Remember when we said in January 2011 that Dealers merely game the daily POMO reverse auction to generate abnormal - and now confirmed criminal - profits on the back of the central bank, i.e. taxpayer? Guess what - we were right. Again.
- How Putin Parried Obama's Overtures on Crimea (WSJ)
- West Readies Tighter Sanctions After Russia Seals Crimea Claim (Bloomberg)
- Putin says U.S. guided by 'the rule of the gun' in foreign policy (Reuters)
- JPMorgan Said to Agree on Commodities Unit Sale to Mercuria (BBG)
- Short Sellers Target Chinese Developers as Rout Deepens (BBG)
- HFT finally under the spotlight: High-Speed Trading Firms Face New U.S. Scrutiny (WSJ)
- Chinese Dollar Bond Investors Demand Higher Yields After Default (BBG)
- According to Joe LaVorgna it's the snow's fault: Deutsche Bank Said to Plan Job Cuts at Investment Bank (BBG)
- Israeli airstrikes kill 1 Syrian soldier, wound 7 (AP)
In an overnight session that had little in terms of macro and news flow, the most notable event was that the Dollar-Renminbi finally crossed above 6.20 which as a reminder is the suggested "max vega" point beyond which even more max pain lies for levered accounts long the Yuan. However, in a world in which nothing is discounted and in which no news matters, the "market" broadly ignored this significant development (which as we explained further yesterday means an accelerated unwind of Chinese Commodity Funding Deals, and a potential drop in global commodity prices), and eagerly awaited today's non-event of an FOMC conference, where nothing new will be announced save for the novelty of it being Yellen's first appearance before the press as the head of the Fed. And of course the Fed will almost certainly scrap the 6.5% employment threshold, as the FOMC scrambles to make the economy appear worse than it is reported to be, in a stark reminder that the biggest optically manipulated tool meant to boost confidence in the recovery was nothing but a number meant to serve political purposes.
Has the market done it again? Two weeks ago, Putin's first speech of the Ukraine conflict was taken by the USDJPY algos - which seemingly need to take a remedial class in Real Politik - as a conciliatory step, and words like "blinking" at the West were used when describing Putin, leading to a market surge. Promptly thereafter Russia seized Crimea and is now on the verge of formally annexing it. Over the weekend, we had the exact same misreading of the situation, when the Crimean referendum, whose purpose is to give Russia the green light to enter the country, was actually misinterpreted as a risk on event, not realizing that all the Russian apparatus needed to get a green light for further incursions into Ukraine or other neighboring countries was just the market surge the algos orchestrated. Anyway, yesterday's risk on, zero volume euphoria has been tapered overnight, with the USDJPY sliding from nearly 102.00 to just above 101.30 dragging futures with it, in advance of Putin's speech to parliament, in which he is expected to provide clarity on the Russian response to US sanctions, as well as formulate the nation's further strategy vis-a-vis Crimea and the Ukraine.
It took only a 60 USDJPY pip overnight ramp to send US equity futures 20 points off the overnight lows in the immediate aftermath of the Crimean referendum, which from a massive risk off event has somehow metamorphosed into a "priced in", even welcome catalyst to buy stocks. The supposed reasoning, and in a world in which Virtu algos determine the price action of the USDJPY from which all else flows based solely on momentum we use the word reasoning "loosely", is that there was little to indicate that the escalation between Russia and Ukraine was set to accelerate further. As we said: an annexation is now seen as risk off, something even Goldman appears unable to comprehend (more on that shortly). In macroeconomic news, European inflation - at least for the Keynesians - turned from bad to worse after the final February inflation print dropped from the flash, and expected, reading of 0.8% to just 0.7% Y/Y, a sequential increase of 0.3% and below the 0.4% expected, confirming that deflationary forces continue to ravage the continent. The only question is how soon until Europe comes up with some brilliant scheme that will help it join Japan in exporting its deflation.
The Bank of England chief, Carney, warned that Bank rates could reach 3% within three years, six times the current 0.5% rate.
Bank Of England Restructures After FX Probe But Not Responsible "For Hunting For Rigging Of Markets"Submitted by Tyler Durden on 03/11/2014 12:39 -0400
"We can't come out of this with a shadow of doubt about the integrity of the Bank of England," Governor Mark Carney told MPs this morning on the heels of the report, as we noted here, that found no collusion by the bank to manipulate FX rates. A senior BoE employee was told of "attempts to move the market" but "did not convey to [Monetary Policy Committee member Paul Fisher] that markets were being rigged," and therefore was suspended. While many have called this "as bad as Libor" the BoE remains adamant of its lack of involvement but is still restructuring itself - adding that "it isn't our job to go out hunting for rigging of markets." Nope, just to ignore it, we presume. MPs were not impressed.
