• Sprott Money
    03/01/2015 - 23:51
    Clearly if Western governments were ‘merely’ drowning in debt-to-GDP ratios of roughly 100%, then theycould still argue that attempting to manage these debt-loads was legitimate rather than...

Across the Curve

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Market Wrap: Chinese Stocks Crash As Financials Suffer Record Drop; Commodities Resume Decline; US Closed





Following last week's Swiss stock market massacre as a result of a central bank shocker, and last night's crack down by Chinese authorities, it almost appears as if the global powers are doing what they can to orchestrated a smooth, painless (as much as possible) bubble deflation. If so, what Draghi reveals in a few days may truly come as a surprise to all those- pretty much everyone - who anticipate a €500 billion QE announcement on Thursday.

 
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The ECB's 4 QE Scenarios, And Why CS Thinks Waking From The "QE Dream" May Be The Worst Possible Outcome





Despite various media reports over the past 24 hours about risk-sharing and sovereign security exclusion (i.e., that of Greek Treasurys), as well as speculation that despite it being priced in more than 100%, the ECB may yet again delay the actual announcement especially with what watershed Greek elections following just days after the ECB announcement, the question remains just what format will European QE take. Here, courtesy of Credit Suisse - a bank which was pounded in the past 2 days following the record surge in the CHF - is a preview of the 4 most likely ECB scenarios, as well as a glimpse at what may be the worst possible outcome for Europe: QE itself!

 
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Market Wrap: Global Markets Weighed As Damage From SNB Evaluated, FX Brokers Carried Out





One day after the SNB stunner roiled markets, overnight global markets have seen - as expected - substanial downward pressure, with the Swiss market slide resuming post open, while European stocks have seen some pressure despite what is now an assured ECB QE announcement next week. However, the one trade that can not be mistaken is the global rush into the safety of government paper, with every single treasury yielding less today than yesterday (the Swiss 10Y was trading below 0% at last check), except for Greek 10Y which are wider on deposit run fears. That said, with capital market liquidity absolutely non-existent even the smallest trade has a disproportionate effect on futures, and expect to see much more rangebound trading until the damage report from the SNB action is fully digested, something which will take place over the weekend.

 
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Japanese 10Y Yield Drops To Record Low; 2s Sell Subzero After BOJ Indirectly Buys Record Foreign Stocks





While the rest of the world was preparing to celebrate Christmas, China was busy easing its economy into growth, and its stock market into low earth orbit, by lowering non-bank deposit reserve rates to zero as reported previously, while Japan was enjoying the consequences of the BOJ monetizing 100% of all gross JGB issuance, when overnight the Japanese Ministry of Finance not only sold $22 billion in 2 Year paper at a negative yield of -0.003%: the first time ever a government note (not bill) has sold at a negative yield, but the Japanese 10 Year yield dropped to 0.31%, declining below the previously all time low hit on April 2013 when the BOJ first announced its unprecedented QE program.

 
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Futures Soar On Swiss NIRP Stunner, "Considerably Patient" Fed





After drifting unchanged for much of the overnight session, US futures exploded higher shortly after the previously noted SNB's NIRP announcement, which took place at 2 am eastern, which made it explicit that yet another banks will herd the bouncing dead cats right into new all time stock market highs, and following the European open, were carried even higher as the global "risk-on" momentum ignition algos woke up, spiking all recently depressed assets higher, including energy as Brent rose almost 3% despite Saudi Arabia’s oil minister Ali al-Naimi once again saying "it is difficult if not impossible" for OPEC and his kingdom to reduce output.

 
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Today's Market-Boosting Disappointing Economic News Brought To Your Courtesy Of Euroarea's Service PMIs





Those wondering why European stocks are higher but off earlier highs, the answer is simple: the latest Service ISM was bad but it wasn't a complete disaster. And while RanSquawk notes that "the particularly disappointing slew of Eurozone Service PMI’s from France and Spain capped any potential upside seen across the European indices" stocks are clearly green on hopes Europe's ongoing economic devastation accelerates enough for the ECB to finally start buying Stoxx 600 and various other penny stocks. This is what happened, in Goldman's words: the November Euro area final composite PMI came in at 51.1, 0.3pt below the flash (and Consensus) estimate. Relative to October, the composite PMI fell by 0.9pt. The weaker final composite PMI was driven by flash/final downward revisions to the German manufacturing PMI and the French services PMI. Today’s data also showed some improvement in the Italian services PMI, and a deterioration in its Spanish counterpart.

 
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Global Slowdown Confirmed By PMIs Missing From Japan To China To Europe; USDJPY Nears 119 Then Slides





The continuation of the two major themes witnessed over the past month continued overnight: i) the USDJPY rout accelerated, with the Yen running to within 2 pips of 119 against the dollar as Albert Edwards' revised USDJPY target of 145 now appears just a matter of weeks not months (even though subsequent newsflow halted today's currency decimation and the Yen has since risen 100 pips , and ii) the global economic slowdown was once again validated by global PMIs missing expectations from Japan to China (as noted earlier) and as of this morning, to Europe, where the Manufacturing, Services and Composite PMI all missed across the board, driven by a particular weakness in France (Mfg PMI down from 48.5 to 47.6, below the 48.8 expected), but mostly Germany, after Europe's growth dynamo, which disappointed everyone after yesterday's rebound in the Zew sentiment print, printed a PMI of only 50.0, down from 51.4 a month ago, down from 52.7 a year ago, and below the 51.5 expected. And just as bad, Europe's composite PMI just tumbled to 51.4, the lowest print in 16 months!

