TedBits - Newsletter
The ECB, the Swiss National Bank (SNB) and the Riksbank of Sweden announced a new gold agreement this morning. They announced they have no plans to sell significant quantities of gold and reaffirmed the importance of gold bullion as a monetary reserve asset.
It was supposed to be a blistering Mega Merger Monday following the news of both AT&T'a purchase of DirecTV and Pfizer's 15% boosted "final" offer for AstraZeneca. Instead it is shaping up to be not only a dud but maybe a drubbing, with AstraZeneca plunging after its board rejected the latest, greatest and last offer, European peripheral bond spreads resume blowing out again, whether on concerns about the massive Deutsche Bank capital raise or further fears that "radical parties" are gaining strength in Greece ahead of local elections. But the worst news for BTFDers is that not only did the USDJPY break its long-term support line as we showed on Friday, but this morning it is taking even more technician scalps after it dropped below its 200 DMA (101.23) which means that a retest of double digit support is now just a matter of time, as is a retest of how strong Abe's diapers are now that the Nikkei has slid to just above 14,000, while China, following its own weak housing sales data, saw the Shanghai Composite briefly dip under 2000 before closing just above it. Overall, it is shaping up to be a less than stellar day with zero econ news (hence no bullish flashing red headlines of horrible data) for the algos who bought Friday's late afternoon VIX slam-driven risk blast off.
Dispassionate discussion of the investment climate.
A look at the technical condition of the foreign exchange market.
The perfectly expected if completely irrational overnight ramp in various Yen carry pairs tried, and failed, and both the USDJPY and EURJPY were tumbling to overnight lows as we go to print. This is happening despite a rout in India in which Narendra Modi's opposition block is poised for the biggest Indian election win in 30 years, with his BJP party currently leading in 332 of 543 seat - an outcome that is seen as very pro business (and seemingly pro asset bubbles: the INR soared and the Sensex was up as much as 6% in intraday trading before paring virtually all gains following what many say was RBI intervention). And while the Nikkei (down 200 points) did not help the mood this move was mostly in response to yesterday's US selling, which means as usual the culprit for lack of algo risk-taking overnight has been the Yen carry, which moments ago hit intraday lows, and is increasingly flirting with the 101 level (after which double digits, and Abe's second resignation, come very quickly).
In this brave new centrally-planned world, where bad is good, very bad is very good, and everything is weather adjusted, Japan's blistering GDP report last night, printing at 5.9% on expectations of 4.3% was "bad" because it means less possibility for a boost in QE pushing futures lower, while the liquidity addicts were giddy with the GDP miss in Europe where everyone except Germany missed (as for the German beat, Goldman's crack theam of economic climatologists, said it was due to the weather), and the Eurozone as a whole came at 0.2%, half the forecast 0.4%, which in turn allowed futures to regain some of the lost ground.
- EU Court: Google Must Remove Certain Links on Request (WSJ), people have right to be forgotten on Internet (Reuters)
- Harsh weather: German Investor Confidence Drops for Fifth Straight Month (BBG)
- More harsh weather: China Slowdown Deepens (BBG)
- Harsh weather as far as the eye can see: China’s New Credit Declines (BBG)
- "Alien" artist, surrealist H.R. Giger dies aged 74 (Reuters)
- Pfizer urges AstraZeneca to talk as UK lawmakers slam offer (Reuters)
- Property sector slowdown adds to China fears (FT)
- Russia says EU sanctions will hurt Ukraine peace efforts (Reuters)
- U.S. Considers Relaxing Crude Oil Export Restrictions (WSJ)
If, in the New Normal, newsflow and facts mattered, facts such as the German Zew Investor Expectations index crashing from 43.2 to 33.1, smashing expectations of a 40.0 print to the downside and down to the lowest since January 2013 nearly half the 7 year half reported as recently as December confirming Germany can no longer be Europe's growth dynamo courtesy of a still nosebleed high EURUSD, or facts such as overnight Chinese data missed in every category with industrial output up 8.7% y/y in April vs an estimated 8.9%, retail sales up 11.9% below the estimated 12.2% rise and ; Jan.-April fixed-asset investment growing 17.3% vs est. 17.7%, then futures may just posted a downtick. However, since it is a Tuesday, with a ~$1 billion POMO, one can ignore the fundamentals and proceed straight to buying anything and everything with indiscriminate abandon. The only question is whether the NY Fed orders Citadel to slam the VIX under 11 to start off the morning S&P rampage which should push the broad market index above Goldman's 1900 price target for the end of the 2014.
More Reasons QE Is a Dud
This week markets are likely to focus on a few important data prints in DMs, including Philly Fed in the US (expect solid expansionary territory) and 1Q GDP releases in the Euro area (with upside risks). In DMs, the highlights of the week include [on Monday] Japan’s trade balance data and Australia business conditions; [on Tuesday] US retail sales, CPI in Italy and Sweden; [on Wednesday] US PPI, Euro area IP, CPI in France, Germany and Spain; [on Thursday] US Philly Fed, CPI, capacity utilization, Euro area and Japan GDP; and [on Friday] US Univ. of Michigan Confidence. In the US, we expect Philly Fed to print in solidly expansionary territory (at 14, similar to consensus) and to inaugurate what we call the active data period of the month. We also expect CPI inflation to print at 0.3% mom (similar to consensus), and core CPI inflation at 0.18% mom (slightly above consensus).
East Ukraine may be independent in a result which the Kremlin said it "respects" and hopes for a "civilized implementation" of the referendum results, and which assures further military escalation in the proxy war of east versus west, but stocks are happy to ignore it all again. The reason: a positive close over in Asia (ex-Japan) after China’s State Council pledged to reform markets buoyed demand for risk, although it really is just a follow through to the furious VIX slam in the last hour of US Friday trading, which said otherwise, means buying of US equities was the reason to buy US equities. More importantly and adding to the early spoo euphoria were comments by ECB's Nowotny who said that interest rate cut alone would likely be too little to combat low inflation - suggesting a European QE is coming - also acted as a catalyst for the latest uptick in stocks: when trapped like the ECB and when "guiding" to future activity, if unable to actually execute it, may as well go all the way. End result, Spoos up nearly 0.5% because, well, others are buying spoos.
Dispassionate discussion of the near-term forces at work in the foreign exchange market.