Once again all eyes are on the carry-trade driving Yen, whose avalance into oblivion is picking up speed, and where the formerly unimaginable USDJPY level of 120 as presented here in September, is now looking like this week's business, with the only question how long until Albert Edwards' next target of 145 is hit leading to nuclear currency warfare between Japan, Korea, China and ultimately, the US and Europe. Unfortunately, for Japan, at this point the terminal currency collapse will do nothing to incrementally boost exports or its economy, and the former Japan finmin was on the tape warning again that the Japanese recession will persist as USDJPY over 115 is now hurting Japan, something which should by now have been clear to most.
Iron Ore prices crashed below the critical $70/mt level overnight, lows not seen since the bottom in 2009, as China's home prices fell for the second month in a row, accelerating losses. Average property prices across China dropped 2.6% YoY in October (a bigger drop than September's 1.2% YoY slip) with only 1 out of 70 cities seeing any positive price change (Zhengzhou +0.2% MoM). What is perhaps most entertaining is the 38.6% YoY rise in new home starts China just experienced - the biggest jump ever - as the first sign of demand (or hint from PBOC that they would 'help' with mortgages) and supply floods the market. The 'market' appears not to believe the hype.
From its lowest 5-day range in history and near-longest streak of closes above its short-term average, the S&P 500 broke to new record highs today (as did the Dow) above 2,050, leaving every other asset class in the dust (besides USDJPY of course). The incessant push for the stops above 117.00 dragged the S&P higher on no catalyst whatsoever. Treasury yields traded 2-3bps lower on the day (and HY credit spreads widened) in the face of equity exuberance. The USD faded on the day back to unchanged on the week on the back of EUR strength (post-Germany). Gold rallied to $1195 (+0.5% on the week) and silver rose modestly but the USD weakness did nothing for the rest of the commodity complex. Copper was whacked (after China housing data) but the big story is WTI Crude plunged again (-2% on the week) closing just shy of 4-year lows. Russell 2000 and Trannies close in the red for the week. In summary: Stocks Up, Gold Up, Bonds Up... USD Down, Oil Down, Copper Down ahead of Fed Minutes tomorrow (credit and stocks protected).
After weeks of relentless flashing red headline barrage whose only purpose was to force snap algo buying of the USDJPY pair time after time after time, Japan is once again out of FX algo danging carrots after moments ago Abe confirmed what everyone had known already: he called a snap election to seek a mandate for his decision to delay by 18 months a further sales-tax increase that had been planned for next year; he also said he would dissolve the lower house of parliament on Nov. 21 in preparation for an election in December, without specifying a date. Cited by the WSJ, Abe said "To ensure the success of Abenomics, I’ve concluded that it shouldn’t be carried out next October and instead be postponed by 18 months,” the prime minister told a nationally televised news conference, stressing that the additional tax burden would risk putting the economy back into deflation. “I will seek the people’s judgment over our economic policy."
Perhaps the biggest shock following last night's completely expected and very predictable (previewed here over a month ago) Japanese slide into triple- (actually make that quadruple) dip recession, is that it took the BTFTripleDip recession algos as long as they did to recover most of the overnight futures losses. Because after surging to 107 on a confused short squeeze kneejerk reaction, the USDJPY subsequently tumbled 150 pips to 105.50 as rationality briefly emerged, and the market wondered for a few brief hours if rewaring the destruction of one's economy is actually a prudent thing. Then, however, when European traders started walking into work, the now default USDJPY levitation on no volume came right back, and with that the correlation algo buying of E-mini futures, no doubt helped by the Bank of Japan itself taking advantage of the CME's ES liquidity rebate program. Because without confidence as expressed by the lowest and only common denominator left - global equities - there is nothing else.
Some may herald the new ISIS coins as the successor of the dollar. Fat chance. It may not be fiat money, but is still not viable currency outside of where ISIS rules by sword.
Stocks were somewhat of a sideshow to the moves in Bonds, commodities, and FX today. Trannies (Airlines) and Nasdaq (AAPL) led on the week with Small Caps the laggard and Dow/S&P not much better. A 6-7bps plunge in yields from around 10am ET today left Treasury yields only 0-2bps higher on the week. The USD dumped at around the same time, cracking back to unchanged on the week as USDJPY failed at 117. While oil prices lifted modestly today, WTI Crude fell 3.2% this week - 7th week in a row - longest losing streak since 1986 (the last time US oil production was above 9 mm bbl/d). Silver screamed over 7% off its intraday lows today (+4.1% on the day - the best day in 5 months) and gold surged 2.4% on the day (4.1% off the lows) for its 2nd best day in 5 months. VIX (higher on the week), HY credit, and TSYs all diverged notably on the week from equity 'strength' but today's moves were seemingly driven by Swiss Gold Initiative rumors. It's a Friday so 330ET saw the standard ramp to grab the S&P green and record close (+0.02%)
The key event overnight was the release of European Q3 GDP data, which saw Germany averting a recession by the narrowest of margins when following a -0.2% drop in Q2 economic growth, Germany grew by the smallest amount possible in Q3, or 0.1%, in line with expectations, thus averting two consecutive quarters of decline, the technical definition of a recession. The French economy likewise posted a modest increase in Q3, although one wonders how aggressively the data had to be fudged for a country whose PMIs all indicate a -1% or greater contraction. Italy however was less creative with its use of "hookers and blow", and continued its recession with a 3rd negative print, contracting at -0.1% as expected, while Portugal also missed third quarter growth estimates.