 
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US Futures Drop As USDJPY Algos Take Profit On Headline Confusion





With the USDJPY repeatedly hitting 116.00 as a result of the same pair of headlines hitting either Reuters, the Nikkei or Sankei every 6 or so hours for the past 3 days, namely that Japan will delay its sales tax hike by almost two years, and that Abe is preparing early elections, perhaps the algos realized they were pricing in the same event about 4 times in one day, and unable to break the 7-year-high resistance level, slid dropping nearly 100 pips to just over 115 at least check, which may well be today's "tractor" level, which in turn has also dragged down both European stocks and US futures. But the thing that made the vacuum tubes really spark is that at a press conference yesterday in Beijing, Abe was quoted as saying that he "has never made any reference to the dissolution of parliament", this came after the chief cabinet secretary Suga saying that the decision on whether or not to go to the polls would be Abe’s only.

 
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E-Mini Liquidity Has Crashed 40% In The Past Quarter, JPMorgan Finds





Confused why one second the market is down 1%, and then moments later, upon returning from the bathroom, one finds it up by the same amount on negligible volume? Simple: there continues to be zero liquidity. Although, not just in equities, but in bonds as well, something this website - and the TBAC and Citi's Matt King - has warned for over year. It is the lack of bond liquidity that led to last week's dramatic surge in bond prices as Bloomberg noticed overnight. So for those curious just how bad bond liquidity is now, here is JPM's Nikolaos Panigirtzoglou with the explanation:

 
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Dow Drops 6th Day - Longest Losing Streak In 14 Months





An ugly dump in stocks early on sent all the major indices to yesterday's lows (and bond yields to yesterday's lows) but for a smorgasbord of reasons (pick from: Bullard "QE4", jobless claims, industrial production, oil rising, lack of Ebola panic, oh and POMO) stock performed the ubiquitous bounce and extended gains quite handsomely before fading back in the afternoon. Volume was considerably lower than yesterday but solid (driven mostly by the dump). All major asset classes ticked together all day with USDJPY, Treasury yields, stocks, and oil all rising with one another. The USD was flat (despite some intraday kneejerks) as were gold and silver. Copper slid lower as oil jerked dramatically higher intraday before falling back (holding above $82). VIX fell modestly to around 25.5. Once again early manic-selling led to late buying panic (but the volume buying was dramatically lower). The Dow closed red for the 6th day in a row - longest losing streak since Aug 2013.

 
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Manic-Buying Turns To Panic-Selling As 'Illiquid' Stocks Plunge To 5-Month Lows





Just as we warned, liquidity was incomprehensibly low today (below normal pre-market levels during the peak of the trading day) and the intraday whipsaws were meteoric as a closed cash bond market enabled the slightest twitch in USDJPY to send S&P algos into conniptions. Biotech crashed. Trannies were ripped ridiculously higher at the open - then collapsed into correction (-11% from highs); US Airlines have fallen for 6 straight days, crashing 17% (with today's 7% plunge - driven by chatter over airborne Ebola - its biggest in over years). Tresury futures implied a notable drop in yields across the curve (10Y -7bps at 2.21%, 30Y 2.97%, and 5Y 1.45%). The USdollar closed -0.33% led by EUR and JPY strength (but AUD surged 1% extending gains after China data).  Gold ($1234), Silver, and copper all gained on the day as WTI fell once again (despite some intraday strength in the middle of the day). Stocks "flash-crashed" on very heavy volume in the last 30 mins with VIX breaking above 24 (highest in 16 months). All major equity indices are now below their 200DMA with the worst 3-day loss since late 2011.

 
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30 Year Yield Tumbles To May 2013 Lows As 3 Year Paper Sells In Blistering Auction





Moments before today's first of the week auction of $27 billion in 3 Year paper concluded, the yield on the 30 Year was sliding, breaching the lows of 2014. Which obviously led most to suspect that demand for the 3 Year would be blistery. And sure enough, it was, with the yield on the paper pricing a whopping 0.9 bps through the 1.003% When Issued at 0.994%, and printing under 1% once again, after surpassing 1% in September which was also the highest yield since May 2011. The internals were very strong as well, with the Bid to Cover of 3.423 jumping from September's 3.171, the highest since February's 3.450. Indirects took down 35.5% of the auction despite China's holiday, which left 47% for dealers and 17.4% for Directs, just modestly below the 18.8% TTM average.

 
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Stocks Close "Not Off The Lows", Small Caps Unchanged Since Oct 2013





The Russell 2000 is -7.5% from July highs, -3% in 2014, unchanged since last October and year-over-year small-cap performance is the worst since July 2012. Despite four valiant momo-pump efforts to rally stocks to VWAP (to cover institutional sellers), they just kept falling back to bond-market-reality as US equities decoupled lower from JPY after Europe closed. The USD closed unch (after major swings intraday around Europe's close) with GBP strength and AUD/CAD weakness leading it lower on the week. Treasury yields dropped 2-3bps across the curve (down 3-5bps on the week) and all below FOMC levels (30Y -11bps). Gold is now up 0.6% on the week with oil and silver rising modestly. Copper found no bid. Financials slipped once again (catching down closer to credit). On the day, the European close signaled risk-off and the ubiquitous Tuesday panic buying in the last hour lifted the S&P to VWAP before a very weak close "not off the lows." Dow down 100+ pts 2 days in row for first time since June. VIX closed just shy of 15 at 7-week highs.

 
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