Archive - Feb 3, 2014 - Story

As we already noted earlier today in our overnight recap "Alarms Going Off As 102 Dollar-Yen Support Breached", all eyes are glued on the USDJPY 102, which moments ago decisively breached the 102 support level. We said that "if support below the USDJPY fail solidly, then watch out below." Sure enough, here is Ben Hunt from Epsilon Theory with some follow up observations on this topic.

It's not just Japanese stocks that are in trouble. The Dow Industrials futures just lost 15,500 - the lowest level since the debt-ceiling lows mid-November and down over 1000 points from 2013's closing highs. The terrible ISM print triggerd wholesale buying in bonds and bullion and selling of stocks and the USD as the Dow broke below its 200DMA. VIX has hit 20% this morning and credit markets still suggest the S&P is 60-70 points rich.

The downward revision to last month's recent record high appears to have been the warning flag but this is a disaster. ISM Manufacturing dropped by its most since 2008 to levels not seen since May, missed by the most on record, and new orders collapsed at the fastest pace since December 1980. The employment sub-index also tumbled from 55.8 to 52.3. "Poor weather" was blamed by some respondents and still hangovers from the government shutdown but these numbers are simply unprecedented as the data came in at a 6-sigma miss to "economist" expectations.

Once again we learn that not a single sell-side analyst could have predicted the unprecedented "snow in the winter" weather shock that everyone knew about a month or so ago. In the latest example of just how confused "analysts" were when it comes to analyzing weather patterns, we just got both Ford and GM January car sales which tumbled by 7.5% and 12% respectively, on expectations for a decline of only 2.3% and 2.5% for the two US carmakers. And confirming that automaker executives continue the trend we have seen with all other sellers of goods and services, namely that when it is snowing in the winter, nobody buys anything, it was all the weather's fault.

With the Greeks facing up to their third (or 4th or 5th, who's counting anymoe anyway) bailout, proclaiming growth is just around the corner, that the crisis is behind them, and that slavery will solve European youth unemployment; we thought it both ironic and sad that, as Bloomberg's Niraj Shah notes, the European Commission today publishes its first anti-corruption report and finds Greece has the most corrupt public sector, according to Transparency International’s Corruption Perceptions Index.

"We've created a global debt monster that's now so big and so crucial to the workings of the financial system and economy that defaults have been increasingly minimised by uber aggressive policy responses. It’s arguably too late to change course now without huge consequences. This cycle perhaps started with very easy policy after the 97/98 EM crises thus kick starting the exponential rise in leverage across the globe. Since then we saw big corporates saved in the early 00s, financials towards the end of the decade and most recently Sovereigns bailed out. It’s been many, many years since free markets decided the fate of debt markets and bail-outs have generally had to get bigger and bigger."

Winter storm warnings and advisories stretched from Utah to Pennsylvania this morning. As Bloomberg reports, hundreds of flights across the US are being canceled as the threat of snow, ice, and sleet (and up to 8 inches of snow in New York City) "impact the morning commute." The storm will move across the central U.S., bringing showers and thunderstorms to the Central Gulf Coast tomorrow morning and expanding northward into the Tennessee Valley by Tuesday evening, the weather service said. In other words, we have our first good excuse for a crimped consumer not spending once again in February - the weather.

The key events this week are have non-farm payrolls (consensus 181K) and unemployment rate (consensus 6.7%). There is also going to be a number of speeches given by Fed policymakers.  Production surveys from the US (ISM) and other parts of the world are due Monday. We also get trade balance updates from the English-speaking economies - US, UK, Australia and Canada. Finally, keep track on inflation data from Italy and Turkey: the latter is important to track given current high correlation among 'fragile' EM currencies.

• Emerging-Market Rout Seen Enduring on Low Real Rates (BBG)
• After rocky January, markets eye data and central banks (Reuters)
• Europe will feel the pain of emerging markets  (FT)
• Lloyds delays dividend prospect after mis-selling charge (Reuters)
• Snow Set to Snarl New York Commute as U.S. Flights Halted (BBG)
• Rate Decision to Drive Yellen's Early Agenda  (Hilsenrath)
• Thai protesters move to downtown Bangkok in bid to topple PM (Reuters)
• China says Japan's 'hype' on air defence zone spreads tension (Reuters)
• Hedge funds seek 1.8 billion euros damages from members of Porsche's owning family (Reuters)

Alarms are going off in assorted plunge protecting offices, now that the USDJPY has breached the 102.000 "fundamental" support level, below which the Yen can comfortably soar to sub 100.000 in perfectly even 100 pip increments. The first trading day of February has brought another weaker session across Asia though some equity indices such as the KOSPI (-1.1%) are in catch-up mode given they were shut towards the back-end of last week. Over the weekend, the Chinese government published its latest official manufacturing PMI which showed a 0.5pt drop to 50.5, a six-month low, and consistent with consensus estimates. DB’s Jun Ma believes there was some element of seasonality affecting this month’s result including the fact that Chinese New Year started at the end of January (vs February last year), anti-pollution measures in the lead up to CNY and efforts to control government consumption around the holiday period. The official service PMI was released overnight (53.4) which printed at the lowest level since at least 2011. The uninspiring Chinese data has not helped market sentiment this morning, with the Nikkei plunging -2% and ASX200 once again under pressure. S&P500 futures have fluctuated around the unchanged line this morning although if support below the USDJPY fail solidly, then watch out below. Markets in Mainland China and Hong Kong remain closed for Lunar New Year.