If it was the Fed's intention to slow down the relentless surge in the dollar with yesterday's "impatient" removal which blamed the dollar strength on the "strength" in the US economy, it promptly failed after algos and a few carbon-based traders looked at the Atlanta Fed and realized that a 0.3% Q1 GDP print is anything but "strong." As a result the EURUSD, after soaring by nearly 400 pips yesterday in a market reminiscent of a third-world FX pair's liquidity especially following the previously noted USD flash crash, the dollar has recoupped nearly all losses, and the DXY is once again on the way up and eyeing the resistance area of 100.
This week's main event will be the FOMC announcement on Wednesday at 2:00 pm and the subsequent press conference, the conclusion of the March 2-day Fed meeting, in which it is widely expected that Yellen will announce the end of the Fed's "Patience" with an economy in which resurgent waiters and bartenders continue to skew the job market even if it means consistently declining wages for 80% of the US labor force. Here is a summary of what else to expect this week.
Despite a 36k drop week-over-week, the less noisy four-week average initial jobless claims remains above 300k for the 2nd week in a row - something we have not seen since in 6 months. At 289k, initial claims beat expectations of 304k but continuing claims printed higher than expected at 2.418 million. Shale state claims remain below the peak levels of January but well above average. The trend remains 'changed' from the QE3 regime.
FX Volatility Spikes As More Countries Enter Currency Wars; Euro Surges On Furious Squeeze After Touching 1.04Submitted by Tyler Durden on 03/12/2015 06:57 -0400
The global currency wars are getting ever more violent, following yesterday's unexpected entry of Thailand and South Korea, whose central banks were #23 and #24 to ease monetary conditions in 2015, confirming the threat of a global USD margin call is clear and present (see "The Global Dollar Funding Shortage Is Back With A Vengeance And "This Time It's Different"). But the one currency everyone continues to watch is the Euro, which the closer it gets to parity with the USD, the more volatile it becomes, and moments after touching a 1.04-handle coupled with the DXY rising above 100 for the first time in 12 years, the EURUSD saw a huge short squeeze which sent it nearly 150 pips higher to 1.0643, before the selling resumed.
Following this morning's dire Challenger Job Cuts data, it appears the hard reality that lower oil prices are not unambiguously good for America is setting in. Initial Jobless Claims surged last week (after a big jump the week before) to 320k (far worse than the 295k expectation) to the highest since May 2014. Continuing Claims also rose. Since the end of QE3 and the end of the government's fiscal year, the trend of improvment has clearly ended and a new regime of weakening labor markets has begun.
It has been a while since we have seen the USDJPY rampathon push US equities higher, so in a day dominated by central banks (first the BOE momentarily), and then the ECB's much anticipated announcement of the actual QE launch at the Draghi press conference at 1:30pm CET (taking place, ironically enough, in the place that was the blueprint for the Eurozone's capital controls, Cyprus), it only makes sense that after weeks of stage fright, the USDJPY algos reminded the world they are alive and well, and proceeded to ramp the key FX pair above 120, even though the currency that everyone will be talking about today is the Euro, hugging 1.10 as of this moment, but the real question is what happens after Draghi gives the asset buying green light: has all of Q€ been priced in already in FX, and will the EURUSD resume its surge higher, or is parity next stop?
After last week's holiday-shortened exuberance over initial jobless claims, this week's slam back to reality is quite a shock to the "everything is awesome" crowd. Initial jobless claims jumped 31,000 to 313,000 - the biggest percentage rise since December 2013. Continuing claims dropped modestly but remain up around 3.5% over the last quarter - near the worst since 2009.
Following a quiet overnight session in which the main event appears to be a statement by Chinese premier Li for more active fiscal policy, which has pushed the metals complex higher, although technically every other asset class as well, with US equity futures set to open in fresh record high territory, even as 10Y yields around the world continue to decline, attention today will fall on the CPI print due out shortly, because if consensus is correct, January will be the first month this decade when US inflation posts a negative print, mostly due to the delayed effect of sliding commodity prices. As Deutsche recaps, the most important number today is the headline CPI where the headline YoY rate is predicted to be negative by the market (-0.1%) for the first time since 2009. Over this period the YoY rate stayed negative for 8 months. However before this we hadn't seen a full year decline since August 1955. In other words, a few months before what may be the first US rate hike for a new generation of traders, the US is set to print its first annual deflation since Lehman, transitory or not.
For the 9th week in a row, the smoothed average of initial jobless claims in Texas surged (Other Shale States - PA, ND, and CO also saw a notable rise in claims). While Tennessee's levels were estimated, the broad levels of claims send a mixed message. Initial claims beat expectations, fell from 304k to 283k with the trend now clearly flat since September. However, Continuing Claims jumped 58k to 2.425 million - the biggest jump in 2015, notably missing expectations. The trend of employmenmt has clearly changed...
After yesterday's FOMC Minutes, despite a huge dovish reversal by the Fed - one which increasingly puts its "credibility" and reputation at risk - stocks were unable to close green, or even above 2100, for one simple reason: uncertainty with the fate of Greece. Overnight there has not been much more clarity, when as previously reported Greece submitted a 6 month extension request to its master loan agreement but not to its bailout extension, a nuance lost in the annals of diplomacy. But is this the much-awaited Greek capitulation? Or will the Eurogroup reject this too? The answer may be available in a few hours after an emergency Eurogroup meeting due later today. However, as usual stocks are ready to "price in" yet another Greek conflict resolution, and after futures were lower by 7 points overnight, were up 4 points at last check: a rebound which will not correct if the latest Greek "compromise" fails to deliver.
So far it has been an overnight session which clearly forgot to take its lithium, with futures first tumbling after CNBC's "leak" that a Greek deal had been reached was refuted, only to surge subsequently on both the Riskbank's foray into NIRP and QE which crushed the Swedish currency and sent its stocks to recorder highs, and more importantly, on the latest ceasefire out of Minsk which has pushed Russian and European assets substantially higher. While only the most naive believe that any palpable end to Ukraine hostilities will emerge as a result of today's delay, expect for Greek headlines to return with a vengeance as today it is Tsipras' turn to speak at a summit of the 28 European Union leaders set to begin momentarily.
Six years on from the financial crisis and central banks are still hacking away at interest rates. Australia and Romania's did this week and while Poland and India held off, both are expected to prune rates later in 2015.
SNB Said To Be Buying EUR Crosses In Aftermath Of ECB's Greek Fiasco; Europe Boosts Its Own Growth ForecastSubmitted by Tyler Durden on 02/05/2015 07:33 -0400
The bottom line is that unfortunately for the BTFDers, with the Fed no longer giving explicit buy signals with the "considerable time" language struck, and with an implicit economic upgrade suggesting a rate hike is still on the table, it is becoming increasingly more difficult to frontrun the Fed's "wealth creation" intentions.
With less than two hours until the ECB unveils its first official quantitative easing program, the markets appear to be in a unchanged daze. Well, not all markets: the Japanese bond market overnight suffered its worst sell off in months on a jump in volume, although for context this means the 10Year dropping from 0.25% to 0.32%. Whether this is a hint of the "sell the news" that may follow Draghi's announcement is unclear, although Europe has seen comparable weakness across its bond space as well and the US 10 Year has sold off all the way to 1.91%, which is impressive considering it was trading under 1.80% just a few days ago. Stocks for now are largely unchanged with futures barely budging and tracking the USDJPY which after rising above 118 again overnight, has seen active selling ever since the close of the Japanese session.