The holiday shortened, and very busy, week includes the following highlights: [on Monday] US Chicago PMI; [on Tuesday] US ISM Manufacturing, Construction Spending, and Vehicle Sales, in addition to a host of PMI Manufacturing in various countries; [on Wednesday] US ADP Employment, Factory Orders; [on Thursday] US Non-farm Payrolls and Unemployment, MP Decisions by ECB and Riksbank, in addition to various Services and Composite PMIs; [on Friday] US holiday, Germany Factory Orders and Sweden IP.
It is the last day of not only the month but also the quarter, not to mention the halfway point of 2014, which means that window dressing by hedge funds will be rampant, as they scramble to catch up some of the ground lost to the S&P 500 so far in 2014. Most likely this means that once again the most shorted names will ramp in everyone's face and the short side of the hedgie book will soar, further pushing hedged P&L into the red, because remember: in a market in which all the risk is borne by the Fed there is no need to hedge.
Forget Maradonna's "Hand Of God", and Luis Suarez' "Jaws Of Doom"; Goldman Sachs just issued their latest set of updated predictions for the FIFA World Cup and unleashed a "kiss of death" on USA. The bank (whose win rate on predictions so far has been a lowly 30%) forecast the odds of USA making it to the 2nd Round (the knockout stage) is 81.6% (with Portugal a lowly 5.3% likely). Given the variance of results so far, we hope they are right; but their odds seem a little long (and they have Belgium beating USA in the next round).
Yesterday, Ha-Joon Chang exposed the shortest economics textbook ever. Today the Cambridge University Economics professor uncovers everything you didn't know about economics (in 13 simple points)...
Chinese Treasury Holdings Drop To Lowest Since February 2013 As "Belgium" Treasurys Post First Decline Since AugustSubmitted by Tyler Durden on 06/16/2014 08:16 -0500
With everyone expecting "Belgian" US Treasury holdings to surge by another inexplicable double-digit billion amount, and surpass $400 billion in what has been the most aggressive, and secretive, accumulation of TSYs by an unknown third-party using the Belgian jurisdiction as venue via Euroclear, the April holdings of the small European country posted their first drop since August. According to the TIC data released moments ago, total "Belgium" holdings - the third largest after China and Japan - declined by $15 billion in April, to a new grand total of $366 billion.
Yesterday, the IMF and World Bank issued warnings about rising interest rates, housing crashes and the global economy. The World Bank’s chief economist is inadvertantly offering important advice to investors and savers when he said that "now is the time to prepare for the next crisis ..."
Just like in April of last year, the simplest explanation why bond yields continue to defy conventional wisdom and decline is also the most accurate one. According to a revised calculation by JPM's Nikolaos Panigirtzoglou, the reason why investors simply can't get enough of Treasurys is about as simple as its gets: even with the Fed tapering its QE, which is expected to end in October, there is still much more demand than supply, $460 billion more! (And this doesn't even include the ravenous appetite of "Belgium".) This compares to JPM's October 2013 forecast that there would be $200 billion more supply than demand: a swing of more than $600 billion! One can see why everyone was flatfooted.
Eurozone recessions, unemployment fiascos, toppling banks, crashing auto sales... didn’t exist, sez the Stoxx 600. But then an ugly thing happened.
It seems shorts keep covering and the Chinese keep buying (through Belgium of course - as they sell CNY, buy USD, and grab the extra yield on Treasuries). Despite stocks relative stability, 10Y yields have just hit 2.40% for the first time in over 11 months (as USDJPY broke down). It seems this morning's dismal GDP print was just enough to confirm the growth/inflation slowing meme (in bond investors' minds) and the yield curve is flattening even further...
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.
There has been a lot on bond buying in Europe and that enthusiasm has transferred over to the US in anticipation of Draghi's massive bond buying stimulus program similar to that of the U.S. Fed.
For those pressed for time, here is the one-chart post-mortem of what happened in yesterday's elections for European Parliament: the malcontents block, or the anti-EU and protest parties, soar and now control nearly a third of all seats, up nearly by 33% from a fifth currently, in the parliament they all predominantly loathe.
Anti-European-Union parties are showing strongly in this weekend's elections. Anxiety is spreading among the status quo as Greece's anti-austerity party SYRIZA wins and perhaps even more worryingly in supposed core of the union France's Nationalist party is leading in a "political earthquake" success:
EUROPEAN GOVERNMENTS MUST RESPOND TO CITIZENS' ANGER, SAYS 'SITUATION IS GRAVE FOR FRANCE, EUROPE'; DRAGHI SAYS PEOPLE VOTING ACROSS EUROPE ARE CLEARLY DISENGAGED
A dispassionate look at the week ahead.