The majority of the jobs "created" since the financial crisis have been lower wage paying jobs in retail, healthcare and other service sectors of the economy. Conversely, the jobs created within the energy space are some of the highest wage paying opportunities available in engineering, technology, accounting, legal, etc. In fact, each job created in energy related areas has had a "ripple effect" of creating 2.8 jobs elsewhere in the economy from piping to coatings, trucking and transportation, restaurants and retail. Simply put, lower oil and gasoline prices may have a bigger detraction on the economy that the "savings" provided to consumers.
The kneejerks are over and now the fallout. US equity markets have tumbled back to yesterday's lows (and beyond), US Treasury yields are in total free-fall (down another 10bps, led by 7Y and 10Y yields crashing). Crude prices have reversed the entire post-SNB surge and is heading back to yeaterday's pre-ramp levels... Gold is pushing notably higher at $1265
We suspect there will be a few more "taps on the shoulder" tonight...
Swiss 10Y rates crashed over 10bps by the close (having plunged as low as 3.3bps at one point) but the entire Swiss curve is negative at any maturity less than that. EURUSD crashed over 200pips back below 1.16 - the lowest since November 2003. Swiss stocks crashed around 15% before bouncing back to a 8-9% loss - the biggest drop since 1989. Away from Switzerland (and Greece) European stocks and sovereign bonds saw initial dips bought on ECB QE implications but EU Sovereigns did bleed back wider. European VIX spiked from sub-29 to over 32 and all the way back down to close lower on the day.
"By our calculation the FX reserves portfolio on FX alone will have lost in the region of 60bn CHF, assuming EURCHF at 1.03 and USDCHF at 0.88. Though some of this is likely to have gained on bond holdings; this would be far outweighed by losses on FX." - Citi's Stephen Englander
Chaos was seen in financial markets today as participants were thrown a curveball with the SNB 'reset'. In just 13 minutes, from 0930 to 0952 BST, the franc collapsed by 30%. Swiss shares fell more than 12% - their largest crash since 1987. Stock markets around Europe fell with investors buying "safe haven" assets such as German bunds and gold bullion ...
"It's Carnage" - Swiss Franc Soars Most Ever After SNB Abandons EURCHF Floor; Macro Hedge Funds CrushedSubmitted by Tyler Durden on 01/15/2015 06:07 -0500
Over a decade ago, George Soros took on the Bank of England, and won. Less than two hours ago the Swiss National Bank took on virtually every single macro hedge fund, the vast majority of which were short the Swiss Franc and crushed them, when it announced, first, that it would go further into NIRP, pushing its interest rate on deposit balances even more negative from -0.25% to -0.75%, a move which in itself would have been unprecedented and, second, announcing that the 1.20 EURCHF floor it had instituted in September 2011, the day gold hit its all time nominal high, was no more. What happened next was truly shock and awe as algo after algo saw their EURCHF 1.1999 stops hit, and moments thereafter the EURCHF pair crashed to less then 0.75, margining out virtually every single long EURCHF position, before finally rebounding to a level just above 1.00, which is where it was trading just before the SNB instituted the currency floor over three years ago.
So much for that short-lived hope-fest that Abenomics was not a total and utter disaster. Japan Machinery Orders (excluding -rather ironically- volatile orders) plunged 14.6% Year-over-Year in November (missing expectations of a 6.3% drop) for the biggest fall since Nov 2009. In this new farcical normal of course, this is just what the surging JPY of the last week needed and it is now dumping back towards 117.50 dragging Nikkei futures 150 points higher with it!!
Remaining fully invested in the financial markets without a thorough understanding of your "risk exposure" will likely not have the desirable end result you have been promised. All five of the charts below have linkages to each other, and when one goes, they will all go. So pay attention to the details.
Despite proclamations that US Treasury Bond yields can't drop any further... surely... At 1.27%, US 5Y Yields are higher than 18 other developed nations in the world. Switzerland's 5Y yield is the lowest in the world at -21.9bps (and only 6 developed nation bond yields are higher than the US). Still think US yields are 'too low'?
An adviser to the Luxembourg-based European Court of Justice (ECJ) has delivered a tentative thumbs-up to an ECB bond plan unveiled in September 2012 that was aimed at countering euro break-up fears. Dow Jones explains the key five takeaways from the court's findings...
"I am concerned that a sizable equity market correction looms. In order to justify general equity market over-weights, either risk premiums needs to fall further, or the economy and financial markets need to have reached a level of ‘escape velocity’ powerful enough to push them forward, even in the face of Fed rate hikes. I find such a ‘soft landing’ scenario improbable at best."
- U.S. Index Futures Decline on Commodities Slump, Growth Concerns (BBG)
- Al Qaeda claims French attack, derides Paris rally (Reuters)
- Charlie Hebdo With Muhammad Cover on Sale With Heavy Security Precautions (BBG)
- How an Obscure Tax Loophole Brought Down Obama's Treasury Nominee (BBG)
- ECB’s bond plan is legal ‘in principle’ (FT)
- Charlie Hebdo fallout: Specter of fascist past haunts European nationalism (Reuters)
- DRW to acquire smaller rival Chopper Trading (FT)
- Oil fall could lead to capex collapse: DoubleLine's Gundlach (Reuters)
'After two days of sharp intraday and vicious reversals, the BTFD algos are suspiciously missing overnight, when as reported earlier, a bout of margin calls and stop loss selling meant not crude but copper would crash in today's episode of "guess the crashing commodity", on what Goldman dubbed a Chinese demand collapse which for those confused is different than an OPEC supply glut, and is also the reason why the entire commodity complex is trading at a decade plus low. As a result copper plunged to a five and a half year low, in the process halting the market due to the severity of the plunge. But the big event overnight was the farcical announcement by the European top court, which as everyone expected, rejected the German rejection of the OMT as illegal, stating it was not only legal (with certain conditions) but greenlighting the way for the ECB's QE in one week, a move which sent the EURUSD crashing to a fresh 9 year low!
Giorgio Napolitano, Italy’s longest-serving president, resigned before the end of a second 7-year presidential term. Napolitano accepted 2nd term in 2013 after parliament failed to elect his successor for days, had signaled from start he wouldn’t have served another full mandate. Here, courtesy of Bloomberg, is what happens next.