Another week, another Chinese default. A month after Chaori Solar's default turned on its head a long-held assumption that even high-yielding debt carried an implicit state guarantee, yet another Chinese firm has succumbed to the inevitable logic of lack of cash flows. As a reminder, a technical default late last month by a small construction materials firm, Xuzhou Zhongsen Tonghao New Board Co Ltd, was the first in China's high-yield bond market. However, in that case the guarantor of that bond eventually agreed to fund the required interest payment, resulting in the first bailout of the first high yield default. Still if Xuzhou doesn't want the distinction of the first Chinese HY default, many are lining up for that particular prize - such as a small manufacturer of polyester yarn based in China's wealthy Zhejiang province has declared bankruptcy, threatening its ability to meet an interest payment on a high-yield bond due in July.
- Top Medicare Doctor Paid $21 Million in 2012, Data Shows (BBG)
- Separatists build barricades in east Ukraine, Kiev warns of force (Reuters)
- Greece launches sale of five-year bond (FT)
- High-Frequency Trader Malyshev Mulls Accepting Outside Investors (BBG)
- U.S. defense chief gets earful as China visit exposes tensions (Reuters)
- GM Workers Who Built Defective Cars Fret About Recall (BBG)
- Kerry, Congress Agree: Superpower Status Not What It Was (BBG)
- Crimeans Homeless in Ukraine Seek Solace in Kiev Asylums (BBG)
- JPMorgan's Dimon says U.S. banks healthy, Europe lagging (Reuters)
The positive sentiment stemming from a positive close on Wall Street and saw Shanghai Comp (+0.33%), Hang Seng (+1.09%) trade higher, failed to support the Nikkei 225 (-2.10%), which underperformed its peers and finished in the red amid JPY strength as BoJ's Kuroda failed to hint on more easing. Stocks in Europe (Eurostoxx50 +0.32%) traded higher since the open, with Bunds also under pressure amid the reversal in sentiment.
Alcoa kicked off earnings season yesterday, with shares up 3% in after-market hours. Focus now turns to the release of the FOMC meeting minutes.
While the Nasdaq was unable to get back above its crucial 100DMA, it outperformed today (Biotechs went nowhere) as the S&P 500 dipped-and-ripped off its 50DMA (and the crucial 1840 level for bulls). The problem with all this "the correction is over" chatter... nothing else is buying it... Treasury bond yields slumped lower (7Y -15 bps from Friday highs and back to FOMC levels) with 10Y < 2.70% again. Credit spreads on high-yield debt made new swing cycle wides (did not hold teh dead cat bounce gains). Gold jumped back above $1310 (and on a separate note oil prices surged as "tanks" hit the headlines once again in Ukraine). But perhaps the most notable 'negative' for this being anything but a dead-cat-bounce was the collapse in JPY carry - USDJPY's biggest drop in 8 months. VIX was pegged to the S&P 500 all day - but even there we saw notable steepening (as hedgers termed out protection). S&P 500 futures close perfectly at yesterday's closing VWAP.
The Cyprus bail-in laid the ground for a global wealth tax. The next time a crisis hits, savers will be picking up the tab.
Are you saying it took the highbrow economist cadre five years to figure out and agree with what we first said in 2009, and for which we received endless ridicule, abuse and accusations of fringe insanity? Yes. We are saying that.
It took Virtu's idiot algos some time to process that the lack of BOJ stimulus is not bullish for more BOJ stimulus - something that has been priced in since October and which sent the USDJPY up from 97.000 to 105.000 in a few months, but it finally sank in when BOJ head Kuroda explicitly stated overnight that there is "no need to add stimulus now." That, and the disappointing news from China that the middle kingdom too has no plans for a major stimulus, as we reported last night, were the final straws that forced the USDJPY to lose the tractor-beamed 103.000 "fundamental level", tripping the countless sell stops just below it, and slid 50 pips lower as of this moment to overnight lows at the 102.500 level, in turn dragging US but mostly European equity futures with it, and the Dax was last seen tripping stops below 9400.