Just when it seemed that the ever deteriorating situation in the Crimean, the unexpected plunge in Chinese exports which has sent the Yuan reeling again, the Copper slam which is down some 10% in two days, and the outright collapse in Japan's capital flows, not to mention the worst GDP print under Abe, may not be quite "priced in" by a market that is now expecting well beyond perfection in perpetuity, further shown by Goldman over the weekend which reprorted that revenue multiples have never been greater, and futures may finally dip, here came - right on schedule - the USDJPY levitation liftathon, which boosted futures from down 10 to barely unchanged, and which should be green by the second USDJPY ramp some time just after 8 am.
Today's nonfarm payroll number is set to be a virtual non-event: with consensus expecting an abysmal print, it is almost assured that the real seasonally adjusted number (and keep in mind that the average February seasonal adjustment to the actual number is 1.5 million "jobs" higher) will be a major beat to expectations, which will crash the "harsh weather" narrative but who cares. Alternatively, if the number is truly horrendous, no problem there either: just blame it on the cold February... because after all what are seasonal adjustments for? Either way, whatever the number, the algos will send stocks higher - that much is given in a blow off top bubble market in which any news is an excuse to buy more. So while everyone is focused on the NFP placeholder, the real key event that nobody is paying attention to took place in China, where overnight China’s Shanghai Chaori Solar defaulted on bond interest payments, failing to repay CNY 89.9mln (USD 14.7mln), as had been reported here extensively previously. This marked the first domestic corporate bond default in the country's history - indicating a further shift toward responsibility and focus on moral hazard in China.
Following yesterday's abysmal employment and service data which led to an unchanged close it quite clear that the market has returned to a mode where it ignores all newsflow - at least the bad, which is due to the weather, the good news is due to the recovery - and instead is simply driven by such "fundamental drivers" as the momentum and position of the Yen carry trade. And overnight the USDJPY positively exploded following news that the Japan advisory committee has decided the nation's pension fund, the GPIF, does' t need a domestic bond focus. Implicitly this means that the GPIF will soon be able to purchase stocks like Facebook and Tesla, which is a guaranteed way of generated short-term gains and longer-term total losses for the Japanese pensioners. Of course, when the latter happens, nobody will have been able to foresee it and some scapegoat somewhere will be summarily fired. As for what this means for futures, the drift higher has made SPOOs rise once more and at last check was just below if not at new all time highs on an ongoing barrage of increasingly negative macro news.
Below is the photo that reveals why US and EU bankers despise Russian President Putin so much
"This extensive review of documents, e-mails and other records has to date found no evidence that Bank of England staff colluded in any way in manipulating the foreign exchange market or in sharing confidential client information,” the Bank of England said today in a statement. Yet, as Bloomberg reports, a staff member was suspended amid the probe of a widening rigging scandal though "no decision has been taken on disciplinary action." As far back as 2006, they show concerns over the FX "fixings" that are at the core of this collusion but are careful not to condone any form of market manipulation. Well that's that then - until the next whistleblower exposes them.
With the world still on edge over developments in the Ukraine, overnight newsflow was far less dramatic than yesterday, with no "bombshell" uttered at today's Putin press conferences in which he said nothing new and simply reiterated the party line and yet the market saw it as a full abdication, he did have some soundbites saying Russia should keep economic issues separate from politics, and that Russia should cooperate with all partners on Ukraine. Elsewhere Gazprom kept the heat on, or rather off, saying Ukraine recently paid $10 million of its nat gas debt, but that for February alone Ukraine owes $440 million for gas, which Ukraine has informed Gazprom it can't pay in full. Adding the overdue amounts for prior months, means Ukraine's current payable on gas is nearly $2 billion. Which is why almost concurrently Barosso announced that Europe would offer €1.6 billion in loans as part of EU package, which however is condition on striking a deal with the IMF (thank you US taxpayers), and that total aid could be as large as $15 billion, once again offloading the bulk of the obligations to the IMF. And so one more country joins the Troika bailout routine, and this one isn't even in the Eurozone, or the EU.
Since Ukraine is the only wildcard variable in the news these past few days, it was to be expected that following i) the end of the large Russian military drill begun two weeks ago and ii) a press conference by Putin in which he toned down the war rhetoric, even if he did not actually say anything indicating Russia will difuse the tension, futures have soared and have retraced all their losses from yesterday. And not only in the US - European equity indices gapped higher at the open this morning in reaction to reports that Russian President Putin has ordered troops engaged in military exercises to return to their bases. Consequent broad based reduction in risk premia built up over the past few sessions meant that in spite of looming risk events (ECB, BoE policy meetings and NFP release this Friday), Bund also failed to close the opening gap lower. At the same time, USD/JPY and EUR/CHF benefited as the recent flight to quality sentiment was reversed, with energy and precious metal prices also coming off overnight highs.