Archive - Oct 27, 2014 - Story

Less than a week after the NAR reported September existing home sales which surged at a 5.17 million annualized pace, the highest since September 2013, rebounding from the August drubbing which was also the worst miss in 2014, today the NAR flip-flopped and disappointed sellside expectations of a 1.0% rebound following the August -1.0% decline, rising a modest 0.3%, and less than half the 2.2% expected increase from a year ago, rising only 1.0% Y/Y. This was the third miss in the series in the last 4 prints.

It appears the cleanest dirty shirt may need some laundering. For the 4th month in a row, US Services PMI has dropped (hitting 6-month lows) and missing expectations by the most this year. The excuse for this weakness - oh that's easy -"there are clearly many concerns, ranging from worries about the impact of Ebola, the Ukraine crisis, the ongoing plight of the Eurozone , signs of further weakness in emerging markets and the Fed starting to tighten policy."

For those who follow the Fed's daily intervention in the stock market, today is a historic, if bittersweet day: this is the day when the Permanent Open Market Operations (or POMO) as a result of the QE3 program launched in December 2012, finally die (at least until they are reincarnated yet again). Today, at 11:00 am, the NY Fed's market desk will conclude its 933rd POMO since August 25 of 2005, when it will inject just about a $1 billion in the stock market in the form of a $0.85-$1.05 billion buyback of long-end bonds. And with that, Simon Potter's open market operations desk located on the 9th floor of Liberty 33, will be put on temporary hiatus.

Despite the ban on short-sales - which has never worked in the past to do anything but instil fear in traders' holding long positions - Italian banks are in free-fall following the utter failure of Draghi's stress tests to encourage confidence in the European banking system.

INTESA, UBI, UNICREDIT, MONTE PASCHI SUSPENDED IN MILAN, LIMIT DOWN

Given the post-"whatever-it-takes" world of domestic sovereign bond-buying, it is no surprise that Italian govvie risk is jumping higher and the FTSEMIB is plunging.

While large shifts in positioning precipitated a sell-off in oil prices that far exceeded the actual weakening in fundamentals, Goldman Sachs' confidence in a 2015 oversupplied global oil market has increased. As a result, they have brought forward their medium-term bearish oil outlook (WTI crude oil forecast is $75/bbl for 1Q15 and 2H15 (from $90/bbl previously)). WTI just broke below $80 back to June 2012 levels once again as Goldman also downgraded the entire oil service space (happily buying up muppets' positions as they sell).

Just as we warned last night was indicated by the Japanese market's Brazil ETFs, so the IBOVESPA has opened down over 6% this morning on very heavy volume following the 'disappointing for the bulls' electionvictory of Dilma Rousseff. Despite her associations with Petrobras (which may have suggested it bounced), the favorite Jim Chanos short is being crushed, down 14% at the open. The Real is tumbling too, breaking above 2.54 to its weakest against the USD since Dec 2008.

Following a weekend in which the condition of the Ebola-diagnosed doctor currently being treated at Bellevue hospital, Craig Spencer, reportedly deteriorated, the NY Post which first broke news of Spencer's condition last week reported several hours ago that NY may have its second Ebola case after a 5-year-old boy, who just returned from West Africa, was transported to Bellevue Hospital for testing with possible Ebola symptoms, according to law-enforcement sources. According to the Post, the child was vomiting and had a 103-degree fever when he was carried from his Bronx home by EMS workers wearing hazmat suits, neighbors said. “He looked weak,” said a neighbor.

• White House questions new Ebola rules, nurse plans to sue (Reuters)
• States stand firm on Ebola quarantines despite White House pressure (Reuters)
• Rousseff Naming Brazil Finance Minister Key to Regain Trust (BBG)
• Ukraine leader wins pro-West mandate but wary of Russia (Reuters)
• Single Firm Holds More Than 50% of Copper in LME Warehouses (WSJ)
• Treasury Liquidity Squeeze Seen as Dealer Shut Off Machine (BBG)
• CVS follows Rite-Aid, shuts off Apple Pay (USAToday)
• Oil Speculators Bet Wrong as Rebound Proves Fleeting (BBG)
• Draghi Sets Stimulus Pace as ECB Reveals Covered-Bond Purchases (BBG)
• German Ifo Business Confidence Drops for Sixth Month (BBG)

It started off so well: the day after the ECB said that despite a gargantuan €879 billion in bad loans, of which €136 billion were previously undisclosed, only 25 European banks had failed its stress test and had to raised capital, 17 of which had already remedied their capital deficiency confirming that absolutely nothing would change, Europe started off with a bang as stocks across the Atlantic jumped, which in turn pushed US equity futures to fresh multi-week highs putting the early October market drubbing well into the rear view mirror. Then things turned sour. Whether as a result of the re-election of incumbent Brazilian president Dilma Russeff, which is expected to lead to a greater than 10% plunge in the Bovespa when it opens later, or the latest disappointment out of Germany, when the October IFO confidence declined again from 104.5 to 103.2, or because "failing" Italian bank Monte Paschi was not only repeatedly halted after crashing 20% but which saw yet another "transitory" short-selling ban by the Italian regulator, and the mood in Europe suddenly turned quite sour, which in turn dragged both the EURUSD and the USDJPY lower, and with it US equity futures which at last check were red.