The last time global equity markets were falling at this pace (on a growth scare) was the fall of 2011. That time, after a big push lower, November saw a mass co-ordinated easing by central banks to save the world... stock jumped, the global economy spurted into action briefly, and all was well. This time, it's different. The Fed is tapering (and the hurdle to change course is high), the ECB balance sheet is shrinking (and there's nothing but promises), the PBOC tonight said "anyone anticipating additional stimulus would be disappointed," and then the BoJ failed to increase their already-ridiculous QE (ETF purchase) programs. The JPY is strengthening, Asian and US stocks are dropping, CNY is weakening, and gold rising.
The relative calm of the last two weeks as US talking-heads proclaim Ukraine 'fixed', Russia 'under control', and Europe 'recovering' is being obliterated this morning. The storming of various non-Crimean Ukrainian city government buildings suggest round two of the push is beginning and Russia is wasting no time explaining how this will go down. Russian Senator Viktor Ozerov stated that "Russia has no right to [send peacekeepers] unilaterally" to Eastern and Southern Ukraine (unless the UN agrees)... but... "Russia is interested in stability in Ukraine. At the same time, the will of the people must be documented. A referendum is the most democratic way of expressing one's will." In other words, "we can't help you unless you hold a referendum to annex." Stage 2 is beginning... and it seems Ukraine is getting it as they are preparing to issue a state of emergency.
No Yen carry levitation overnight and, naturally, no Spoo levitation, with the futures struggling following the Nikkei's -1.7% drubbing (pushing it back to nearly -10% on the year) and down well from Friday's closing print. Risk averse sentiment following on from lower close on Wall Street on Friday, NASDAQ 100 (-2.7%) marked the worst session since 2011 dominated the price action in Asia, with JGBs up 32 ticks and the Nikkei 225 index (-1.7%). The Shanghai Composite was closed for a market holiday. Overall, stocks in Europe have recovered off lows but remain in negative territory (Eurostoxx50 -0.64%), with tech sector under performing in a continuation of sector weakness seen in the US and Asia, however Bunds remained under pressure as speculation of QE by ECB continued to undermine demand for core EU bonds. No major tier 1 releases scheduled for rest of the session, with focus likely turning to any policy related comments from ECB’s Weidmann, Constancio and Fed’s Bullard.
Dr Faber discussed the importance of not owning gold stored in the U.S., the mystery of the Fed gold, why Singapore is safest for gold storage, the risks of bitcoin and how small countries should revert to national currencies. The must watch interview can be watched here ...
Dispassionate big picture overview.
In an excellent interview with STA Wealth's Lance Roberts, A. Gary Shilling dives into a number of issues. From four more years of deleveraging to go to five potential major shocks that will force "an agonizing reappraisal and switch to "risk off" strategies" for most long-only equity investors, Shilling is cautious; but his biggest fear is China (for these 8 reasons)...
Market consensus is that deflation remains the greatest threat to the global economy. But that's ignoring signs of impending inflation, particularly in the US.
"The global financial landscape was evolving. Ever since World War II, US bankers hadn’t worried too much about their supremacy being challenged by other international banks, which were still playing catch-up in terms of deposits, loans, and global customers. But by now the international banks had moved beyond postwar reconstructive pain and gained significant ground by trading with Cold War enemies of the United States. They were, in short, cutting into the global market that the US bankers had dominated by extending themselves into areas in which the US bankers were absent for US policy reasons. There was no such thing as “enough” of a market share in this game. As a result, US bankers had to take a longer, harder look at the “shackles” hampering their growth. To remain globally competitive, among other things, bankers sought to shatter post-Depression legislative barriers like Glass-Steagall. They wielded fear coated in shades of nationalism as a weapon: if US bankers became less competitive, then by extension the United States would become less powerful. The competition argument would remain dominant on Wall Street and in Washington for nearly three decades, until the separation of speculative and commercial banking that had been invoked by the Glass-Steagall Act would be no more."