If yesterday's non-record, red-tick close can be attributed to algos applying the wrong ISM seasonal factor to the day, believing it was Wednesday instead of the permabullish Tuesday, today there is no such excuse, which is why we fully expect the unallowed redness with which futures are currently trading to promptly morph into a non-red color especially with the USDJPY doing it best to ramp to 103.000 levels overnight, stopping out all shorts, and push spoos to fresh record highs. It is an algo world after all. It appears that already record low volatility is being pushed even lower in anticipation of numerous imminent data releases, including today's ADP and Services ISM (first, second and final release), tomorrow's ECB announcement and Friday's payrolls number. Which while good for low volume levitation means bank trading revenues continue to deteriorate forcing banks to pitch M&A deals to clients, which in turn result in even more synergies and more layoffs: because in order to preserve the bottom line, crushing real employment further is perfectly acceptable collateral damage.
Considering that both key overnight news reports: the Chinese HSBC PMI (printing at 49.4, vs 49.7 expected) and the Eurozone CPI print from a few hours ago (print of 0.5%, down from 0.7% and below the 0.6% expected), we find it odd that futures are red: after all this is precisely that kind of negative data that has pushed the market to record highs over the past five years. And speaking of odd, considering the ongoing non-dis-deflation in Europe, the fact that Bunds and TSYs are being sold off today makes perfect sense in a New Normal bizarro world.
A number of Vietnamese officials have now threatened to bring legal action against China over their territorial dispute in the South China Sea; but it does not seem to be having any impact on China's efforts to defend and sustain their presence. As Bloomberg reports, a total of five Chinese fighter jets have now been deployed to the area of exploration in disputed waters off the coast of Vietnam today (compared to 1 previous day) citing Fishing Control Department under Vietnam’s agriculture ministry. China has refused to answer the case the Philippines filed with an international tribunal at The Hague. It is likely to pursue a similar strategy if Vietnam appeals to international law in its own disputes with China.
This week's busy calendar starts off with today’s global PMIs and ISMs. On Tuesday, President Obama begins a four day European trip ahead of the G7 meeting which starts on Wednesday. This G7 meeting is replacing the G8 meeting that was originally scheduled in Sochi but was cancelled after Russia’s annexation of Crimea. Tuesday’s data docket is important with Euroarea data releases including inflation and unemployment expected to further cement the ECB’s resolve in easing policy come Thursday. Wednesday features the global services ISMs and PMIs. Other data releases scheduled for that day includes the ADP employment report, which will provide an important preview to Friday’s NFP, and US trade. The Fed releases its Beige Book on Wednesday too and the second estimates of Euroarea GDP will be published on Wednesday as well. Apart from the ECB on Thursday, we also have the BoE policy meeting.
It took a precisely 0.1 beat in the Chinese Manufacturing PMI over the weekend (50.8 vs Exp. 50.7) for the USDJPY and the Nikkei to forget all about last week's abysmal Japanese economic data and to send the Nikkei soaring by 2.1% to its highest print in 5 months. Subsequent overnight weakness from Europe, where the Eurozone Final May Manufacturing PMI dropped again from 52.5 to 52.2, below the 52.5 expected, served simply to push bunds higher back over 147.00, if not do much to US equities which as usual continue their low volume "the music is still playing" melt-up completely dislocated from all newsflow and fundamentals (because just like over the past 5 years, "there is hope").
Dispassionae look at the several events in the week ahead.
When the US economy underperforms expectations, the weather is blamed; and now, on the heels of Japan's pre-emptive blaming of weather for crushed consumer spending patterns; The FT proclaims that El Nino is responsible for the weakness in gold (as monsoon season will reduce physical demand from India)... welcome to mainstream media meteoronomics 101. What is odd about this reasoning is that we are actually more prone to a La Nina than an El Nino pattern this year based on the Southern Oscillator Index.
The Keynesians have failed. Japan has proved it. It’s only a matter of time before the rest of the world… and the markets catch on.
The complete implosion in volume and vol, not to mention bond yields continues, and appears to have spilled over into events newsflow where overnight virtually nothing happened, or at least such is the algos' complete disregard for any real time headlines that as bond yields dropped to fresh record lows in many countries and the US 10Y sliding to a 2.3% handle, confused US equity futures have recouped almost all their losses from yesterday despite a USDJPY carry trade which has once again dropped to the 101.5 level, and are set for new record highs. Perhaps they are just waiting for today's downward revision in Q1 GDP to a negative print before blasting off on their way to Jeremy Grantham's 2,200 bubble peak after which Bernanke's Frankenstein market will finally, mercifully die.
With China's push for an international physical exchange, physical demand will begin to have a stronger influence, thereby ending gold manipulation. This will allow gold to rise to a more appropriate price given the scale of macroeconomic, systemic, geo-political and monetary risks of today.
With the Fed tapering and both China “I don't think the markets are discounting what’s really happening in China,” and Japan’s currencies likely to weaken, the net impact on the U.S. will be deflationary, Kyle Bass warned in a recent presentation. That trend will be accelerated by the improvement in the balance of trade for the U.S., which had its current account deficit shrink due to increased hydrocarbon production. Bass warns, the crucial moment will come when the U.S. reports a sub-6% unemployment rate, meeting the target it has set for normalizing its monetary policy by ending QE and raising rates. He predicted that will come in July. That will be the Fed’s “worst nightmare,” he said. Raising rates would stifle growth and recreate unemployment problems, which would be disastrous politically, according to Bass.
Long before Virtu was forced to pull its IPO due to the backlash against HFT frontrunners in party due to being stupid enough to post its perfect trading record of 1 trading day loss in 5 years which could only be the result of a grossly rigged market, we pointed out that another entity, one having little in common with your garden variety HFT parasite, namely JPMorgan, had a 2013 trading record which could be summed up on one word only: perfection. Yet while one could simply attribute the same kind of market rigging to JPM as one can (and should) to the average hi-freak, it seems there may be more here than meets the eye so used to seeing manipulation everywhere it looks. According to Australia's Sydney Morning Herald, "a technical support person who worked for JP Morgan in Australia claims the bank regularly misled its New York parent and the US Federal Reserve by failing to report losing trades."
China's "Strike First" Anti-Terrorist Policy Fails Again - Explosion Hits China's Xinjiang Region, Multiple DeathsSubmitted by Tyler Durden on 05/21/2014 23:20 -0400
It appears yet again that China's "strike first" anti-terrorism policy has failed as explosions have rocked Urumqi, the capital city of China's unrest-plagued Xinjiang Uyghur Autonomous region, killing (and injuring) multiple (but unknown) people. Social media suggests 2 SUVs entered the crowded market in the center of the city ploughing down onlookers, throwing explosives from the cars, before a blast was heard. One witness noted that the cars were painted with "uighur" language slogans. Flames and heavy smoke were seen nearby, police are on the scene and the 2 SUVs are being removed. There is no official death or injury count as of yet.
U.S. demand for coal has fallen in recent years and export has become ever more important to domestic coal producers. Asia is the obvious export target, but challenges abound.
Not much going on tonight, except for the non-coupy martial law announcement in Thailand where the government is said to still be in charge of everything except for martial law decisions taken by the army of course, which in turn is in charge of everything else apparently including the central bank which intervened so extensively in the market, the Baht was barely changed at one point. There was also news of explosions and clashes in Benghazi but as everyone knows, what difference does Libya make at this, or any other, point. Additionally overnight there were reports that the cities of Slavyansk and Kramatorsk in east Ukraine were being shelled by the Ukraine army but that too barely registered as bullish for the USDJPY (which in now traditional fashion ramped during the US day session then sold off during Asia hours).