Anyone who has had the displeasure of trading this market since the open will be well aware that the massive selling that started at 3:59:57 PM yesterday just as we showed, appears to have continued into today, after an algo, supposedly one impacting NYSE stocks this time, and proving that the entire market is a broken joke, not just Nasdaq and BATS, and one which is linked to Knight Capital, has continued this morning, sending countless stocks into the proverbial "batshit" formation, with moves of 10% higher and lower for no apparent reason. That's ok: the SEC and various other regulators are all over it, and will guarantee that the markets "are fixed." In other news, today we will report the latest massive outflow from domestic media funds. In the meantime, here are the first two picture of stocks getting pounded in super slo-mo courtesy of Nanex. Behold "perfectly normal" bids, offers and prints.
We previously observed that the US Treasury, under advisement of TBAC Chairman Matt Zames, who currently runs JPM's CIO group in the aftermath of the London #FailWhale and who will become the next JPM CEO after Jamie Dimon decides he has had enough of competing with the Fed over just who it is that run the US capital markets, would soon commence issuing Floating Rate bonds (here and here) as well as the implication that the launch of said product is a green light to get out of Dodge especially if the 1951 Accord is any indication (which as we explained in detail previously was the critical D-Day in which the Fed formerly independent of Treasury control, effectively became a subservient branch of the government, in the process "becoming Independent" according to then president Harry Truman). Sure enough, minutes ago the TBAC just told Tim Geithner they have given their blessing to the launch of Floating Rate Notes. To Wit: "TBAC was unanimous in its support for the introduction of an FRN program as soon as operationally possible. Members felt confident that there would be strong, broad-based demand for the product." Well of course there will be demand - the question is why should Treasury index future cash coupons to inflation when investors are perfectly happy to preserve their capital even if that means collecting 2.5% in exchange for 30 Year paper. What is the reason for this? Why the Fed of course: "Whereas the Fed had, as a matter of practice, reinvested those proceeds in subsequent Treasury auctions, Treasury must now issue that debt to the public to remain cash neutral. For fiscal years 2012-2016, this sums to $667 billion." Slowly but surely, the Fed's intervention in the capital markets is starting to have a structural impact on the US bond market.
The European Equities are in positive territory at the North American cross over. The CAC-40 was the initial outperformer following SocGen’s earnings. Despite reporting a drop of more than 40% in Q2 net profits year over year, the co. beat analyst expectations on Q2 CIB net and announced the completion of its cost cutting measures and traded up to highs of EUR18.57, though shares have since pulled back into negative territory. The FTSE-100 now leads the way despite a sharp decline in July’s UK Manufacturing PMI, which came in at 45.5, the lowest reading since May 2009. This saw GBP/USD also tumble to intra-day lows of 1.5619, though the pair has since stabilised around 1.5650. Elsewhere, comments from ECB’s Weidmann that “governments overestimate ECB possibilities”, going against general consensus and speculation that the ECB will announce further stimulus measures at tomorrow’s meeting, provoked a sharp drop in the riskier assets and the Bund to gain 8 ticks, though as it came to light that these comments were taken from an article published on June 29th, the move was pared.
Have $2,000 In Cash In Your Fidelity Account? Then You Too Can Qualify To Lose Money On The Manchester United IPOSubmitted by Tyler Durden on 07/31/2012 15:09 -0500
Have $100,000 in "certain assets at Fidelity" and at least $2,000 in cash for close margin call encounters (you will need it)? Then you too are eligible to participate in the next IPO collapse, coming on August 9th in the form of the Manchester United public offering, which is going to be such an epic disaster it not only has middle market junk bond specialist Jefferies as lead left, that it has already opened itself up to retail participation by all the sub-underwriters, and as of this morning such reputable brokers as Fidelity are seeking indications of interest. Which simply means there is absolutely no interest at the institutional level. The last time this happened? FaceBerg, which went from $43 to $21 in about a month.
The Hilsenrath-Haggle Federal Open Market Committee (FOMC) is likely to ease monetary policy at the July 31-August 1 meeting in response to the continued weakness of the economic data and the persistent downside risks from the crisis in Europe. While we expect nothing more exciting than an extension of the current “late 2014” interest rate guidance to "mid-2015", Goldman adds in their preview of the decision that although a new Fed asset purchase program is a possibility in the near term if the data continue to disappoint, their central expectation is for a return to QE in December or early 2013.
European equities are trading in flat-to-positive territory going into the North American crossover with the FTSE-100 the primary laggard, being driven lower by individual earnings releases. Oil supermajor BP released a disappointing set of Q2 earnings, reporting a net loss of USD 1.39bln, pressing the stock lower by 4.25% at the midpoint of the European trading day. Data releases from Europe today have picked up in volume, but come alongside expectations, proving unreactive across the asset classes, as German unemployment changes matches estimates at a reading of +7K for July. The topic of a banking licence for the ESM has arisen once more, as German politicians have begun voicing their concerns on the issue, with a German senior lawmaker commenting that he cannot see an ESM banking licence becoming a reality. However, this appears to be another reiteration of the German political stance, and therefore not a particular shock to markets. With today the last trading day in the month, larger than average month-end extensions have proved supportive in the longer-end of the curve today, with notably large extensions in Germany, France and the Netherlands.
