Markets Tumble As FOMC 'Upgrades' Economy & Jobs In Hawkish Statement

The 4 key phrases from today's FOMC Statement are:

"Strong Jobs Gains" instead of "Solid Job Gains", and "Considerable time" sentence dropped entirely
"Solid Pace" instead of "Moderate Pace" For Economy, and added "Inflation is anticipated to decline further in the near term" as new language

And voila, a hawkish policy statement... sending stocks, crude, and bond yields plunging on the news.

Unanimous Fed Remains "Patient" On Target To Normalize Rates, Expects Lower Inflation - Full Statement Redline

With all eyes firmly focused on the words "patient" on rate hikes, "considerable" period of lower rates, and "transitory" oil-driven deflation, The FOMC did not disappoint

  • *FED REPEATS IT CAN BE PATIENT IN STARTING TO RAISE RATES, ECONOMY HAS BEEN  `EXPANDING AT A SOLID PACE'
  • *FED CITES `STRONG JOB GAINS' AND LOWER UNEMPLOYMENT RATE
  • *FED SAYS INFLATION EXPECTED TO DECLINE FURTHER IN NEAR TERM

So shrugging off the global tumult, The Fed appears set to raise rates no matter what to remove themselves from the corner they are stuck in, wary of what they can do when the next 'event' hits home.

Pre-FOMC: S&P Futs 2024.50, Gold $1286, 10Y 1.778%, EURUSD 1.1339, Dec15 ED 99.285. Full redline below.

US Inflation Expectations Hit Post-Lehman Lows Ahead Of FOMC

In what appears perfect timing, US inflation expectations (as measure by the market) have plunged to post-Lehman plunge lows - falling further even after The ECB unleashed Q€ last week... we are sure The Fed will be 'patient' and dismiss this as a good dis-inflationary trend that is merely 'transitory' but isn't it ironic...

"Patient" Fed's Other Problem: A Third Of Traders Today Have Never Witnessed A Rate Hike

2014 was "relatively easier," as the pre-determined pace of tapering had The Fed on auto-pilot last year. However, as WSJ's Jon Hilsenrath warns, Janet Yellen ’s job is about to get harder. Hinting that The FOMC is likely to remain "patient" in deciding when to start raising short-term interest rates later this year (and markets have started to price in lower for longer-er following recent macro weakness domestically and abroad). Juxtaposed against a mixed picture of the economy is concerns of being boxed in at ZIRP should another economic downturn arrive. However, as III Associates notes, it is the communications challenge for The Fed that is most problematic, "it has been nine years since the last rate hike, and I’d estimate about a third of those working on trading floors have never witnessed one."

Zimbabwe's Gold Mines On Verge Of Collapse Due To Low Bullion Prices

To say that Zimbabwe has not had much luck in its recent, post Robert Mugabe-goes-berserk, history with fiat money is putting it lightly. But did you know that with gold trading at prevailing depressed prices, driven over the past several years not by physical demand but by paper supply, Zimbabwe is about to have another "money" moment, only this time not with fiat but with real money. The reason: the same one why every so often we show the gold cost curve: because some miners simply can not continue operating if the "market" price of gold, with or without central bank and BIS intervention, is below their blended cost. Unfortunately for the south African country, the cost curve of the entire Zimbabwe gold mining industry is on the wrong side of the gold price line.

Now We 'Know' Greek Banks Are Really In Trouble

"When it gets serious, you have to lie," were the infamous words of one J-C Juncker and today - following the 40-50% collapse in Greek Bank equity capital this week,ECB's Bank Supervision boss Nouy has come out to calm everything down:

*NOUY SAYS GREEK BANKS ARE 'PRETTY STRONG',  HAVE STRENGTHENED THEIR BALANCE SHEETS
*ECB'S NOUY SAYS GREEK BANKS WILL SURVIVE CURRENT CRISIS

Which, translated for the elites means, "sell-sell-sell." And then - just to add even more pressure, S&P puts Greece on Watch Negative.

QE Is Not A Solution: "It's A Marker Of All That Is Wrong"

This time the global slowdown has fewer places to hide. Perhaps we can “thank” monetary policy for that, highlighting deficiency wherever “extraordinary” policies have been proclaimed as highly “necessary.” In other words, the very fact that a central bank has “had” to institute something as disruptive as QE is not much of a solution but rather a marker of everything wrong. Nowhere is this reality more evident than in the evolution of at least credit market thinking on the subject, viewing the decrepit state of the actual economy now more appropriately; moving in the “wrong” direction. There is, again, perhaps something to that sharp bearish turn in December.

Russia May Condemn "Annexation" Of East Germany

Who says the Russians, increasingly isolated by the west (Europe and the US threatened over the past 24 hours to escalate sanctions yet again) and increasingly more welcome by China, India and the rest of the non-western world, don't have a sense of humor? Days after the speaker of the Russian Duma, Sergei Naryshkin, faced scathing criticism of Russia's annexation of Crimean peninsula when he spoke at the Parliament Assembly of Europe, he has come up with a novel suggestion when he asked a committee to study a proposal to condemn the reunification of Germany in 1990.

