Archive - Jun 6, 2013 - Story

“Volatility is rising and asset prices are highly vulnerable to all incoming news... The amount of attention paid to rumors about QE highlights how vulnerable the U.S. economy is to the prospect of a tapering in asset purchases or a rise in interest rates. This is largely because the current economic expansion is dependent on further gains in housing, which would be adversely affected by a material rise in mortgage rates... This dynamic underpins the Federal Reserve’s current dilemma over how to normalize monetary policy. I do not anticipate an easy ride for policymakers or investors over the coming months.”

Anyone anticipating some earth-shattering release from the DOL in its weekly initial claims report as a guide what to expect tomorrow was disappointed following the release of a 346K print today, which was about as close to the 345K expected without the DOL losing all credibility. This followed last week's naturally upward revised 354K to 357K print, although the problem is that it appears this was it for the 'downward trend' in initial claims which goes back to the thesis that 7.5% unemployment is the new 4.4% unemployment. Continuing claims came better than expected at 2952K on 2974K expected. Also, damn it doesn't feel good to be a government worker - "there were 17,862 former Federal civilian employees claiming UI benefits for the week ending May 18, an increase of 551 from the previous week." Blame the sequester. There was no good news for veterans either: "Newly discharged veterans claiming benefits totaled 35,944, an increase of 614 from the prior week." Bottom line: a nebulous report which provides zero additional insight into what to expect in tomorrow's NFP and thus zero color into what the Fed may do with... "THE TAPER" dun dun dun.

While equity markets are giving up the kneejerk gains after the ECB's decision to make no decision and keep rates unchanged, we await the much more interesting twists and turns of Draghi press conference and Q&A. From EU-wide bank audits to fragmentation and from OMT's promise to easing collateral standards for ABS buying, there is bound to some fireworks (leaving aside his likely admiration for Abe) especially if he hints at negative rates. We look forward to his explanation of the dichotomy of a conditional OMT and the easing of fiscal targets across almost every nation. Popcorn, ready... His prepared remarks are doing little to help though he quotes sentiment indicators as a positive and cuts real data expectations for 2013 (while raising 2014)...

• *ECB SEES 2013 GDP -0.6%
• *DRAGHI SEES DOWNSIDE RISKS TO ECONOMIC OUTLOOK
• *DRAGHI SAYS MONETARY, LOAN DYNAMICS REMAIN SUBDUED
• *DRAGHI SAYS ECB TO KEEP POLICY ACCOMMODATIVE AS LONG AS NEEDED
• *DRAGHI SAYS SENTIMENT INDICATORS SHOWED SOME IMPROVEMENT

Lately Bloomberg's reporting group (now without access to client tracking) has been hitting it out of the park when it comes to cognitive schizophrenia-inducing news article headlines. Last Friday it was the market somehow going up and down at the same time. Now, Bloomberg has shifted its deductive skills over to analyzing the gold market with the following article headline: "China’s Gold Imports From Hong Kong Slump on Quota Backlog" in which Bloomberg says: "Mainland buyers purchased 126,135 kilograms, including scrap, compared with 223,519 kilograms in March, according to Hong Kong government data yesterday. Net imports, after deducting flows from China into Hong Kong, were 75,891 kilograms, from 130,038 kilograms a month earlier, according to Bloomberg calculations." Now perhaps what would have made this "slump" more amusing is if BBG had also shown it in context. Which we are happy to do. Because the 126.1 tons of gold imports in April, or the month of the "great gold crash", was only the second highest ever, and just shy of the all time record high of 223.5 tons imported in March.

Despite some concerns that the ECB would lower rates (and maybe go negative on deposits) at today's meeting, it was certainly not the consensus. And for once, the consensus was right. Form the ECB:

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.50%, 1.00% and 0.00% respectively. The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

Look for Mario to not touch on this issue at today's press conference in 45 minutes if indeed there is much disagreement among the governing council, and instead to focus on what plans the central bank has to spur European private lending which as we showed last week, just hit record lows. If any of course. We, on the other hand, are still hoping to finally get the OMT term sheet that supposedly saved Europe last summer. Because it looks kinda stupid if market participants continue to get duped by an "instrument" that officially and unofficially doesn't exist.

• Global Stocks Tumble as Treasuries Rally, Yen Strengthens (BBG)
• China Export Gains Seen Halved With Fake-Data Crackdown (BBG) - so a crash in the GDP to follow?
• FBI and Microsoft take down botnet group  (FT)
• Quant hedge funds hit by bonds sell-off  (FT)
• Russia's Syria diplomacy, a game of smoke and mirrors (Reuters)
• Obama Confidantes Get Key Security Jobs (WSJ)
• BMW to Mercedes Skip Summer Breaks to Keep Plants Rolling even as European auto demand slides to a 20-year low (BBG) - thank you cheap credit
• Paris threat to block EU-US trade talks  (FT)

Another day, another sell off in Japan. The Nikkei index closed down 0.9%, just off its lows and less than 1% away from officially entering a bear market, but not before another vomit-inducing volatile session, which saw the high to low swing at nearly 400 points. Hopes that a USDJPY short-covering squeeze would push the Nikkei, and thus the S&P futures higher did not materialize. And while the weakness in Japan is well-known and tracked by all, what may come as a surprise is that the Chinese equities are down for the 6th consecutive session marking the longest declining run in a year. Elsewhere in macro land, the Aussie Dollar continues to get pounded on China derivative weakness, tumbling to multi-year lows of just above 94 as Druckenmiller, who called the AUDUSD short nearly a month ago at parity shows he still has it.

Joining its partner in economic destruction and currency devaluation (Argentina), Japanese stocks have just crossed over to the dark-side. After a glorious "well, the market is up, so everything must be great" rally of 85% in six months, the Nikkei 225 is now down over 20% from its highs - signifying a 'bear market'. This is the largest 10-day plunge in 27 months as volume has exploded on the downside. We wonder how the herds representing these five charts are feeling now? At the same time, JPY has broken back below 99 against the USD (and AUDJPY is at 5 month lows) as the entire JPY-funded rampage comes undone - seems like the message from the FX option market was spot on again. This is the lowest level in two months since Kuroda first spoke at the BoJ. Get that porta-potty ready, Abe... What next? Blame speculators? Short-sale ban? Shorting ban?