Our earlier discussion of the rapid slowdown in Asia trade volumes and the anecdotal evidence of growthiness issues across many industries brings up the seemingly dichotomous relationship between top-down 'data' such as GDP or PMI and bottom-up sector-level activity. As BofAML points out, there has been a significant improvement in data collection in this activity data which enables 'outsiders' to cross-check macro data and potentially obtain leading information. As markets have become skeptical of China's macro data, so the effort to search for alternative measures such as power output, container throughput, and rail transport seems worthwhile. Though not perfect by any means, the higher frequency data mapping flowchart below and a comprehension of the upstream vs downstream activity flows seems to go a long way towards building a credible view on the real state of the Chinese economy - for better or for worse.
The middle of the end is coming, The beginning of the end started in 2008, BTW...
Two months ago it was the Schrodinger market, best exemplified by China where the economy was both rising and contracting at the same time depending on what data one looked at. Now, that the global contraction is confirmed and one can no longer claim anyone is decoupling from anyone else (especially not with a fiscal cliff looming), it is the Copperfield market: everything and anything all about distraction. Today we present the latest math-based fact that will need the loudest distraction from the ECB yet (or maybe, the reason why Draghi, for three days in a row, was posturing with promises of inevitable intervention). As the ECB has just announced, and as the Fed will disclose on Thursday with the usual 4 day lag, 10 European banks, via the ECB's swap line with the Fed, have demanded a whopping $8 billion in 7 Day FX swap operations for the week starting July, double the prior week's $4.2 billion (by presumably the same 10 banks), and the most so far in 2012. Looks like not only is Europe not fixed, but banks suddenly have developed a huge appetite for USD - could it have something to do with forced over-repatriation of all EUR-based assets, in a desperate attempt to keep the EUR higher, even if it means ending up with far less USD than capital levels demand? No worries, there is always the ECB to cover the underfunding if and when needed.
Goldman's ex-employee Mario Draghi is in a box: he knows he has to do something, but he also knows his options are very limited politically and financially. Yet he has no choice but to escalate and must surprise markets with a forceful intervention as per his words last week or else. What does that leave him? Well, according to Goldman's Huw Pill, nothing short of pulling a BOJ and announcing on Thursday that he will proceed with monetization of private assets, an event which so far only the Bank of Japan has publicly engaged in, and one which will confirm the world's relentless Japanization. From Pill: "Given the (to us) surprisingly bold tone of Mr. Draghi’s comments last week, we nevertheless think a new initiative may well be in the offing. We have argued in the past that the next step in the escalation of the ECB response would be outright purchases of private assets. Acting in this direction on Thursday would represent a significant event. We forecast the announcement of measures to permit NCBs to purchase private-sector assets under their own risk to implement ‘credit easing’, within a general framework approved by the Governing Council. This would allow purchases of unsecured bank debt and corporate debt, enabling NCBs to ease private-sector financial conditions where such support is most needed." Why would the ECB do this: "A natural objection to outright purchases of assets issued by the private sector is that they involve the assumption of too much credit risk by the ECB. But substantial risk is already assumed via credit operations." In other words, the only thing better than a little global central banker put is a whole lot global central banker put, and when every central planner is now all in, there is no longer any downside to putting in even more taxpayer risk on the table. Or so the thinking goes.
So we have two weeks of sport to take our minds off the global financial malaise. The EU commissars have all gone on holiday, but not before Mario Draghi (ECB Chairman) announced that he will do whatever it takes to save the euro. Really? His statement did knock the Spanish 10 year bond yield back below 7%, but this had become a one way and illiquid trade that was due for break. We have seen it all before with Greece. Denial, denial, denial all the way until days before default restructuring. Talking of which, the Greeks think they are in line for a further handout. Those whirring sounds you can hear in the distance are printing presses knocking out “new” drachma.
"September will undoubtedly be the crunch time," one senior euro zone policymaker said. "In nearly 20 years of dealing with EU issues, I've never known a state of affairs like we are in now," one euro zone diplomat said this week. "It really is a very, very difficult fix and it's far from certain that we'll be able to find the right way out of it."
Fixed income markets have always focused closely on news about the US macro-economy; while traditionally, equity market participants have focused more on the “micro” data – in particular, news about current and prospective corporate earnings – to form their views about the relative attractiveness of different stocks or the market as a whole. Goldman finds that the financial crisis changed all that. The responsiveness of the US equity market to economic news increased dramatically, now showing about twice as much sensitivity to macro data as it did in the years before the financial crisis. While micro data remains important - especially in quantifying just how much QE-hope the market is 'abiding' by, macro news is likely to be the critical driver of equity markets until the global economic outlook is considerably brighter than it looks today (or macro decouples from Fed/ECB jawboning). On average the market’s responsiveness to all these economic indicators suggests that we are still very much living in a macro world. In the meantime, there are some exceptions to the fairly consistent reactions to economic news that we see between equity and bond markets.
The first estimate of the 2nd Quarter GDP was released at a 1.5% annualized growth rate which was just a smidgen better than the 1.4% general consensus. There has been a rising chorus of calls as of late that the economy is already in a recession. For all intents and purposes that may well be the case but the GDP numbers do not currently reveal that. What we are fairly confident of is that with the weakness that we have seen in the recent swath of economic reports is that the 2nd quarter GDP will likely be weaker than reported in the first estimate. It is this environment, combined with the continued Euro Zone crisis and weaker stock markets, as the recent rumor induced bump fades, that will give the Federal Reserve the latitude to launch a third round of bond buying later this year. While the impact of such a program is likely to be muted - it will likely push off an outright recession into next year.