Archive - Jun 11, 2014 - Story

A stunning 64% of Americans say the country is on the wrong track as President Obama's recent actions (too numerous to list) have sent his approval rating plunging to a mere 44% - the lowest (according to a Bloomberg poll) since his Presidency began. Under the surface the picture is even more worrisome as "in the past, Obama’s likeability has stayed ahead of perceptions of job performance," as his 'charm' saved him from his apparent ineptitude, but now, "it appears he is no longer likeable enough."

Perhaps the 'disruptive' taxi company's name refers to its valuation more than its 'worth' as Uber's dramatic expansion plans to take over the world are hitting a rather large snag in Europe. As WSJ reports, taxi drivers planned to turn a handful of European city centers into giant parking lots Wednesday, protesting the mobile car-hailing service. Uber has been subjected to scrutiny elsewhere, including the U.S. and Canada. But the hurdles have been higher in Europe, where taxi drivers tend to be well organized. The industry is often more heavily regulated, and governments are more willing to actively protect sectors under threat of job losses. Across Europe, as the map below shows, Uber is facing a series of legal challenges; which makes, as NYU valuation guru Aswath Damodaran confirms means the $18 billion number "is likely wishful thinking."

With 10Y yields trading below those of US Treasuries, asking the question of Spain's rising default risk seems risible but as Bloomberg's Maxime Sbaihi notes, the longer the euro flirts with deflation, the higher the risk that the heavily indebted (and becoming more so) countries will be tempted to default. Of course, this 'concern' is entirely ignored by the 'market' as Draghi has promised enough liquidity to soak up every short-dated bond but as the European Union's so-called "1/20 rule" suggests - requiring states to reduce excessive (over 60% Debt/GDP) by 1/20th every year or face a fine of 0.2% of GDP - Spain, it appears has 5 options to escape this vicious circle... and one of those is restructuring...

It appears the PBOC is hell-bent on destroying any trend idea for carry traders to jump on. After 4 days of strengthening the CNY... and sell-side strategists already jumping on the new trend bandwagon with trade recommendations, the PBOC surprised last night and weakened the currency fixing. It is clear from this action that the PBOC is serious about stopping the hot flows... the problem is, it has consequences. Last night saw China unable to sell its entire 1 year bond offering (even at a rate of 3.32% - dramatically higher than European or US short-dated debt). Copper prices have stumbled, USDJPY is fading and US equities doing the same for now as carry unwind butterflies flapping their wings in onshore CNY can cause hurricanes in global liquidity fed capital markets.

The FOMC should (and might) accelerate the pace of QE reductions to $15 billion on Wednesday (June 18th). Furthermore, at its meeting on July 30th, the FOMC could – and should -announce a similar-sized reduction for the subsequent two months. Hence, the Fed would not have to wait until its September 17th meeting to announce the final leg. QE would then end two months earlier at the end of August rather than the end of October as markets currently expect. Such a path would generally afford the FOMC more freedoms, particularly at the September17th press conference meeting. There are of plenty of reasons to justify such a move...

• World Bank Cuts Global Growth Forecast After ‘Bumpy’ 2014 Start (BBG)
• Al-Qaeda Offshoot Threatens Iraq Oil Site After Taking Mosul (BBG)
• Fed Prepares to Keep Record Balance Sheet for Years to Come (BBG)
• EU investigates tax rulings on Apple, Starbucks, Fiat unit (Reuters)
• Cantor Loss Shocks Republicans, Dims Immigration Changes (BBG)
• More surveillance: Google to Buy Satellite-Imaging Startup for $500 Million (WSJ)
• Tea Party activist who defeated Cantor focused on budget, immigration (Reuters)
• Airbus Suffers Worst Order Loss as Emirates Deal Scrapped (BBG)
• Amazon.com plans local services marketplace this year (Reuters)
• Amazon Stops Taking Advance Orders for ‘Lego’ and Other Warner Videos (NYT)

Yesterday's market action was perfectly predictable, and as we forecast, it followed the move of the USDJPY almost to a tick, which with the help of a last minute VIX smash (just when will the CFTC finally look at the "banging the close" in the VIX by the NY Fed?) pushed the DJIA to a new record high, courtesy of the overnight USDJPY selling which in turn allowed all day buying of the key carry pair. Fast forward to today when once again we have a replica of the set up: a big overnight dump in USDJPY has sent the dollar-yen to just over 102.000. And since Nomura has a green light by the BOJ to lift every USDJPY offer south of 102.000 we expect the USDJPY to once again rebound and push what right now is a weak equity futures session (-8) well above current levels. Unless, of course, central banks finally are starting to shift their policy, realizing that they may have lost control to the upside since algos no longer care about warnings that "volatility is too low", knowing full well the same Fed will come and bail them out on even the tiniest downtick. Which begs the question: is a big Fed-mandated shakeout coming? Could the coming FOMC announcement be just the right time and place for the Fed to surprise the market out of its "complacency" and whip out an unexpected hawk out of its sleeve?