macron the Target
• Merkel’s Party in Dead Heat With SPD as Schulz Sustains Momentum
• WS Atkins May Be Subject to a Counterbid, Liberum Says
• Novo CEO Says He’s Interested in Biopharmaceutical Acquisitions
• Prysmian Top Italian Gainer; Goldman Raises PT on Market Trends
• Nordea Wins Competition Authority Backing in Bank Fee Dispute
• Mercedes, Bosch Join Forces to Accelerate Rollout of Robo- Taxis
• Gibraltar Spat Shows How Bumpy the Road to Brexit Will Likely Be

In currencies, it has been mixed trade across the board in FX to a larger degree, with the JPY buying finding its limits, notably ahead of 110.00 against the USD as Treasuries top out for now. 10Yr yields have found support again ahead of 2.30%, and this serves as a firm prop, though we are watching Wall Street from here. The yen rose 0.3% to 110.50 per dollar, after climbing at least 0.4% in each of the previous two sessions. The Bloomberg Dollar Spot Index added 0.2 percent. The South African rand dropped 1.1 percent. The currency has tumbled 11 percent over the past seven days, the longest streak since August, amid a cabinet purge by President Jacob Zuma. The euro fell 0.1 percent and the British pound was 0.3 percent weaker. EUR/USD has been tight on 1.0650 however, with EUR/JPY sales taking the cross rate below 118.00. GBP/JPY has dropped under 138.00 accordingly, but is finding some support here as cross rate sellers coming in ahead of 0.8600 in EUR/GBP. This is in line with Cable support into the low 1.2400's, and despite another PMI miss (construction — not a big one!), overstretched short positioning in the Pound is starting to tell. EU retail sales saw a marked pick up, but is of limited relevance in the current climate. The ECB's head Draghi is speaking in Frankfurt later today, but few are expecting any verbiage on monetary policy.

In commodities, oil markets are looking a little resilient at present, seeing limited movement as Libyan output resumed. Inventory data is still a concern, but as OPEC have been pointing out, the impact of the production cuts have yet to hit levels, and there is the ongoing hope that the output agreement can be extended into H1. WTI sticks close to USD50.00, while Brent has traded a touch over $53.00. Weakness in base metals on the back of the softer than expected Caixin manufacturing PMIs. Copper has dipped back below USD2.60, but little momentum through here as yet. Precious metals are doing considerably better however, as the USD drop off pushes Gold back to USD1260. Silver has solidified its footing above USD18.00, and is now pushing higher again. 

Looking at the day ahead, the calendar is fairly thin in Europe this morning with Euro area retail sales data the only release of note, and which printed a modest beat coming in at 0.7% vs Exp. 0.5%. In the US this afternoon we’ll get the February trade balance reading as well as February factory orders (+1.0% mom expected) and the final revisions to the February durable and capital goods orders data. Away from the data the Fed’s Tarullo is scheduled to speak at 4.30pm while the ECB’s Draghi speaks this afternoon at 2.30pm BST. Away from that we’ll get the second live and televised French presidential debate tonight so that is worth keeping an eye on. While first round polls still heavily favour a Macron-Le Pen one-two, Melenchon has gained additional support in recent weeks largely at the expense of Fillon and Hamon. Indeed the Ifop-Fiducial poll from Mar30th-3rd April shows Macron and Le Pen as taking home 26% and 25.5% of the votes in the first round, followed then by Fillon with 17% and Melenchon with 15%. The same pollster had Melenchon with 11.5% of the votes back on March 20th and Fillon with 18%.

US Event Calendar

• 8:30am: Trade Balance, est. $44.6b deficit, prior $48.5b deficit
• 10am: Factory Orders, est. 1.0%, prior 1.2%
  • Factory Orders Ex Trans, prior 0.3%
  • Durable Goods Orders, est. 1.7%, prior 1.7%
  • Durables Ex Transportation, prior 0.4%
  • Cap Goods Orders Nondef Ex Air, prior -0.1%
  • Cap Goods Ship Nondef Ex Air, prior 1.0%

• 4:30pm: Fed’s Tarullo speaks at Princeton University

DB's Jim Reid concludes the overnight wrap

In markets a new month and new quarter has so far been a bit of an unwelcome sight for risk assets. There didn’t appear to be one specific driver yesterday but a combination of some soft US data, the headlines around Trump and North Korea over the weekend and the news of a subway explosion in Russia all appeared to play a part in contributing to a slightly risk off tone to start the week. Following a fairly uneventful first half of the session the Stoxx 600 declined as the US session kicked into gear and eventually finished -0.49% to bring to an end a run of four consecutive gains. The S&P 500 closed -0.16% although in fairness did pare a bigger decline near the open. Even the VIX index hit the highest level in a week at one stage, before eventually ending the day flat.

