After tagging the stops above 1,800 overnight following the Turkish rate hike, S&P futures have collapsed over 30 points and are hovering back at pre-Taper levels from 6 weeks ago. For now USDJPY 102 is critical support for stocks. 10Y bond yields have slammed lower testing 2.70 and the lowest levels in 2 months.
As South Africa hiked rates this morning (whose effect on the Rand was promptly overwhelmed by the Lira collapsing back to weaker than pre-rate-hike) stock markets around the world are rapidly deteriorating and the safety of bonds and bullion is being sought aggressively. S&P futures are -10 from pre-Turkey; Dow -100; Nikkei -30; and EEM swung from up over 2% to down almost 1% in the pre-open. Treasuries are 6bps tighter than post-Turkey and gold (and silver) are rallying smartly back up to $1268 (+$20 from post-Turkey lows). It would seem EM turmoil is un-fixed. Turkish stocks are collapsing and the Hungarian Forint is collapsing. We can't help but see the irony of this tumult and the possibility of a global financial meltdown occurring on the day of Bernanke's last FOMC meeting...
Yesterday, the moment when the Turkish Central Bank intervention was jinxed was clearly marked by SocGen's fawning Benoit Anne, who said "In any case, I definitely feel much better about the TRY, at least on a tactical basis. Hence we just entered a long TRY/ZAR targeting a tactical move to 5.10. The TRY crisis is over." To which we responded: "As for the "TRY crisis being over" let's wait to see what the "popular" response is to this epic rate hike first thing tomorrow when Turkey awakes, shall we, and let's revisit the TRY crisis in 2-3 weeks when the country's housing market crumbles, when the economy grinds to a halt and the political crisis goes from worse to worse-est." We didn't have to wait more than 12 hours. As of this moment, the entire Central Bank move has been faded.
First it was Turkey defending itself tooth and nail against Bernanke's tapering, now it is South Africa, just as we predicted less than an hour ago.
- SOUTH AFRICA RAISES BENCHMARK RATE TO 5.50% FROM 5.00%; EXPECTATION WAS FOR UNCHANGED
- SOUTH AFRICA CENTRAL BANK RAISES BENCHMARK RATE
- RAND STRENGTHENS AS CENTRAL BANK UNEXPECTEDLY RAISES REPO RATE
- S. AFRICA'S MARCUS SAYS MOVE NOT INTENDED TO AFFECT RAND
- S. AFRICA'S MARCUS SAYS HAVE A FLEXIBLE EXCHANGE RATE
Naturally, the ZAR surges... for about 10 milliseconds, after which it promptly drops to a level weaker than pre-announcement!
- Obama warns divided Congress that he will act alone (Reuters)
- Fed Decision Day Guide From Emerging Markets to FOMC Voter Shift (BBG)
- Fed poised for $10 billion taper as Bernanke bids adieu (Reuters)
- Bernanke’s Unprecedented Rescue Unlikely to Be Repeated (BBG)
- Argentina Spends $115 Million to Steady Peso (WSJ)
- Billionaires Fuming Over Market Selloff That Sinks Magnit (BBG)
- SAC’s Counsel Testifies at Insider Trading Trial in Unexpected Move by the Defense (NYT)
- Automakers Fuel Japan’s Longest Profit Growth Streak Since 2007 (BBG)
- Turkey Crisis Puts Jailed Millionaire at Heart of Gold Trail (BBG)
- Ukraine expects $2 billion tranche of Russian aid soon (Reuters)
The Fed tightens by a little (sorry, tapering - flow - is and always will be tightening): markets soar; Turkey tightens by a lot: markets soar. If only it was that easy everyone would tighten. Only it never is. Which is why as we just reported, the initial euphoria in Turkey is long gone and the Turkish Lira is basically at pre-announcement levels, only now the government has a furious, and loan-challenged population to deal with, not to mention an economy which has just ground to a halt. Anyway, good luck - other EMs already faded, including the ZAR which many are speculating could be the next Turkey, and certainly the USDJPY which sent futures soaring last night, only to fade all gains as well and bring equities down with it.
