Archive - Feb 3, 2015 - Story

In the realms of fantasy narrative, The Fed's Jim Bullard remains near the top, but this morning's statement that "there is a lot of momentum in the US economy" is simply remarkable in its total falsehooded-ness. As the following chart shows, we suspect when Bullard says "economy" he means "market" but even that is hardly showing momentum!!

On the heels of the biggest crash in ISM New York since May 2007 (swinging from 9 year highs at 70.8 to 6 year lows at 44.5 in one month), Factory Orders plunged 3.4% in December (against an expectation of a 2.4% drop) - the biggest drop since Mar 2013 (ex last year's Boeing swing). Factory Orders 3.6% YoY drop is the largest since Nov09. Which explains why stocks are soaring... (despite Fed's Bullard saying "there is a lot of momentum in the US economy.")

Well that escalated quickly... while the trend of Bund yield collapse continues, the biggest driver of this unprecedented shift. For the first time ever, German 10Y bund yields are trading below (3bps below) Japanese 10Y bond yields as since Q€ the spread has collapsed 35bps. A very weak JGB auction overnight suggests the BoJ is losing control of the world's biggest bond market...

The bottom-callers are out en masse as crude oil prices head for the 3rd up-day in a row and the biigest bounce since OPEC's last meeting. Overnight comments from the BP CEO on OPEC "wanting to test the market" and OPEC delegates warnings that this rebound may not be long-lasting,"prices are stabilizing around $40 to $45, but the world economy is not very strong and stocks are too high.'' Other OPEC delegates suggested prices will drop to $30-35 before this is over (in the first or second quarter)...

If there was any confusion how Germany would react to the latest Greek plan, even though as we explicitly stated yesterday, the "new" Greek plan is really the "old" Greek plan but repackaged semantically for appeal to German taxpayers, even as the proposal to involve Europe's public entities in a distressed debt restructuring is a non-starter, all confusion can be now abandoned following remarks by Merkel's ally Kauder in which he not only called the Greek debt plan "half-baked" saying he will no longer respond to new proposals from Athens "every day", but making it clear that there will be no renegotiation of the existing bailout proposal saying "we have agreements with Greece and not with a government - and these agreements have to be adhered to."

Much was said about the outperformance of the Nikkei relative to other asset classes in various months in 2014. Outperformance in Yen terms that is: for 2014 the Nikkei was actually down in USD terms. However, somehow we doubt if as much will be said about January's best performing asset - again, in local currency terms - which was the Russian stock market. Actually, come to think of it, we doubt anything will be said in the mainstream media about January's two best performing assets in USD terms either: silver and gold.

Who could have seen that vertical USDJPY buying panic stock momo igniting move ahead of the US retail muppeteering open?

While we already know that there is only one true irrationally non-economic buyer of stocks in the US equity market, getting confirmation from none other than Goldman Sachs is another matter...

GS: "BUYBACKS yday accounted for 17% of our total flow, at times 33%"

Sourced from a run, this explains the machine-like vertical buying panic of the completely indiscriminate "well stocks are down and we need to maintain our bonuses) corporate buyback machine.

As had been widely rumored in the past two weeks, and as the WSJ reported overnight, moments ago McGraw Hill, parent of disgraced rating agency S&P, entered into a $1.5 billion settlement to fully resolve the DOJ lawsuit regarding S&P ratings on RMBS and CDOs. As the WSJ reported overnight, In the "span of about 30 hours, the Justice Department lowered its asking price and backed off demands that S&P admit to violating laws when it issued rosy grades on risky mortgage deals, the people said." But the bottom line: 'S&P agreed to ... withdraw its assertion that the Justice Department lawsuit was political retaliation for the ratings firm’s 2011 downgrade."