The more significant price action yesterday though was in bonds. Indeed on the day that the ECB kicked off its tapering process from €80bn to €60bn it was ironic to see govies rally sharply across the board in Europe. 10y Bund yields finished the day down 5.1bps at 0.273% - the strongest day since February 8th and the lowest closing yield since February 28th. Yields in Spain and Portugal were also 2.4bps and 6.9bps lower while yields in the likes of Switzerland, Netherlands and France were down anywhere from 2-5bps. It appears that this was partly to do with ECB board member Peter Praet’s comments which were the latest in the line of the depo hike backtracking. Praet said in an interview with Expansion that the ECB is not yet ready to signal any change in its policy stance and that there is “no number, period of time in months or anything like that which will determine when interest rates go up after the debt purchases end”. Meanwhile 10y Treasury yields also fell 6.8bps to 2.320% with the yield now the lowest since February 24th. A lot of focus in the US was on the soft auto sales data which showed that annualized sales fell to 16.53m in March (vs. 17.30m expected) from 17.47m. That is also the lowest print since February 2015.

The other big data focus yesterday was the final March manufacturing PMI’s. In Europe there was no change to the final Euro area reading of 56.2 and so confirming a 0.8pt rise from February. Germany was also unrevised at 58.3 while France was revised down 0.1pts to 53.3. The UK data disappointed a little after dipping 0.3pts to 54.2 while in the periphery Italy rose to 55.7 (up 0.7pts) while Spain declined to 53.9 (down 0.9pts). In the US the PMI was revised down 0.1pts to 53.3 although the ISM dipped half a point to a still elevated 57.2. The ‘global’ March PMI was confirmed at 53.0 which is unchanged from the 69-month high February reading.

To the latest in Asia now where with a number of markets closed, it’s been a fairly quiet overnight session. That said bourses are largely following the lead from Wall Street still with the Nikkei (-0.92%), Kospi (-0.23%) and ASX (-0.36%) all in the red. China and Hong Kong are both closed today. US equity index futures are also slightly in the red while there isn’t much to report in either FX or commodities. There has been a central bank meeting this morning however with the RBA, although as expected there were no surprises with the 1.5% cash rate left unchanged.

Elsewhere, there wasn’t a huge amount more to report from yesterday’s session. The Fedspeak continued with the Philadelphia Fed President Harker reiterating that 3 hikes this year remains appropriate as long as “things stay on track”. In EM the big story was in South Africa where S&P moved to downgrade South Africa’s foreign currency rating by one notch to junk (BB+) in the wake of the cabinet purge by President Zuma. Moody’s has also placed the sovereign’s rating on review for downgrade. The Rand sold off another -2.04% yesterday which follows the -7.88% tumble for the currency last week.

Looking at the day ahead, the calendar is fairly thin in Europe this morning with Euro area retail sales data the only release of note. In the US this afternoon we’ll get the February trade balance reading as well as February factory orders (+1.0% mom expected) and the final revisions to the February durable and capital goods orders data. Away from the data the Fed’s Tarullo is scheduled to speak at 9.30pm BST while the ECB’s Draghi speaks this afternoon at 2.30pm BST. Away from that we’ll get the second live and televised French presidential debate tonight so that is worth keeping an eye on. While first round polls still heavily favour a Macron-Le Pen one-two, Melenchon has gained additional support in recent weeks largely at the expense of Fillon and Hamon. Indeed the Ifop-Fiducial poll from Mar30th-3rd April shows Macron and Le Pen as taking home 26% and 25.5% of the votes in the first round, followed then by Fillon with 17% and Melenchon with 15%. The same pollster had Melenchon with 11.5% of the votes back on March 20th and Fillon with 18%.