The central planners are in a state of fear and panic. They are trying everything and anything to create market validation for their policies, watching with trepidation as their favored economic metrics fail to respond to all of their frenzied efforts. They are so far over the tips of their skis right now that there's nothing they won't do. By the time a central bank is behaving as recklessly as Japan, it's time to edge towards the exit, because the chance of a flash fire in the building has grown uncomfortably high. That is, instead of providing comfort, these most recent moves should invoke greater worry for those of us alert enough to see them for what they are: acts of panic.
European shares fall, reversing earlier gains, with the banks and tech sectors underperforming and basic resources, oil & gas outperforming. Companies including ArcelorMittal, Allianz, Swiss Re, Richemont released results. The Spanish and Italian markets are the worst-performing larger bourses, the U.K. the best. The euro is stronger against the dollar. Japanese 10yr bond yields rise; German yields increase. Furthermore, the pullback in the USD-index from overnight highs has also provided the commodity complex with some upside and thus has seen basic materials and energy name outperform to the benefit of the FTSE 100. Elsewhere, Allianz’s (+4.9%) impressive pre-market report has helped halt the move to the downside for the DAX which trades with modest gains of 0.3%. Fixed income markets continue to hold fire (albeit in marginal negative territory) with volumes exceedingly thin ahead of key risk events. And with that, all eyes move to today's Nonfarm payroll expected to print at 235K, after last month's 248K. Something to keep in mind: the average seasonal adjustment to the October data is almost exactly 1 million, so yet again the fate of the US and global economy, will be determined by an Arima X 13 "fudge factor."
Following the release of the quarterly monetary policy report from the People’s Bank of China, it is becoming clear, as Goldman Sachs notes, that stimulus - via cuts to system-wide RRR and/or benchmark interest rates - is becoming less and less likely. The PBOC's introduction of a new facility called the medium-term lending facility (MLF) allows 'targeted' easing, and as one local economist noted, "it shows the central bank is very reluctant to loosen monetary policy." The PBOC has broadened its toolkit to arrest an economic slowdown, while seeking to avoid adding financial risks, as The PBOC said it would "continue to implement a 'prudent' monetary policy and use various tools to manage liquidity." Not the exuberant stimulus-fest the talking-heads are calling for reminding us, as Pettis previously concluded, "In China, it will be no different. Growth miracles have always been the relatively easy part; it is the subsequent adjustment that has been the tough part."
Yesterday higher oil prices were the catalyst for higher stock prices. Today lower prices - after OPEC slashed growth expectations - were "unequivocally" positive for Americans and sent Trannies soaring. Of course, it was Draghi's promise that there's more to come that sustained USDJPY's levitation and thus stocks. Treasury yields slid 2-4bps higher on the day as the USDollar surged to +1.2% on the week after Draghi's chatter slammed EURUSD below 1.24. Gold and silver were flat (despite USD strength) as oil prices dipped to $78. HY credit diverged notably after EU closed as managers appeared to protect bond positions into the jobs data. VIX pumped then dumped and cracked back to a 13 handle as stocks closed at record highs (right before the uncertainty of tomorrow's NFP).
At the end of 2008, the U.S. Federal Reserve embarked upon a monetary policy so extreme and so reckless that it had to invent a (new) euphemism for what it was doing, since if it simply used the old euphemism, even the puppet-politicians of the U.S. government would have rebelled at this monetary insanity.
Every day for the past several years, sometime after 3pm, bullish market participants exhale a sigh of relief when as if out of nowhere, an "unexpected" surge of buying lifts stocks into the 4 pm close. There are several explanations for what some have dubbed if not Divine, then certainly centrally-planned intervention. This is the time when ETF creation and (far less frequently) redemption takes place. As a result, in a world in which the bulk of liquidity has shifted away from single name stocks and even futures toward ETFs, trends in the creation and redemption of ETFs are key to watch to determine how the market may move purely for to technical reasons (since fundamentals died some time in 2009). Which is why we note, with little surprise, that according to SocGen, Equity ETFs posted a record level of monthly creations in October, driven by US, regional eurozone and UK indexations, perhaps explaining the relentless levitation of the market on ever lower volume especially in the latter part of the day.
90 minutes... that is the life of a European Central Banker jawbone now...
"The main message is ECB assets are set to expand as others contract," promises ECB's Mario Draghi, adding that "ABS buying is to begin shortly." Shrugging off any rumors of mutiny or lack of sovereign QE, the markets bought every stock market and risky bond with both hands and feet. EURUSD plunged under 1.24 - its lowest since August 2012 as peripheral bond spreads tumbled 10-15bps. US Treasury yields pushed higher and stocks knee-jerked higher. The USD index is now up 1% on the week.
Prepare For ECB Disappointment: 'We Do Not Expect Any Additional Easing To Be Announced", Goldman WarnsSubmitted by Tyler Durden on 11/06/2014 07:29 -0500
"we do not expect any additional easing to be announced in addition to the various measures adopted between June and September. We expect Mr Draghi’s remarks to be focused on the Comprehensive Assessment of Euro area banks, and on the fact that the decline in oil prices is lowering headline inflation in most advanced economies."
With last night's latest Japanese flash crash firmly forgotten until the next time the trapdoor trade springs open and swallows a whole lot of momentum chasing Virtu vacuum tubes, it is time to look from east to west, Frankfurt to be precise, where in 45 minutes the ECB may or may not say something of importance. As Deutsche Bank comments, "Today is the most important day since.... well the last important day as the ECB hosts its widely anticipated monthly meeting." Whilst not many expect concrete action, the success will be judged on how much Draghi hints at much more future action whilst actually probably doing nothing.
At 12:50pm Tokyo time, Nikkei 225 Index was sitting pretty, up 0.5% for the day. Then came the tumble. Over the next 22 minutes, Nikkei Index lost 1.8% to touch intraday low of 16,725.45. USD/JPY followed suit, but with a lag, based on data compiled by Bloomberg; currency slid from 115.38 to 114.46 during that period, marking 0.8% drop. Japanese banks sold down Nikkei to take some money off the table, given its 8% advance since Oct. 31 when BOJ announced its latest easing, which in turn caused USD/JPY to retreat, according to a Tokyo-based FX sales trader. Nikkei 225 closed down 0.9%, reversing earlier gain of as much as 0.6%
Central Banks shorting Gold and Silver to preserve their status as Masters of the Universe.
Shit just got real. The Bank of Japan said it will buy 100% of new bond issuance.
Japanese bond yields have crept slowly higher since the big flush on Monday and Nikkei 225 is 2.6% below its highs on Monday seemingly pinned at 17,000. We note this as Abe & Kuroda's currency collapses yet another big figure to 115.00 (up 7 handles in 7 days from pre-FOMC) - the highest in over 7 years. The crucial 120 line in the sand should be crossed early next week at this rate... What was the trigger for tonight's exuberance, we hear you ask, why the Japanese market opening - which sent USDJPY instantly up 40 pips.
We've written a lot about Japan lately as what happens today under the no longer rising sun is going to have such repercussions worldwide that it would be foolish not to pay attention. Moreover, there’s something about what Bank of Japan Governor Haruhiko Kuroda said this morning that both perfectly and painfully illustrates to what depths, economically as well as morally, the country has sunk.