Bank of Japan
It would appear, judging by the tumble in JPY crosses (i.e. JPY strength) that the carry-traders of the world are disappointed in the BoJ's lack of exuberance.
- *BOJ RETAINS PLAN FOR 60T-70T YEN ANNUAL RISE IN MONETARY BASE (no change)
But it is the commentary that is truly baffling in its contempt for the truth:
- *BOJ: EXPORTS HAVE LEVELED OFF MORE OR LESS (umm, record trade deficit?)
- *BOJ: PICKUP IN CAPEX HAS BECOME INCREASINGLY EVIDENT (Tankan Capex growth fallen for 2 quarters)
- *BOJ SAYS JAPAN'S ECONOMY IS RECOVERING MODERATELY (GDP growth worst since Abenomics began)
Black is white; water is not wet; and Abenomics will work any day now...
According to the Economic Policy Institute, a Washington think tank supported by organized labor, the answer to generating up to 6 million more jobs is as simple as ending global currency manipulation. But not in the sense of ramping USDJPY or AUDUSD at key market inflection points which mostly benefits such FX-rigging chatrooms as "the Cartel", no: they are thinking more big picture, in the "central bank manipulation sense." The report says that "several foreign countries devalue their currencies to make their products cheaper, making it difficult for U.S. manufacturers to compete, the report said." In essence what the group suggests is that the US currency is overvalued relative to the rest of the world, and that by "realigning exchange rates, U.S. trade deficits would be reduced by up to $500 billion per year by 2015. Such a move would increase U.S. gross domestic product by up to $720 billion per year and create up to 5.8 million jobs, the report said." Said otherwise: stop foreign currency manipulation, but allow and encourage the US to keep pushing its own currency even lower.
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This was one of the all too real Bloomberg headlines posted overnight: "Asian Shares Rally as U.S. Manufacturing Data Beats Estimates." Odd: are they refering to the crashing Philly Fed, or the just as crashing Empire Fed data? Wait, it was the C-grade MarkIt PMI that nobody ever looks at, except to confirm that where everyone else sees snow, the PMI saw sunshine and growth. Remember: if the data is weak, it's the snow; if it's strong, it's the recovery. Odder still: one would think Asian shares care about manufacturing data of, say, China. Which happens to be in Asia, and which two nights ago crashed to the lowest in months. Or maybe that only impact the SHCOMP which dropped 1.2% while all other regional markets simply do what the US and Japan do - follow the USDJPY, which at one point overnight rose as high as 102.600, and brought futures to within inches of their all time closing high. Sadly, it is this that passes for "fundamental" analysis in this broken market new normal...
Despite our insistence that their was nothing new in the BoJ's loan ceiling hike and lack of QE extension (and Goldman's 'this is already priced in' perspective), it still took the machines that are running USDJPY almost 36 hours to figure it out. USDJPY has retraced the entire 100 pip swing and has broken back below the crucial 102.00 level this morning. Time for some more jawboning about the potential for more QE - even as Kuroda insisted last night to the Diet that the government's tax hikes occur (if for no other reason to ensure this does not escalate into the 'monetization miasma' that they fear the market would believe). Of course, as we approach the US open, we would expect the usual ramp-job to lift stocks.
Now that Ben Bernanke has handed over the keys of the Federal Reserve, there are all sorts of theoretical arguments, pro and con, concerning his bold quantitative easing (QE) programs, in which the Fed massively expanded its balance sheet. Many critics have worried that this will disrupt the proper functioning of credit markets, and threatens to severely debase the US dollar. The defenders of Bernanke have argued that he spared the US (and indeed the world) from a second Great Depression. One of the odd (more farcical) points that people raise in Bernanke’s defense is the case of Japan... We do have historical examples of central banks ruining their economies/currencies through massive expansions of their balance sheets (Weimar Germany, Zimbabwe, etc.). To our knowledge, this has never actually worked anywhere in history...
The key event overnight was the monetary policy announcement by the BOJ in which its kept it QE unchanged while the Board decided by unanimous vote to double the scale of two funding facilities, namely the Stimulating Bank Lending Facility and Growth-Supporting Funding Facility and to extend the application period for these facilities by a year. Both facilities are designed to stimulate the provision of funding to Japanese banks, allowing them to borrow from the BoJ at a fixed rate of 0.1%pa, for a period 4 years now, instead of 1-3 years previous. Some are arguing that by expanding its funding programmes but not changing its asset purchase targets, the BoJ has signalled its intention to ease policy whilst preserving firepower for extra stimulus in coming months when a sales-tax hike is due to kick-in. The result was a surge in both the Nikkei and USDJPY. The problem, and confirmation that once again the market is now a bunch of cluless automatons unable to analyze even one sentence below the headline level, is that as Goldman explained overnight, the "surprise" announcement was already fully factored in.
