- Iran, powers push for nuclear deal as clock ticks toward deadline (Reuters)
- How DIY Bond Traders Displaced Wall Street’s Hot Shots (BBG)
- MillerCoors Caught in a Downdraft (WSJ)
- Saudi-led strikes again hit Yemen overnight (Reuters)
- Even With Free Money, Merkel Still Reluctant to Spend (BBG)
- Britain Uses Tax Breaks to Lure Digital-Game Developers (WSJ)
- China to Insure Deposits in Move Toward Scrapping Rate Curbs (BBG)
- As China Expands Its Navy, the U.S. Grows Wary (WSJ)
Did stocks window dressing come one day early in this volatile, bipolar, stop-hunting, HFT-infested market? Looking at futures this morning, which are down about 12 points already on yet another surge in the USD which has sent the EURUSD just above 1.07, the lowest since March 20 , and the USDJPY back under 120 now that the "strong dollar is bad for stocks after all" algo seems to be back from vacation, all those hedge funds who chased risk higher yesterday because their peers did the same, may find they are all selling on the way down. It will be oddly ironic if all of yesterday's widely touted gains evaporate comparably in the first 10 minutes of trading today, and lead to an end in the longest streak of quarterly increases in two decades.
With the rest of the developed world's central banks waiting for the Fed to admit defeat for one more year and delay its proposed rate hike (or launch NIRP/QE4 outright) it was all about China (the same China which a month ago we said would launch QE sooner or later) and hope that its central bank would boost asset prices, when over the weekend the PBoC governor hinted that more easing is imminent to offset the accelerating drag after he admitted that the nation’s growth rate has tumbled "a bit" too much and that policy makers have scope to respond. How much scope it really has now that its bad debt is rising exponentially is a different question. It got so bad, Shanghai Securities News leaked a false rumor earlier forcing many to believe China would announce an unexpected rate cut as soon as today, in the process sending the Shanghai Composite soaring by 2.6%.
The negative divergence of the markets from economic strength and momentum are simply warning signs and do not currently suggest becoming grossly underweight equity exposure. However, warning signs exist for a reason, and much like Wyle E. Coyote chasing the Roadrunner, not paying attention to the signs has tended to have rather severe consequences. When the market eventually cracks, the "disposition" effect will trump all the good intentions of "buying and holding" for the long-term. The eventual "panic to sell" will lead to a significant destruction in investment capital and a reversion in investor psychology to extreme negativity. While the basic premise of investing is to "buy low" and "sell high," repeated studies show that there are precious few who do.
"Competitive devaluation” doesn’t actually work, as it is not a zero sum game (one country gaining at the expense of another) but rather currency “wars” subtract from the whole altogether (both countries lose). The entire point of currency destabilization is exactly that, and business transpires less and less under more extreme versions of instability – intentional or not. And to top it all off - No matter how you want to view all this, January was perhaps the worst month for US trade since the Great Recession.
With little newsflow out of Europe, and just as little on deck out of the US (just NY ISM and auto sales later today), the main overnight events were out of Asia where first the RBA decided to leave rates unchanged but not before the announcement was leaked up to a minute early. In China, the rate-cut euphoria lasted just one day, and after a feeble 0.8% bounce on Monday, the SHCOMP was down 2.2% this morning over fears the PBOC is doing too little, too late to halt what is now perceived by many as a massive "tightening" capital flight out of China. Finally, Japan made the newsflow, after it JGBs continued to slide following a weak auction, fears that the BOJ is done easing after Abe advisor Etsuro Honda warned against overheating, and after the biggest jump in base pay in over a decade led some to think the BOJ may soon have to halt easing altogether, especially if real wages proceed to rise
With key economic data either behind us (with the downward revised GDP), or ahead of us (the February payrolls on deck), and the Greek situation currently shelved if only for a few days/weeks until the IMF payment comes due and the farce begins anew, stocks are focuing on the widely telegraphed 25 bps Chinese rate cut over the weekend, which however has so far failed to inspire a broad based rally either in Asia (where the SHCOMP closed up 0.8% after first dipping in the red) or across developed markets. In fact, as of this moment futures are hugging the unchanged line as the USDJPY attempted another breakout of 120.000 but with numerous option barrier expiration stop at that level, it has since retracted all the overnight gains and is back to the Sundey lows, even as the EURUSD has seen a powerful breakout from overnight lows and is currently at the highest level since the US GDP print, following the release of the final European February PMI data, as a result of USD weakness since the European open.
As Søren Skou, Maerk's CEO, admitted when he warned that global trade growth could slow this year from recent 4% growth ratnes, as Chinese, Brazilian and Russian economies disappoint, the Baltic Dry is still not only relevant and accurate but telling the real story of global growth, or lack thereof. “The economies in Europe are still very sluggish. Brazil, Russia and China: those three economies used to drive a lot of growth, and right now we are not really seeing that to the same extent. The only real bright spot is the US, and even the US is good but not great.” He added that: "To my mind volumes were sluggish. There is nothing in container volume numbers that suggest that the global economy is just on the verge of starting a new growth trend.”
- Greece warns may default on IMF loan next week - Greek bank runs continue and deposits flee - The truth can be a scary thing sometimes … especially for those who put their head in the sand and ignore it ...
Ugly data this morning had stock markets leaking lower into and beyond the open, and then Chicago PMI's total and utter collapse hit the tape... and this happened...
January's brief 'hope' bounce following 3 months of weakness is long forgotten as February's Chinago PMI crashes to 45.9 (missing expectations of 57.5) - its lowest since July 2009. This is the biggest MoM drop since Lehman in Oct 2008. New Orders suffered the largest monthly decline on record, leaving them at the lowest since June 2009. Seems like it is time to blame the weather... PMI says it is "difficult to gauge magnitude of weather and port strike" but blames it nonetheless.
- Central Banks With Negative Rates Spur Question of How Low to Go (BBG)
- DHS to keep running: Congress edges toward domestic security funding patch (Reuters)
- Setbacks for Tsipras Stir Discord in Greek Ruling Party (BBG)
- Greece’s Challenge: Appeasing Its Creditors and Its Population (WSJ)
- Buffett, a cheerleader for America, takes his checkbook abroad (Reuters)
- Oil’s Big Swings Are the New Normal: Market has rarely been more volatile (WSJ)
- Ukraine Left Behind as Russian Stock Gains Are Unmatched (BBG)
- Brent rises to $61, set for first monthly gain since July (Reuters)
If there isone thing that is virtually certain about today's trading (aside from the post Rig Count surge in oil because if there is one thing algos are, it is predictable) is that despite S&P futures being a touch red right now, everything will be forgotten in a few minutes and yet another uSDJPY momentum ignition ramp will proceed, which will push the S&P forward multiple to 18.0x on two things i) it's Friday, and an implicit rule of thumb of central planning is the market can't close in confidenece-sapping red territory ahead of spending heavy weekends and ii) the Nasdaq will finally recapture 5000 following a final push from Apple's bondholders whose recent use of stock buyback proceeds will be converted into recorder highs for the stock, and thus the Nasdaq's crossing into 5,000 territory because in the New Normal, the more expensive something is, the more people, or rather algos, want to buy it.
Having tumbled (and missed) for two straight months, hope triumped in January and pushed Chicago PMI above expectations printing 59.4 (against 57.4 consensus). This is still the 2nd worst print since July so let's not get all excited quite yet as only 4 components rose. This is the 4th month in a row of negative YoY prints. So just to clarify - US GDP misses notably and stocks say "meh" but Chicago PMI beats and stocks smash higher on a JPY lifeboat...