Archive - Jan 22, 2015

30Y US Treasury yields have collapsed over 14bps since Draghi unleashed QE... and US equities now well in the red post-QE.  Not exactly the kind of risk-on "buy buy buy" everyone was hoping for as European Peripheral bond risk spreads are rising...

UPDATE: EURUSD < 1.15 but peripheral bonds selling off; EURCHF is dumping

Initial kneejerk reactions have started to fade but overall Europe is 'positive' as EURUSD is lower and stocks higher (excepty Germany's DAX which is at the LoD) but Sovereign spreads are higher. Initial exuberance in US equities have been entirely erased. Treasury yields are now lower as gold and silver are bid and crude and copper sold. We're gonna need a bigger bazooka Mr.Draghi...

Nothing...

It is somewhat paradoxical that in a historic statement which launches the ECB's official deficit monetizing and Article 123 contravening QE with a 6 year delay, a QE which is launched with the implied if unstated purpose of "defeating deflation" that the key word count is as follows.

Will the Asset purchases fall on the shoulders of the ECB or individual nations?

Not "unambiguously good" as Shale states see initial jobless claims spiking. Overall initial jobless claims missed expectations for the 4th week in a row, holding above 300k for the 3d week in a row (for the first time since July). At 307k, this week's print is below last week's but well above the 300k expectation. However, across TX, CO, ND, PA, and WV, initial claims (1 week lagged) rose to over 75k (from 30k in October)... "crisis has passed"?

From "whatever it takes" to OMT to "discussing" bond purchases, with European interest rates at record (incomprehensible) lows (apart from Greece) and EURUSD at 11-year lows (down 25 handles in the last 8 months), Mario Draghi looks set to unleash interventionist 'hell' on the investing public in Europe with EUR50 billion (plus plus) of ECB QE per month for as long as it takes...

We are so brainwashed by centralized models of state authority that few can even imagine a system where the solution is not one centralized monstrosity ruled by a political/financial Aristocracy. A good first step would be to admit to ourselves that we don't really want solutions; what we want is magic: financial magic that makes healthcare free and affordable, medical magic that fixes all our lifestyle ills without forcing any rigorous adult routines and limits on us, political magic that transforms our system from its current corrupt crony-capitalist paradise into a functioning, transparent democracy and economic magic that makes all the unpayable debt vanish so we can borrow another $50 trillion, or $100 trillion, with no restraints on our spending or cronyist corruption. We have no idea what it will take to jolt us from our preference for magic over realistic, difficult (i.e. adult) solutions, but we suspect a crisis that threatens to completely unravel the Status Quo will be part of the process.

1-Year Swiss interest rates have now crashed 75bps in the last week since the SNB decision to un-peg from the Euro. As the world awaits Draghi's big moment, Swiss rates are sliding more and investors seek the 'safety' of Francs - even if it costs them 1.05% per year for that 'safety'.

As expected by most analysts, the ECB kept its rates unchanged for all three facilities.  This is hardly surprising, although as HSBC accurately observed, if the ECB really wants to incentivize banks to sell their government bond holdings, it should have actually pushed rates higher. In any event, as the ECB also noted, "Further monetary policy measures will be communicated by the President of the ECB at a press conference starting at 2.30 p.m. CET today" ?which is a signal that a much bigger announcement is coming in 45 minutes when Draghi begins to speak.

Different elements are rapidly changing within the global monetary complex...

• ECB to decide on bond-buying plan to revive euro zone (Reuters)
• Draghi Is Pushing Boundaries of Euro Region with QE Program (BBG)
• Investors Wonder Whether ECB Will Do Enough (WSJ)
• Treasuries Drop With Bunds Before ECB; U.S. Futures Rise (BBG)
• European shares hit seven-year high (Reuters)
• At least eight civilians killed in shelling of Ukrainian trolleybus (Reuters), both sides blame each other
• OPEC Will Blink First in Battle With Shale Drillers, Poll Shows (BBG)
• China Injects $8 Billion Into Banking System (WSJ)
• New York says Barclays not cooperating in 'dark pool' probe (Reuters)

With less than two hours until the ECB unveils its first official quantitative easing program, the markets appear to be in a unchanged daze. Well, not all markets: the Japanese bond market overnight suffered its worst sell off in months on a jump in volume, although for context this means the 10Year dropping from 0.25% to 0.32%. Whether this is a hint of the "sell the news" that may follow Draghi's announcement is unclear, although Europe has seen comparable weakness across its bond space as well and the US 10 Year has sold off all the way to 1.91%, which is impressive considering it was trading under 1.80% just a few days ago. Stocks for now are largely unchanged with futures barely budging and tracking the USDJPY which after rising above 118 again overnight, has seen active selling ever since the close of the Japanese session.

With a wave of Magnifico's wand...

Curency wars are zero-sum.  Interest rate race is not.