Archive - Apr 2013

US equity indices are in their own little world of glee today. Treasuries, credit, FX markets, swaps, commodities are not playing along. So what is going on? These two charts may help to explain...

Fitch has just downgraded the UK from AAA to AA+ - now lower than France's.

• *FITCH REVISED DOWN U.K.'S ECONOMIC GROWTH IN 2013 TO 0.8%
• *FITCH REVISED DOWN U.K.'S ECONOMIC GROWTH IN 2014 TO 1.8%
• *FITCH CITES WEAKER ECONOMIC, FISCAL OUTLOOK ON U.K.

Fitch doesn't see the UK economy reaching 2007 highs until 2014 - so there's hope?

Earlier, we presented a captioned photo profile of one of the two alleged terrorists, the 26 year-old Tamerlan Tsarnaev who died last night in a shoot-out with the Boston Police. As a follow up, Bloomberg has conducted an interview with one of his gym sparring partners, "Jon K" who trained with Tamerlan in the same Boston gym, and who told BBG TV that "he seemed like a really nice guy, to himself and a little bit arrogant and cocky, but he helped people at the gym all the time with their boxing and was friendly with everyone. It's a complete shock." Jon, who asked that his last name not be used, said: "All week, I have been wondering who the psycho was and it turns out that it was somebody I interacted with. It is shocking, especially as an athlete, he was an athlete, that he would do this to other athletes and just anyone in general."

EURUSD ended the week pretty much where it started - around 1.3100 - having tested from 1.30 to 1.32 during the week. Italian stocks also end the week practically unchanged - despite no government. But... German stocks (DAX) have slumped over 5% in the last six days for the biggest such drop since early June last year. Most other European equity indices end the week down 1.5 to 2.2% but - for some high-beta, JPY-expatriating reason, Italian stocks ripped higher today and saved the week. Swiss rates end the week near their lows. European sovereign bonds in general ended the week flat to slightly tighter. Europe's VIX closes modestly higher (but well off its mid-week highs). So while on the face of it, all is well, the smackdown in core European stocks to 5 month lows suggests things are not going well on the continent.

JUST IN - ANZUR TSARNAEV, FATHER OF SUSPECTS IN BOSTON MARATHON BOMBING SAYS, HE BELIEVES SECRET SERVICES FRAMED HIS SONS. BBC. #911BUFF

— 911 Operator (@911BUFF) April 19, 2013

Following last night's abysmal earnings and outlook shift, it appears the hopers are leaving IBM in their hordes. The biggest single-day drop in 8 years has smashed IBM down over 7% and plunged it into the red for 2013. This drop represents a 120 point drop in the Dow Jones Industrial Average - but have no fear, thanks to EURJPY and the rest of the Dow components magically levtating, the Dow is green...

As the authorities focus on the geographic distribution of what may (or may not) be a delocalized cell, a curious developed has emerged courtesy of NJ.com, which reports that a woman has been found living in West New York who has identified the bombing suspects as her brothers. She adds, logically enough, that she can't believe any of this has happened. She is probably not the only one.

Government mints, bullion refineries and dealers around the world report a dramatic increase in demand for coins and bars.

Bullion refiner, MKS said that “physical demand is extraordinary.”

In terms of transactions, gold buyers outnumbered sellers by a ratio of nearly five to one yesterday. In terms of volume, gold buyers outnumbered sellers by a ratio of nearly nine to one yesterday. Meaning that there were more buyers than sellers and buyers were placing larger orders than those selling and this trend has continued today.

U.S. gold coins sales have been at record levels this week. Lower prices and the tragic events in Boston may have contributed to increased buying due to concerns about the risk of terrorist attacks.

Premiums are rising in Europe and the U.S. and there are delays of a few weeks on some smaller coins and bars showing the growing tightness in the market.

Benjamin Franklin was right. Ultra-committed separatist groups, extremists, and all-around bad guys can always find a soft target. Guard the airport and they’ll blow up the bus station. Guard the bus station and they’ll take out a public park. Constant security, paramilitarism, and steady erosion of freedom constitute an enormous price to pay for a false sense of safety against bad people.

While Cyprus has been brushed away as a "storm in a teacup" and asset-gatherers stare blankly at their screens pointing at record highs to confirm the "market knows best", it appears something rather important 'broke' that day (and hasn't stopped breaking since). While we have discussed the rather glaring divergences between US equities' exuberance and global equity markets and macro- and micro- data; supposedly the Fed's key indicator (the 5Y5Y forward inflation expectation) has reversed rather significantly. The last two times, forward inflation expectations dropped so significantly, the ECB launched LTRO and the Fed launched QE3. It seems the BoJ's QQE is not having the effect perhaps they had hoped on inflation expectations. Will the Fed have to come to the rescue once again? And how will gold react to that?

There had been some hope that the political vacuum in Italy would normalize after the fourth balloting round of presidential voting, in which the candidate agreed upon by both Bersani and Berlusconi, former trade union leader Franco Marini, would be elected with a simple majority, following a failure to elect one in the first three rounds. Marini had been in the lead with 521 votes but short of the two-third majority needed, or 672, to win the vote. Those hopes have now been dashed following news, coming from a tweet by the PDL's Maurizio Gasparri, that Berlusconi's PDL and its ally Northern League will not take part in the vote. This means that Marini will no longer have even the 504 votes needed to get elected with a simple majority and that the entire spectacle was nothing but empty theater. And so the ongoing total political chaos and vacuum in Italy remains.

The chaos continues. Die Welt is reporting that a suspected letter bomb was intercepted today in a routine mail control at the residence of the Germany President Joachim Gauck in Berlin.

• *POLICE DESTROYED SUSPECTED LETTER BOMB TO GAUCK, ARD SAYS
• *LETTER BOMB CONTAINED HMTD HIGH-EXPLOSIVE POWDER: WELT

The suspect mail has been safely neutralized according to police.

Update: The Honda has been found in Boston

NYC UPDATE *ALERT TO POLICE* Lookout for Honda CRV, MA Plate #36ES9 - Poss heading to #Manhattan Male white may be wearing suicide vest

— Breaking911 (@Breaking911) April 19, 2013

While the first alleged terrorist bomber, 19 year-old Dhjokar Tsarnaev, born in Kyrgystan, is on the loose currently somewhere in Boston and is the target of a massive manhunt, his brother, 26 year-old, Tamerlan Tsarnaev, born in Russia and legal US resident since 2007, died overnight in a shootout with the local police. It appears he was a boxer, studied at Bunker Hill Community College, was very religious, didn't drink or smoke, wanted to become an engineer, and his favorite movie was Borat. His YouTube page can be found here: on it can be found videos of Islamic preacher Feiz Mohammad. Most informative is a captioned photo narrative by Johannes Hirn showcasing the older brother's boxing pursuits and a glimpse into his history and philosophy.

UPDATE: Boeing cuts 747 production 12.5% on lower demand (BA -0.5%, Dow futures slide 25 points)

Thanks in large part to G-20 comments, JPY has resumed its devaluation path and dragged risk-assets higher with it as S&P futures are up 8 points. However, this 'artificial' exuberance appears to hide the simple reality of individual stocks as IBM is trading down 4.5% in the pre-market and for now Dow futures are down around 40 points from the cash close.