So much for the credibility of the CBRT? After the Lira soared, and the USDTRY plummeted by just under 1000 pips yesterday when the Turkish Central Bank announced its "shock and awe" intervention, it has since pared back virtually all gains, and at last check was just over 2.24 having nearly roundtripped in 12 hours. Why the loss of faith? Two reasons: First, as we pointed out yesterday, suddenly the domestic situation in Turkey takes front stage again, with 4.25% added elements of instability, causing the political instability to soar, leading to an even higher probability of a social and political overhaul. Second, as Goldman pointed out overnight, "the CBRT stated that liquidity "… will be provided primarily from one-week repo rate instead of the marginal funding rate in the forthcoming period". This implies that the effective rate hike is 225bp (to 10.00%; the 1-week repo rate), as the Non-PD lending rate was 7.75% prior to the announcement." In other words, when looked at on a corridor basis, the CBRT hiked not by a shocking and awing 425 bps but by precisely the predicted 225 bps!
"Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in." - Barack Obama
In other words - if you like your retirement account you can keep your retirement account.
President Obama unveiled 12 key executive actions in his 6,778 word tome this evening at a reading level that was lower than the average of George W. Bush's SOTUs and the same as Clinton's (Flesch-Kincaid 9.8). From 'raising the minimum wage' to 'myRA' savings plans ("a guaranteed return with no risk"?) and from redesigned high schools to teach real-world skills (like EBT-card-usage?) to increasing college opportunities (blowing that bubble even bigger), it was a corporate-bashing, hopeful-job-creating manifesto that had less "hopes" and "dreams" than MLK's speech, but more "believing."
Given the fact that the S&P 500 is up over 18% since the last State of the Union address, we suspect the state of the Union will be "strong." However, a glimpse over the shoulder of Tom Perkins and his pals and one can't help but wonder how "strong" the Union is when there are 2.845 million more people not in the labor force than a year ago. Last year's 6,990 words were strewn with "hope", "change", "jobs" and "wall street" - we suspect the term "inequality" pops up more than once this time along with the ubiquitous lambasting of the opposition for counterfactually buggering the whole "recovery" plan up. If only there was no 'opposition' - oh wait, we forgot to add "unilateral" and "executive order" as suggested words for tonight's show.
Over the past couple of hundred years, the State of the Union has been enjoyed by pamphlet, radio, TV, and webcast and each and every year, the citizenry has sat avidly awaiting their 'word' to come up on SOTU Bingo or for the bets they made on the average length to be confirmed. So while the drinking and gambling man has plenty to do; it is perhaps dismal to report that the thinking man will be under-utilized. Sadly, the State of the Union speech has been getting dumber and dumber.
While Bitcoin (and Litecoin) garner the most attention in the cryptocurrency world, there are now 83 (and counting) virtual currencies to store your wealth in. Bitcoin's market cap (at over $10 billion) is by far the highest but we wonder whether the miasma of mimiccers - from Unobtainium to the ironically-named StableCoin and from 'Philospher Stones' to HoboNickels - serves to reduce the confidence in Bitcoin as a new method payments, or bolsters it as the clear market winner.
Today's short squeeze, EM-is-fixed, Fed-hope-fueled relief rally (in the face of compounding errors in earnings expectations and outlooks) we thought reminiscing on what happened the last time stocks were this high and over-levered and debt-bloated entities were rapidly revealed for what they were would be useful. While the 'just three charts' we showed two weeks ago provide plenty of concern, when the NYSE Composite, which accounts for 1,900 companies representing 61% of the world's publicly traded stock market capitalization, shows eery similarities to the tipping point in 2007 as NewEdge's Brad Wishack pointed out earlier, we thought it worth sharing.