Courtesy of reader Apocalicious, we present the following piece of technical analysis from Goldman's Tony Pasquariello. According to the technician, a critical level to watch is the 12-month moving average, which many consider a critical indicator of upward (or downward momentum). According to Goldman, "unless S&P recovers the 1083 level today, we will have crossed down and through the moving average. On this simple basis, the technical signal is to be short the market." In any other market we would say a 40 point ramp in the S&P on a day such as today when the ADP came in so far below expectations would be simply insane... But not in our market. After all, the best traders taxpayer money can buy reside at Liberty 33. And they are on a mission.
After yesterday's calamitous market selloff, the decoupling in various asset classes indicates just how great the degree of confusion in the market is. The AUDJPY is now indicating once again overbought risk assets, at least on a relative basis. As this is now the only relevant carry trade driving the market, a convergence pair trade here appears an opportunistic entry point to pick a few points. As for the EURJPY, forget about it. The pair is now decisvely correlation with pretty much nothing. The euro has now fallen out of all carry trade favor.
The German presidential election is heading for a third round, after Chancellor Merkel's presidential candidate Christian Wulff was unable to generate an absolute majority in the second round against opponent Joachim Gauck. Even though this position is largely a figurehead, it is another symbolic slap in the face of the Chancellor, who finds herself navigating increasing dissatisfaction over her austerity measures, coupled with the controversial decision to bail out Greece and Spain, and French banks, further augmented by an increasing German desire to pull away from the Euro. In the third round candidates need only a simple majority to win. Voters consist of a special assembly that elects the head of state, made up of members of parliament and delegates from 16 states.
IMF Discloses Ongoing FX Reserve Rotation Out Of "Developed" Currencies Into Yuan, Ruble And Other CurrenciesSubmitted by Tyler Durden on 06/30/2010 - 10:56
The latest IMF Currency Composition of Official Foreign Exchange Reserves report was just released. In the quarter ending March 31, the biggest relative drop occurred in central bank holdings of Dollars, declining as a percentage of total reserves from 62.2% in Q4 2009 to 61.5% in Q1 2010. This is the lowest ever relative holding of US Dollars by foreign banks. Oddly enough, the euro was not the biggest beneficiary of this loss of confidence in the dollar (it also declined on a relative basis by 0.1% as a % of total holdings to 72.2% in Q1), but the "Other" currency category. We assume that the Chinese Yuan is the dominant currency in this particular basket. Other reserves increased from 3.1% of total to 3.7% in just one quarter. Central banks are starting to rotate holdings out of Dollars (and after this quarter, certainly out of euros) and into non-traditional, non-developed currencies. Are China and Russia slowly becoming reserves?
The positive goal seeking data bias continues: after a horrendous ADP jobs report pushed futures lower earlier, the Employment component, a far less relevant metric in the Chicago PMI released at 9:45 (and 5 minutes earlier if you are a subscriber), the Employment index, came in at 54.2, an improvement of 5 points over the 2010 low of 49.2 in April. And somehow this number is supposed to reverse all the negativity associated with not only the ADP, but the very large likelihood that Goldman may be well on its way to revising its NFP (+150k) expectation lower. Otherwise, the actual overall reading of 59.1 came in right at expectations of 59.0, and marked another yet another monthly decline, from April's 59.7; the Business Barometer index is now at a three month low as can be seen on the chart below. Of 7 components in the index, just employment, as noted, was Higher: everything else was flat or negative, with both the Inventories and the Supplier Deliveries subcomponents plunging, by 9.9 and 4.4, respectively. Inventories is now at the lowest reading since February 2009. Restocking is now over - no more GDP gains will be seen courtesy of this economic gimmick.
Gold traded in a wide range on Tuesday as markets reacted to frightening news. Slowing growth from China shocked the market, driving oil prices more than $3 lower,dropping the Standard & Poor 500 ~30 handles and leaving gold and the dollar as the prime beneficiaries. More contagion fears from Europe and paltry consumer confidence reports didn’t help matters either. Gold sold as low as $1228 per 100 troy ounces on Tuesday before ultimately closing just over $1246, a $4.80 gain for the day.
Today's ADP number came in at +13k, compared to expectations of +60k, with the previous number revised to +57 from +55. It was basically a disaster, as it now puts the already shaky expectations for the June NFP number in even greater jeopardy. The number was so bad it even has Goldman's Jan Hatzius scratching his head. As the firm has lately been horrendous in predicting the NFP, we anticipate that Goldman will likely downward revise its +150,000 gains in payrolls ex-census over the next 48 hours.
- The $5 trillion rollover (Reuters) -
good of Reuters to pick up on this theme. We
wrote about this is November, and the number is not $5 trillion, it
is $15 trillion
- Yet another jobs miss: ADP comes in at +13,000 on expectations of +60,000 (Bloomberg)
- Scrutiny of Goldman's board focusing on silence over conflicts (Bloomberg)
- As expected, Alex now a hurricane (Bloomberg)
- "Not only is Elena Kagan perhaps the most unqualified person to ever be
nominated to the Supreme Court, but she is a neoliberal globalist hack
who had the silver spoon of privilege surgically implanted in her Kagan
rectum at birth" - All in the Family; The Globalist Kagans of Brooklyn (American Everyman)
- Putin rips Russian spy bust (WSJ)
- Why Obamanomics has failed (WSJ)
- Todd Harrison: Where we've been and where we're going (Minyanville)
- Krugman spits in the faces of imaginary bond vigilantes (NYT)
Today at 9:00 am the FCIC will have yet another great diversion session, in which the man responsible for losing half a trillion on behalf of AIG shareholders (and forcing US taxpayers in the biggest involuntary bailout in history), Joe Cassano, will be chided for a few hours, then promptly released back on his way. Goldman will be there too for some reason. Here are some observations in advance of this hearing.