It appears the rumors are true. Islamic State is set to become the only 'state' to back its currency with gold (silver and copper) as it unveils the new coins that will be used in an attempt to solidify its makeshift caliphate. ISIS says the new currency will take the group out of "the oppressors' money system."
WTI Crude plunged another 3.75% to as low as $74.06 today - the lowest since Sept 2010 and dropping at the fastest rate of collapse since Lehman. Airlines popped and Energy stocks dropped 2.7% (now worst sector of the year) but Small Caps were the worst performing major index of the day (turning first around 1030ET and dropping most in over 3 weeks). The S&P tested back into the red for the week but was VWAP-rescued twice. AAPL once again bid saved the Nasdaq. Treasury yields slid lower all day (down 2-3bps across the complex) but remain up 4-5bps on the week. The USD weakened very marginally (still up 0.25% on the week) led by EUR strength. Gold and silver were flat but copper tumbled back below $300 - its lowest close in a month (near lowest close since Jul 2010). HY Credit diverged bearishly this afternoon as stocks ramped to VWAP. VIX rose for the 3rd day in a row, back over 14. Dow record close, Russell biggest drop in 3 weeks.
- Moar central banks! Asian Stocks Rise Amid Stimulus Speculation; Topix Jumps (BBG)
- Syria rebels in south emerge as West's last hope as moderates crushed elsewhere (Reuters)
- Bufett's Berkshire to Buy Duracell Business From Procter & Gamble in $3B Deal (AP)
- Weak Demand, Real-Estate Slump Signal Headwinds for China (WSJ)
- China Slowdown Deepens as Leaders Said to Mull Cutting Target (BBG)
- Saudis Reject Talk of OPEC Market Share War as Oil Slides (BBG)
- Oil Tankers Stream Toward China as Price Drop Sparks Boom (BBG)
The relentless regurgitation of the only two rumors that have moved markets this week, namely the Japanese sales tax delay and the "surprise" cabinet snap elections, was once again all over the newswires last night in yet another iteration, and as a result the headline scanning algos took the Nikkei another 1.1% higher to nearly 17,400 which means at this rate the Nikkei will surpass the Dow Jones by the end of the week helped by further reports that Japan will reveal more stimulus measures on November 19, although with US equity futures rising another 7 points overnight and now just shy of 2050 which happens to be Goldman's revised year-end target, the US will hardly complain. And speaking of stimulus, the reason European equities are drifting higher following the latest ECB professional forecast release which saw the panel slash their GDP and inflation forecasts for the entire period from 2014 to 2016. In other words bad news most certainly continues to be good news for stocks, which in the US are about to hit another record high (with the bulk of the upside action once again concentrated between 11:00 and 11:30am).
As one would expect with half the market away, US equity volumes were terrible (but fiunnily enough not much worse than yesterday) with most major indices trading in a very tight range around unchanged. Overnight strength in stocks on the back of USDJPY's momo ignition after Reuters headlines on Japan tax delays. Trannies, however, surged out of the gate, stalled into the European close, tumbled on oil weakness, then rallied back in the last hour - amid now news. Treasury futures were very quiet and went nowhere. The real story of the day was in the FX markets, which saw notable USD weakness led by EUR and AUD strength, and a late day rally in JPY (USDJPY tagged 116.00 stops then faded... that's 8 handles in 9 days). The USD weakness - which started around the European close - sparked a rally in copper, gold, and silver (and gold miners surged). Oil prices tested cycle lows before also bouncing back in a v-shaped recovery to close higher. Despite early intraday record highs in Dow and S&P futures, they ended practically unchanged as VIX was notably divergent. Late-day panic-buying lifted the Dow (+0.007%), S&P, and Russell 2000 green.
Chris Martenson is an economic researcher and futurist, specializing in energy and resource depletion, and co-founder of PeakProsperity.com. As one of the early econobloggers who forecasted the housing market collapse and stock market correction years in advance, Chris rose to prominence with the launch of his seminal video seminar, The Crash Course, that interconnected forces in the economy, energy, and the environment that are shaping the future, one that will be defined by increasing challenges as we have known it. Chris’s insights are in high demand by the media as well as academic, civic, and private organizations around the world, including institutions such as the U.N., the U.K. House of Commons, and the U.S. State Legislatures. So with that we’d like to welcome Mr. Chris
With the bond market closed today due to Veteran's Day and the correlation and momentum ignition algos about to go berserk without any parental supervision, it was only a matter of time before some "stray" headline sent first the carry pair of choice, i.e., the USDJPY, and subsequently its derivative, the Emini, into the stratosphere. And sure enough, just before 3am Eastern, it was once again Reuters' turn to leak, only this time not about the ECB but Japan, as usual citing an unnamed "government official close to Abe's office", that Prime Minister Shinzo Abe was likely to delay a planned sales tax increase.
- JAPAN MORE LIKELY TO DELAY SALES TAX INCREASE, REUTERS REPORTS
Which of course is a repeat of what Reuters said 2 days ago but since it came on the weekend, the momentum ignition algos didn't notice. The result was an instant surge in the USDJPY, which shortly thereafter touched on 116.00 the highest level in 7 years, and is up now 200 pips since yesterday as the obliteration of Japan's economy proceeds, in turn pushing European stocks, and shortly, the S&P, higher