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One Minute Macro Update - Market Quake

Tyler Durden's picture




 

U.S.: Markets strongly negative this morning as the Japanese earthquake and its accompanying nuclear threat continue to worry investors despite the pledge for government support. The FOMC will meet today and will likely maintain rates at their current levels and show support for the completion of QE2. However, the Japanese earthquake and respective stimulus reaction offers the potential for an unexpected announcement, though we ascribe a low probability to this occuring. Today’s Empire State manufacturing survey for March is expected to come in at 16.10E v 15.43 prior, in line with its recent correlation with the rising Philadelphia Fed Index. The Treasury will release US foreign net transactions today showing a decrease to $55.0BE v $65.9B prior.
 
Europe: This weekend’s news of the EMU’s renewed support of a rescue mechanism lifted sovereign debt worries, but will likely be short lived. S&P announced yesterday that the new package will be detrimental to current sovereign bond holders as funds borrowed from the mechanism will come ahead in repayment, putting into motion our circular reference/CDO characterization of the EFSF/ESM mechanisms.  ISDA’s Credit Derivatives Determinations Committee will be looking at the Irish bailout to see if the monies layered in ahead of bondholders constitute a credit event.  By our reckoning, most players on both sides of the market would not desire an event to have occurred at this juncture.   European finance ministers yesterday began working out the technical details involved with boosting the true lending capacity of the fund to €440B from €250. The EMU’s six AAA-rated countries will be mostly responsible for funding the increase. Complimenting the improved European outlook was Spain’s release of a decrease in ECB borrowings to €49.2B in February from €53.1B in January. The figures took hold in Spain’s latest auction, selling €3.97B in 12M bills at 2.128% v 2.410% with b/c of 2.37x v 2.08 prior and €1.53B in 18M bills at 2.436% v 2.938% prior with b/c 3.51x v 5.30x prior. Belgium postponed a 6Y bond auction, due to unstable market conditions related to Japan’s earthquake. French CPI rose 0.5% MoM 1.7% YoY, matching market expectations. The German Zew Survey hit 85.4 v 86E and 85.2 prior for the current situation and 14.1 v 15.9E and 15.7E for economic sentiment. The survey attributed the decline in confidence to the ECB’s announcement of a potential rate hike and respondents answering the survey after the earthquake.  German courts also overturned the North-Rhine Westphalia state budget as being illegal under constitutional rules. 
 
Asia: The aftermath of Japan’s earthquake and tsunami worsened yesterday as the Fukushima Daiichi nuclear power plant located north of Tokyo continued to threaten nuclear disaster. The Japanese government reached out to U.N. experts to control the impending crisis. The death toll, already estimated to top 10,000 will likely continue to rise, especially as the current nuclear situation unfolds. The nuclear mayhem has triggered protests in Berlin and German Chancellor Angela Merkel announced a 3-month moratorium on additional use of the country’s nuclear facilities. While pledging $183B in stimulus funding, the Bank of Japan also left its target rate at 0.10%. The Nikkei 225 reported its largest two-day drop since 1987 and its worst one day performance since 2008.  RBA minutes show a downgrade to the 2012 inflation threat. 

From Brian Yelvington of Knight Capital

 

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Tue, 03/15/2011 - 08:09 | 1054866 papaswamp
papaswamp's picture

When is it going to be obvious that Europe's troubles won't go away with another bailout? The best thing is to default. They can never pay back the debt why torture the people for bad decisions by banks and govts?

Tue, 03/15/2011 - 08:16 | 1054888 GFORCE
GFORCE's picture

The price action in gold will confuse many but it's been a long time coming. Golds been a paranoid speculative trade, rallying when Gaddaffi sneezes etc.

But when a REAL event risk comes, the rush to dollars and the unwind of profits/speculative positions will create a downdraft in gold.

The case is still there for physical. But at these prices, there's better options.

Out of interest, Charles Nenner predicted a top around 1,440 falling to 1,000 at onset of '11. Could be within 5 bucks if we follow through with europe etc.

Tue, 03/15/2011 - 08:27 | 1054935 jesse livermoore
jesse livermoore's picture

central banks were net buyers at these levels .   the chinese imported more gold in the first two months of 11  than all of 2010.   but hey lets just ignore the facts

Tue, 03/15/2011 - 08:31 | 1054949 tiger7905
tiger7905's picture

One must wonder if this Japan event can cause a crisis for the USD that Russell has talked about leading to a significant jump in gold prices?

Turk is now calling for $8000 gold!

http://goldandsilverlinings.com/?p=239

Tue, 03/15/2011 - 08:45 | 1054992 10kby2k
10kby2k's picture

It takes a nuclear tragedy to get a 2% selloff?  Market has been so overdue for a correction. This price move is minor.  If anything, it promotes an excuse for the FED to give the alcoholic economy a fresh case of prime liquor. Santelli is ranting right now...i root for him to say something that will make the talking heads shit their pants. Liesman and his guest are such pussies.  JUST TELL US THE TRUTH, I hate lies and denial. The world is correct...the USA should be hated on many levels. I am NOT proud to be an American.  Bunch of smart ass whiners.

Tue, 03/15/2011 - 09:12 | 1055106 Crumbles
Crumbles's picture

Careful, Dude - recall what happened to the Dixie Chicks when they made the same  (NOT  proud) comment -

Oh, wait - Bush the Lesser is gone - although his spirit and that of The Dick seem hard to exorcise from the WH.

Never mind.  Flame Off

Tue, 03/15/2011 - 09:09 | 1055087 trendybull459
trendybull459's picture

People get together,anyone who cares about basic problem of our existance FED invited to vote in our poll and read out latest comments on yahoo FED article about QE3:

http://trendybull777.blog.com/2011/02/21/hello-world/

Voting poll is waiting for you click,take 5sec to make your choice,we must to reach critical level to be recognised by others to tove too!Thank you and keep all us together regardless government effords,we appreciate if you link us to other polls,blogs,sites to let people or your friiends to vote FED existence

Tue, 03/15/2011 - 09:25 | 1055204 99er
Tue, 03/15/2011 - 09:27 | 1055214 sbenard
sbenard's picture

Where's "Bubbles" Bernanke when we need him?

Do NOT follow this link or you will be banned from the site!