- API reported a decline of 3.4M barrels in US' oil stockpiles.
- Asian markets stay in the red but pare early losses.
- Australia reportedly close to mining-tax compromise.
- Consumer Confidence grows in Euro zone, ebbs in UK.
- IMF chief: No double-dip for global economy; defends G20 focus on deficit reduction.
- Japanese stocks fall to seven-month low as US consumer confidence drops.
Today's 3 Month Long-Term Refinancing Operation saw a surprisingly low €132 billion in bid interest on behalf of 171 banks. The transaction which is the key bridge to the rolling-off of the 1 Year €442 billion LTRO which matures tomorrow, was expected to see demand for between €150 and 200 billion, yet missed even the low end as the bulk of excess cash had been used for arbitrage opportunities which would be eliminated with the new, shortened maturity. On the other hand, the 171 banks that did participate in the transaction will likely be stigmatized as it means they are likely locked out of the traditional interbank lending market, which has a comparable 3 month rate of 0.76%. On the other hand the LTRO has a fixed 1% rate: the banks are hardly paying the additional 24 basis points because they like JC Trichet so much. Alternatively, we are convinced that none of the 171 banks will fail the most recent scam that is taking Europe by storm, namely the Tim Geithner-inspired "Stress Test", which just like in the US, have already seen their first mandatory leaks of information. Furthermore, the €310 billion in liquidity that is leaving the system is precisely the amount Barclays' analyst Joseph Abate predicted would depart: "Market attention is focused on how much of the €442bn stays at the ECB and how much leaves the program: currently there is about €300bn “surplus” liquidity in the euro area market, and so a full rollover is not theoretically needed." In fact, the lower the roll, simply means that a greater the number of government securities have been pledged elsewhere: "Obviously, the more government securities pledged, the more likely it is the 3m replacement LTRO will be considerably smaller than the €442bn rolling off." In other words, the ECB's recent willingness to accept any garbage as collateral has skewed the usefulness of this liquidity transition operation as indicative of absolutely anything.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 30/06/10
A whole bunch of American ships are headed to Iran, including one aircraft carrier. Some claim this deployment is “normal”, while others think it might be the first move in a U.S. offensive against Iran, either actual or diplomatic. From the Iranians’ point of view, there’s only one way to look at this deployment: As another provocation. American leadership—educated at the best schools and colleges, multi-cultural up the wazoo—don’t have a clue why Iranians feel besieged. They have no idea why Iran acts the way it does. They don’t even realize that they don’t understand Iran’s motivations. There has been a complete lack of imagination, in America’s dealings with Iran—and that failure of imagination is why things are so fucked up in the Middle East. (Is there any other way to characterize the whole mess? False politesse does not capture the sheer fucked-up-edness of the situation.)
Iran: The failure of imagination has been Iran.
So perhaps a thought experiment is in order—for once, let’s try looking at the world from the Iranians’ point of view
For all football fans out there, we have a suggestion: take a gold bar, put a number 10 jersey on it, and let it play on the Argentinian football team: the theatrics in the price of gold are only comparable to the ridiculous Latin American dives one observes on the pitch (for those unsure what we are talking about we have enclosed an informative video). Gold plunging from $1262 to $1240 in a few minutes compares only to a sweeper almost, but not quite, hitting Messi's leg. The rest is pure Oscar-worthy genius. Our advice: just like on the football field, enjoy the theatrics in the gold price, but don't take your eye off the big picture - in the end, no matter how many yellow cards Messi gets for fake diving, Argentina will win the World Cup. As will gold (which incidentally is what the Cup trophy is made of).
It is no secret that recently market liquidity has been horrendous: on a high-volume day like today, when intraday TRIN hit that of the Flash Crash, and closed at the fifth worst ever, there were virtually no advancers and only decliners. Yet today merely follows days in which no volume melt ups have resulted in no decliners and just advancers. This type of trading pattern has made alpha generation impossible, with those hoping to generate any "above risk free" return being forced to rely on leveraged beta plays. Yet that is mostly a concern for hedge funds, who are paid 2 and 20 to outperform benchmarks. With the current quarter about to close, and P&L for most looking abysmal (we will post the latest HSBC study shortly), look for those redemption requests to start flying. In a last ditch effort to prevent liquidations, we fully expect hedge funds to ramp up every available ounce of leverage allotted them by their Primary Brokers, and ignoring alpha, to attempt to recoup all or some losses through excess leverage. All this means is that if you thought this quarter the market was volatile, wait until Q3, when daily levered liquidations will be the norm, and intraday market swings of less than 3% will be de minimis. We won't shed many tears for the unlucky ones. Yet one aspect of the trading community that has gotten whacked, have been momentum traders: those pilot fish of the trading world, who swim blindly, scour through much delayed 13F/Gs, and merely follow the loudest and most credible (for any given day) pundit to either rags or riches. For these less than sophisticated bottom feeders, a trading environment like that one we are currently seeing has been simply destructive. A directionless market, in which no momentum can be sustained, and Crazy Ivans are the norm, results in both retail and computerized momentum chasers getting carted out feet first. Which is to be expected: major market inflection points, either downward or upward, are always the death of the marginal players. The implications of this are major: as more and more of the penny-trading crowd grow disenchanted with the current regime, look for wide-ranging implications, including both majors drop in retail brokerage volumes, and in the popularity of momentum-trader focused media.