Archive - Nov 10, 2014 - Story

while the algos would have been delighted to let October 15 slide into the collective memory made obsolete by a constantly rising market (because investors are only truly angry when the market plunges not when it surges) just as the regulators made a mockery of their fiduciary responsibilities in the aftermath of May 6, and now markets are more fragile than ever as HFTs comprise the vast majority of all trades, some appear to be complaining and even, gasp, asking questions how it is possible that the $12 trillion US Treasury market traded like an illiquid Pink Sheets pennystock, or worse, the Nikkei.Here is the WSJ with some of the complaints: “It starts moving faster and faster, and you can’t point to anything."Actually, yes you can.

At 4.0, the Fed's goal-seeked 19-factor Labor Market Conditions Index (LMCI) is unchanged in October (but everyone said Friday that jobs were great?). This is marginally below the average level of the last 4 years and provides the perfect ammunition for the Fed to be lower-for-longer... even as initial jobless claims near 40 year lows.

The moment the US equity market opened, the USDollar surged (driven by JPY and EUR weakness) and oil, gold, and silver mirrored the surge, tumbling from the open. Interestingly, while WTI is remaining near the lows of the day, gold and silver are bouncing back despite continued USD strength.

"An open Internet is essential to the American economy, and increasingly to our very way of life," begins the President as he explains why the FCC should regulate the internet for Americans' own good:

*OBAMA CALLS FOR REGULATING INTERNET LIKE PHONE COMPANIES
*OBAMA ASKS FOR 'STRONGEST POSSIBLE RULES' FOR OPEN INTERNET

"The Internet has been one of the greatest gifts our economy — and our society — has ever known," and that's why Obama feels the need to regulate it to "protect an open, accessible, and free Internet."

The bottom line, or rather, negative line, is the Millennials' savings, because "after a flirtation with thrift after the recession, young Americans have stopped saving. Adults under age 35—the so-called millennial generation—currently have a savings rate of negative 2%, meaning they are burning through their assets or going into debt, according to Moody’s Analytics. That compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older."

Almost three years ago, Iran reportedly downed a US drone. The RQ-170 Sentinel recon drone that was reportedly captured has apparently been reverse-engineered, and now, as Reuters reports, Iran state news agency IRNA reports the drone-clone has taken its first flight. Iran's Supreme Leader noted, "Today is a very sweet and unforgettable day for me." Of course, this 'news' should be taken with a modest pinch of salt but, as with everything in foreign policy these days, Brigadier General Ali Hajizadeh states that "a film of the flight will be released soon."

EURCHF is rapidly falling towards its 1.20 peg level - not seen since September 2012 (when the SNB described the "massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development.") It appears the CHF buying pressure is based on traders betting on the Swiss Gold Initiative (SGI) referendum on Nov 30th - if it were to pass, the SNB would be forced to choose between buying gold or giving up on the peg (and allowing even more "massive overvaluation" of the swissy). For now, it seems EURCHF is the best indicator of SGI risk as precious metals remain unimpressed by the potential demand. Of course, as ForexLive notes one trader's comments, "even if the gold vote goes against them they can still hit the print button to infinity," to defend the peg; though that may just viciously impact the cost of the physical gold they would be forced to buy.

October was a historic month for McDonalds. While the investing public was already well aware that things are bad and getting worse when it comes to demand for the iconic hamburger following MCD's 30% plunge in Q3 profit, moments ago the troubled fast-food chain reported that in the first month of the fourth quarter it celebrated a tragic anniversary: one year of US comp store sales without a single increase, following a 1% drop in US October sales! This is the first time in history when MCD has anniversaried negative same store sales in the US.

The Hryvnia has collapsed to new record lows near 15/USD this morning. The Central Bank and bankers "agreed to keep UAH at 15-16/USD" but are "not planning on new FX market restrictions." However, there is one terrifying 'currency' that needs to be curtailed... Bitcoin. As The National Bank of Ukraine explains, "In order to protect consumers' rights," the virtual currency Bitcoin cannot be used in Ukraine as a means of payment.

The risks unleashed by central bank funding of massive carry trades, policy-driven devaluations and currency crises have yet to manifest. When they do, we'll rediscover why traders consider the FX market the 800-pound gorilla that stomps on the stock and bond markets without even noticing the squishing sound.

"Chinese numbers came out; I was kind of amused that when they’re pretty much on expectations, nobody writes that the books are cooked and that you have to discount the exports, etc.; they came in right on expectations, and everyone high fives the science of economic forecasting. We’ve either got to seasonally adjust for book cooking or assume, like all numbers, they are an educated guess."

• Obama urges China to be partner in ensuring world order (Reuters)
• China Sees Itself at Center of New Asian Order (WSJ)
• Xi Dangles $1.25 Trillion as China Counters U.S. Refocus (BBG)
• China's Xi, Japan's Abe hold landmark meeting after awkward handshake (Reuters)
• Revenue Softness Worries Stock Investors (WSJ)
• How BOJ’s Kuroda Won the Vote for Stimulus Expansion (WSJ)
• Bonus Season Brings More Pain for Traders (WSJ)
• Russia’s Military Encounters Risk Clash in Europe (BBG)

Following Friday's sticksave, where the usual 3:30 pm ramp brigade pushed futures just barely green into the close despite a miss in the payrolls report which the spin brigade did everything in its power to make it seem that the hiring a few hundred thousand young female waitresses was bullish for the economy, overnight we have seen a listless session, dominated by more USD-profit taking as increasingly more wonder if the relentless surge higher in the Greenback is massively overdone, especially considering that stocks are screaming "worldwide recession" excluding the US, if only for now, because as Goldman explained soaring USD means plunging Oil, means tumbling E&P capex, means lower GDP, means less growth, means lower corporate profits, and so on. That said, we expect the now trivial Virtu JPY momentum-ignition algos to activate shortly, pushing the USDJPY and its derivative, the S&P500, higher in the coming minutes, and certainly before the US market opens in under 3 hours.