Get long 'Depends' may be the most befitting headline for tonight's massive macro miss in Japan. For the 3rd quarter in a row, Japanese GDP missed expectations with a meager +1.0% annualized growth (versus a +2.8% expectation), and a tiny 0.3% Q/Q change vs expectations of a 0.7% increase, this is the biggest miss and slowest growth since Abe retook the economic throne after his chronic-diarrhea-prone first attempt to save the nation. No matter how hard they try to spin this, there's no silver lining as consumer and business spending missed expectations notably and the only Tokyo snow fell just last week so long after the quarter was over... and this is before a tax hike that is aimed at showing how fiscally responsible the nation and not simply an insolvent ponzi scheme alive through the good graces of the greater fools of leveraged carry trades.
Japan Machine Orders Crumble At Fastest Pace In 22 Years As BOJ Board Member Warns More QE May Not Be ComingSubmitted by Tyler Durden on 02/11/2014 19:13 -0500
If you needed another reason to buy stocks, trust in the growth meme, and have your faith in Abenomics confirmed... look away. Japanese Machine orders for December just printed -15.7% in December - the biggest MoM plunge since 1992. This is the biggest miss to expectations since 2006 and what is considerably more problematic for Abe et al. is that YoY expectations of a core machine order rise of 17.4% was hopelessly missed with a small 6.7% gain (and this is data that excludes more volatile orders). While machine orders are completely irrelevant, even if on their own they portend a recession; what would be far more troubling to the Kool aid addicts is if the BOJ were to announce that just like the Fed, it too is tapering its Open-ended QE ambitions. Considering this is precisely what BOJ board member Kiuchi just did, that relentless USDJPY meltup overnight may not be such a slamdunk...
Kudos to the Bank of Japan. Its heroic campaign to water down the yen has borne fruit.
Nine Event Risks for the week ahead: identified, discussed and assessed.
Things in the country whose central bank assets have climbed to ¥229 trillion, or 48 percent of the nation’s nominal gross domestic product, are about to get very interesting: on one hand, it will have no choice but to slow down monetization under its existing QE program. On the other, pernicious inflation is spreading doubts the BOJ will be able to boost QE in the near-future. What is a country stuck in a vortex between deflation and runaway inflation to do? "It may be too late to prevent long-term rates doing something crazy” should the BOJ hold off on tapering before inflation reaches the target, said Richard Koo, the chief economist in Tokyo at Nomura.
The bubble of private debt that we have seen inflate in China since the Lehman crisis is unlike anything that the world has ever seen. Never before has so much private debt been accumulated in such a short period of time. All of this debt has helped fuel tremendous economic growth in China, but now a whole bunch of Chinese companies are realizing that they have gotten in way, way over their heads. In fact, it is being projected that Chinese companies will pay out the equivalent of approximately a trillion dollars in interest payments this year alone. That is more than twice the amount that the U.S. government will pay in interest in 2014. So will a default event in China on January 31st be the next "Lehman Brothers moment" or will it be something else? In the end, it doesn't really matter. The truth is that what has been going on in the global financial system is completely and totally unsustainable, and it is inevitable that it is all going to come horribly crashing down at some point during the next few years. It is just a matter of time.
There are definite limits to what QE can do. Now that even Bill Dudley and other Fed officials admit that the Fed doesn’t understand QE, it’s only a matter of time before the market begins to crumble.
Markets have started the week on the back foot, despite a brief rally following a better-than-expected Q4 GDP print in China. Indeed, Asian equities recorded a small pop following the GDP report, but the gains were shortlived as the general negativity on China’s growth trajectory continues to weigh on Asian markets. In terms of the data itself, China’s Q4 GDP (7.7% YoY) was slightly ahead of expectations of 7.6% but it was slower than Q3’s 7.8%. DB’s China economist Jun Ma maintains his view that economic growth will likely accelerate in 2014 on stronger external demand and the benefits from deregulation. The slight slowdown was also evident in China’s December industrial production (9.7% YoY vs 10% previous), fixed asset investment (19.6% YoY vs 19.9% previous) and retail sales (13.6% vs 13.7% previous) data which were all released overnight. Gains in Chinese growth assets were quickly pared and as we type the Shanghai Composite (-0.8%), HSCEI (-1.1%) and AUDUSD (-0.1%) are all trading weaker on the day. On a more positive note, the stocks of mining companies BHP (+0.29%) and Rio Tinto (+0.26%) are trading flat to slightly firmer and LME copper is up 0.1%. Across the region, equities are generally trading lower paced by the Nikkei (-0.5%) and the Hang Seng (-0.7%). Staying in China, the 7 day repo rate is another 50bp higher to a three month high of 9.0% with many investors continuing to focus on the Chinese shadow banking system following the looming restructuring of a $500m trust product that was sold to ICBC’s customers.