Crude Supplies Surge To Highest Since At Least 1982

Remember how exuberant yesterday's small gains in Crude Oil were perceived to be? Yeah - that's all over, with WTI back near a $44 handle - following a large 12.7 million barrel inventory build according to API (EIA reports the 'main event' at 1030ET today - which Saxo Bank warns "a bigger-than-expected build would likely push the mkt over the cliff edge.") Additional weakness overnight is also likely due to Goldman's shift to a 'sell' for the next 3 months.

Greek Credit Risk Spikes, Default Probability Tops 70%

Greek default risk has surged in recent days and today as it becomes clear what Syriza expects from Europe, short-term CDS are at post-crisis highs with 5Y CDS implying a 76% probability of default (based on standard recovery assumptions - which may be a little high in this case). Given the domestic bank dominance in the buying of domestic government debt, Greek banks are getting hammered as everyone's favorite hedge fund trade is an utter bloodbath. Greek stocks overall are down and GGBs are tumbling once again - back at 16 month lows (given back all the ECBQE hope bounce). Perhaps not surprising moves, given new Greek Finance Minister Yanis Varoufakis reality-exposing comments yesterday, "the problem with the bailout is that it wasn’t really a bailout... it was an extend and pretend, it was a vicious cycle, a debt-deflationary trap, which destroyed our social economy."

US-Ally Jordan To Breach Western Protocol, Will Exchange Hostages With ISIS

Several days after a Japanese hostage held by the Islamic State was executed, with a second Japanese hostage, freelance journalist Kenji Goto likely awaiting the same fate unless the Jordan releases an ISIS prisoner, the middle eastern US-ally is about to dramatically breach western protocol of not negotiating with terrorists, and as the newswires reported earlier, is prepared to exchange said imprisoned ISIS would-be suicide bomber, however not for the Japanese captive of ISIS but for one of its own pilots held by the Islamic militants.

Baltic Dry Index: 666

Forget The Hindenburg Omen and The Hilsenrath Omen, today we have the real deal as The Baltic Dry Index hits the ominous 666 level - the lowest print for this time of year on record. Of course, just like with oil - this is brushed off as over-supply (not under-demand) and we are sure someone will opine how positive this drastic deflation of shipping rates is for global business... but still - this is the lowest print since September 2012 (and practically the lowest since the recession).

Another Bailout: FXCM To Forgive 90% Of Its Mostly Foreign "Negative Balance" Customers

Two weeks after FXCM was on death's door, and only a last minute vulture investment by Jefferies prevented the company from filing, FXCM has decided that it can't afford to blow up the bulk of its clients who traded the EURCHF on the wrong side, and as the company reported moments ago, will forgive their negative balances. In other words, another bailout for HFTs, and the rich and those habitually addicted to gambling in rigged markets, who just happen to be the lifeblood of companies like FXCM.

Canada Just "Revised" All Of Its 2014 Job Gains 35% Lower

Who can forget the farce conducted by Canada's labor statistics office back in August when, as we reported, "Canada Releases Atrocious Jobs Data; Then Revises It Above The Highest Estimate Following Public Outcry." It was then that we got our first hint that when it comes to massaging data, Canada is on par with China and even the US. Well, Statistics Canada just outdid itself moments ago when it reported that those 185,700 jobs gains it had previously reported for all of 2014... well, it was only kidding, and after a second look, the number has been revised a whopping 35% (!) lower to only 121,300. How long until a lightbulb goes over the BLS' head and the US department of seasonal adjustments decides to do the same?

Yesterday's "Dip" Was A Warning... To Get Out Of The Casino

Shortly after yesterday’s open, the S&P 500 was down nearly 2% and off its recent all-time high by 3.5%. But soon the robo-machines and day traders were buying the “dip” having apparently once again gotten the “all-clear” signal. Don’t believe it for a second! The global financial system is literally booby-trapped with accidents waiting to happen owing to six consecutive years of massive money printing by nearly every central bank in the world.

Deutsche Bank: "If The Fed Stick To Their Script Then The Market Could Be In For A Small Shock"

If the Fed stick to their script then the market could be in for a small shock. Market-based measures of the first Fed hike place it at around the October meeting. This is already one meeting later than was being priced in at the start of the year. After this the second hike is priced in for around March 2016, whilst we entered the year pricing in the second hike for December 2015. So there is room here for volatility as we approach the summer FOMC meetings if the Fed’s message remains unchanged. It has long been our view that the Fed will struggle to hike as soon as it wants to given global growth and inflation issues, however there's no doubt they are keen to pull the trigger so something will have to give at some point. So any evidence either way today will be interesting.