Across the Curve
Less than one week after the BOJ floated a trial balloon using Bloomberg, that it would reduce the rate it charged some banks which set off the biggest USDJPY rally since October 2014, we are back where we started following last night's "completely unexpected" (for everyone else: we wrote "What If The BOJ Disappoints Tonight: How To Trade It" hours before said "shock") shocking announcement out of the BOJ which did absolutely... nothing. "It’s a total shock,” Nader Naeimi, Sydney- based head of dynamic markets at AMP Capital Investors told Bloomberg. "From currencies to equities to everything -- you can see the reaction in the markets. I can’t believe this. It’s very disappointing."
Should US monetary policy not be on the path to normalization, a fundamental change in the benefit of gold ownership is taking place, and this increased investment demand should lead to higher gold prices. Gold investment appears to be moving towards stronger fundamentals than we have seen over the past few years.
PREVIEW: MARCH US NONFARM PAYROLLS
This morning's Brussels suicide attacks have led to risk-off sentiment across European asset classes, with Bunds higher and equities firmly in the red, although if the Paris terrorist attacks of November are any indication, today's tragic events may be just the catalyst the S&P500 needs to surge back to all time highs. FX markets have also been dominated by events in Brussels, with USD and JPY strengthening, while EUR and GBP softening throughout the European morning.
Not even this morning's mandatory European open ramp has been able to push US equity futures higher, and as a result moments ago the E-mini hit session lows on rising concerns about Brexit as talks drag on in Brussles, but mostly as a result of overnight confusion about China's loan explosion and whether the PBOC has lost control over its maniacally-lending banks.
With China offline for the rest of the week, global markets have found a new Asian bogeyman in the face of Japan which as reported last night saw its markets crash, and the Yen soar, showing that less than 2 weeks after the BOJ unveiled NIRP, yet another central bank has lost control.
Everything went from bad to worse once Europe opened, and things started going "bump in the morning" across the European banking sector, where not only has it been more of the same with CDS spreads for major banks - most notably Deutsche Bank - continuing their surge wider, but also EM spreads to Bunds all following, with the Portugal-Germany Yield spread blowing out above 300 bps for the first time since 2014, and other peripheral nations following.
While the biggest news of the night had nothing to do with either oil or China, all that mattered to US equity futures trading also was oil and China, and since WTI managed to rebound modestly from their biggest 2-day drop in years, rising back over $30, and with China falling only 0.4% overnight after the National Team made a rare, for 2016, appearance and pushed stocks to close at the day's high, US E-minis were able to rebound from overnight lows in the mid-1880s, and levitate above 1900. Whether they sustain this level remains to be seen.
Whether front-running or fear-based (or both), the actions of BoJ's Kuroda last week have driven global bond yields into freefall with JPM's global index at 9-month lows and BofA's at 12-month lows. Overnight saw short-end JGBs push below the BoJ's -10bps threshold and 10Y rates push towards NIRP to record lows. German bonds extending their epic voyage into fantasy and hit new record lows across the curve with 5Y at -32bps.
Following Kuroda's panic policy measures from Friday, JGB yields continue to collapse across the curve (though notably 30Y is selling off - is someone actually concerned about long-term survival risk?). 2Y Yields have collapsed all the way to BoJ's -10bps rate, 5Y is plunging - now close to -9bps, and 10Y has dropped 20bps to just over 6bps... with BofA warning a negative 10Y rate looms. However, Japan is not having all the excitement as China's margin debt (driver of all animal spirits) dropped again today - making this the longest losing streak in history as China's stock market investors continue to leave the levered building screaming fire.