Angela Merkel just upst the narrative in a major way. After 24 hours or so of "well Greece is fixed" chatter about compromises - that wer later rebuked by Greece's Varoufakis, no lesser uberlord of Europe than Angela Merkel just dropped the following tapebomb:

*MERKEL SAID TO EXPECT GREEK FUNDING TALKS TO DRAG ON FOR MONTHS

Which means the crucial Feb 28th date looks like a problem - unless the ECB folds (diplomatically based on assumptions that Greece will fold in the future). The DAX (and for that matter all risk assets) is rolling over on the news...

It took less than 2 months for Goldman's Top Trade Recommendation #6: i.e., going short the CHFSEK, to implode in truly spectacular fashion, in the process bankrupting any number of levered FX investors, who suffered an unlevered loss of 16.5% (add leverage, annualize, and you end up with the worst trade "Top" reco perhaps in history). Less than three weeks later, Goldman feels the urge to take the flow on the other side of its clients' trades, and sure enough, here is Goldman's brand spanking new Top Trade, this time #9, one which recommends going long the USD against an "equally weighted basket of ZAR and KRW for a target of 110."

• RBA cuts interest rates to record low of 2.25% (SMH)
• RBI keeps rates on hold (Reuters), India allows banks flexibility on big projects to reboot growth (Reuters)
• BP slashes capital spending by 20% (FT)
• Greek Retreat on Writedown May Move Fight to Spending (BBG)
• Rosneft accounting move helps BP beat profit forecast (Reuters)
• Amazon in Talks to Buy Some of RadioShack's Stores (BBG)
• Behind Obama's budget proposals, a gloomy view of the future (Reuters)
• How the Justice Department, S&P Came to Terms (WSJ)
• Staples, Office Depot in Advanced Talks to Merge (WSJ)

The rally that was sparked by yesterday's late-day FT report had all but fizzled overnight, replaced by more concerns about the state of the global economy when Austrialia's central bank surprised the world (just 9 of 29 analysts had expected this move) by becoming the 15th in a row to ease in 2015 (the list: Singapore, Europe, Switzerland, Denmark, Canada, India, Turkey, Egypt, Romania, Peru, Albania, Uzbekistan and Pakistan, Russia and now Australia), cutting the cash rate to an all-time low of 2.25%, and sparking more concerns about a global currency war or rather USD war against every other currency, when the USDJPY algos woke up again, and did everything they could to re-defend the critical 117.20 level in the USDJPY which has proven critical in supporting the market in recent weeks, once again using the Greek "softening tone" story as the basis for the ramp as Europe woke up, which in turn sent the DAX promptly to new all time highs, while the Athens stock market surged by 9% at last check.

a day after the FT report sent futures soaring and has been responsible for the jump in European stocks this morning, the Greek finance minister made it quite clear that, as has been happening on pretty much every day since his ascent to power, he has been misinterpreted and that as Bloomberg noted a little over na hour ago, "there has been no "U-turn" on the Greek debt position, adding that "Our promise is solid, debt will be rendered sustainable even if haircut replaced with euphemisms, swaps" Greece’s Finance Minister Yanis Varoufakis comments in Twitter post.

UPDATE: *INDIA'S CENTRAL BANK KEEPS BENCHMARK POLICY RATE AT 7.75%, CUTS SLR TO 21.5% OF NDTL FROM 22%

UPDATE: Dow Futs -80 points, S&P Futs -9pts

Following the 15th surprise rate cut of 2015 (Singapore, Europe, Switzerland, Denmark, Canada, India, Turkey, Egypt, Romania, Peru, Albania, Uzbekistan and Pakistan, Russia and now Australia), the Aussie Dollar has cratered to its lowest since May 2009 against the US Dollar at 0.7650 (and bond yields crashed by the most since 1997 to record lows). Aussie stocks kneejerked higher (on an extremely dovish RBA statement) but are fading (as are Chinese stocks). Perhaps even more concerningly indicative of the central banks losing control, following this morning's weak Japanese auction (or more properly expressed - BoJ monetization farce), USDJPY (under 117), Japanese stocks (down 350 points from US session highs), and JGBs (yields up 6-8bps) are all being sold.