While events in Ukraine have once again broken out into lethal fighting, and in a surprise development the Chinese Yuan crossed the 6.25 line for the first time in two years threatening to accelerate the unwind of carry trades which have a 6.25-6.30 point of max pain, futures remain completely focused solely on the strong after-hours results from Apple and Facebook which have helped push Spoos overnight to near record levels once again. The biggest push was given to NASDAQ futures which are back up 1% with optimism for US tech returning with the material earnings beats from both Apple ($11.62 EPS vs Est $10.17 EPS) and Facebook ($0.34 Adj EPS vs $0.24 forecast). Shares in both companies rose in afterhours trading with Facebook up +5% and Apple up more than +7% (supported further by the announcement that the company was expanding its share buyback plan to $90bn from $60bn). Not even the Nikkei being down 1%, the SHCOMP down 0.5% and the USDJPY once again treading water could put a dent in the tech-driven euphoria, which somehow also managed to slam gold and silver to month lows.
Republicans, Democrats, and environmentalists all have favorite energy myths. Even Peak Oil believers have favorite energy myths. The following are a few common mis-beliefs, coming from a variety of energy perspectives. From to "The fact that oil producers are talking about wanting to export crude oil means that the US has more than enough crude oil for its own needs" to "the unlimited supply of renewables", the following 'facts' may just be a little too much for some to bear
It seems yesterday's decoupling (stocks up, and everything else risk-off) has unwound today as equity markets were broadly weaker. The Dow and S&P traded in a very narrow range on the day closing slightly negative and breaking the 6-day winning streak. Nasdaq and Russell underperformed notably as "most shorted" stocks appeared to gain some momentum to the downside once again (ahead of tonight's AAPL/FB results) as high-beta caught down to low-beta today. Away from the oddly decoupled equity markets, Gold, silver and copper all closed unch to modestly higher as WTI crude prces dropped further (to $101.50). The USD rallied off European open weakness to end unchanged for the week (with notable AUD weakness overnight). Treasuries rallied with 30Y outperforming once again and the yield curve flattening to fresh 5 year lows. Credit markets continues to push wider and are not sustaining any of the exuberance remaining in the S&P.
Military Keynesians Are Full of Sh ... (Cough) ... Shallow Myths
It has been exactly six days in which algos, reversing the most recent drop in the S&P with buying sparked by a casual Nikkei leak that the BOJ may, wink wink, boost its QE (subsequently denied until such time as that rumor has to be used again), have pushed the market higher in the longest buying streak since September, ignoring virtually every adverse macroeconomic news, and certainly ignoring an earnings season that is set to be the worst since 2012. Today, the buying streak may finally end on rumors even the vacuum tubes are scratching their glassy heads if more buying on bad or no news makes any sense now that even the likes of David Einhorn is openly saying the second tech bubble has arrived. Keep an eye on the USDJPY which has had seen some rather acute "trapdoor" action in early trading and is approaching 102 after breaching its 55-DMA technical support of 102.38. If the support is broken here we go again on the downside. Keep an eye on biotechs and GILD in particular - if the early strength reverts into more selling again (after the two best days for the biotech space in 30 months), the most recent euphoria phase is now over.
US Equity markets were on a mission today... all-time highs for the S&P and Dow were in sight, green for April for the S&P, and unchanged year-to-date for the Nasdaq and Russell was just over the horizon, but... a total divergence from JPY carry, bond yields, credit, and even VIX meant that a 'warning' from David Einhorn about Tech Bubble 2.0 was just enough to take the juice out of what was already a low volume levitation. It's a Tuesday so we closed green - the 6th up day in a row - longest run in 7 months. Biotechs ripped higher on M&A "get rich quick'"fever - biggest 2-day rise in 30 months. Treasuries were mixed with 30Y bond yields ripping lower and 5s30s dropping 4bps to 1.75% - new lows since 2007. Copper made modest gains on the day but gold, silver, and worst of all WTI crude all dropped on the day (WTI -2% to $102).
Moving onto overnight markets, apart from China we are seeing broad based gains across most Asian equities. Bourses in Japan, Korea and Australia are up +0.2%, +0.2% and +0.5% respectively whereas the Hang Seng and the Shenzhen Composite indices are down -0.2% and -1.1% as we type. The gains in broader Asia Pacific followed what was another constructive session for risk assets yesterday during US trading hours. The S&P 500 (+0.38%) rose for its 5th consecutive day partly driven by better corporate earnings from the likes of GE and Morgan Stanley. Staying on the results season, we’ve had 70 of the S&P 500 companies reporting so far and the usual trend is starting to emerge in which earnings beats are faring better than revenue beats. Indeed the beat:miss ratio for earnings has been strong at 77%:23% whereas revenue beats/misses are more balanced at 50%:50%. Looking ahead, markets should get ready for another big week of US earnings.
Large speculators reduced ther S&P 500 positioning to net short this week and their NASDAQ longs to a one-year low as BofAML reports on CFTC data. Macros funds decreased their long exposure to S&P500 and NASDAQ to now hold short exposure. They also decreased their long exposure to US Dollar (raising their AUD longs to a record high) and maintained their long exposure to 10-year Treasuries. They decreased their long exposure to commodities and increased their long exposure to EM. Across all asset classes, positioning is at extremes.
It has been a largely event-free weekend except, of course, for the previously reported re-escalation in Ukraine following what was a lethal shooting in the east Ukraine city of Slavyansk blamed on Ukraine's Right Front, which has made a mockery, as expected, of the Geneva Ukraine de-escalation announcement from last Thursday. Overnight in Asia, Japan reported its largest ever trade deficit, providing yet more evidence that Abenomics has been an abysmal failure: all we are waiting for now is confirmation that basic Japanese wages have fallen yet again, which would make nearly 2 years in a row of declines. Still, the USDJPY, gamed as usual by HFT algos for which FX is now the last respite as the equity market crackdown gets louder, is doing its best to ramp from the overnight lows and ahead of the traditional US market open surge, as a result equity futures are modestly higher.
UPDATE: Goldman folds on "J-Curve" - the pace of that improvement will be far more modest than in past periods of yen weakness.
Another month, another colossal miss for the "waiting-for-the-j-curve" Japanese trade balance. At 1.7tn, this month's adjusted trade balance is the 2nd largest on record, and is the 36th month in a row - the worst March deficit ever. Exports missed dramatically (+1.8% vs 6.5% expected) so, so much for devaluation driving competitiveness in a globally interdependent product development cycle - nearly the lowest YoY gain in exports since Abenomics began. Imports rose more than expected (+18.1% vs 16.2%) as the devalued JPY makes living standards more difficult to maintain. The result of this dismal data - JPY weakness which can mean only one thing - a 120 point rally in the Nikkei.
At $3.67, US Regular gasoline prices are their highest since March 2013 having risen over 12% (40c) in the last 2 months. This must be great news, right? It must mean world demand is picking up and driving up prices of crude oil as global trade soars (amid a collapsing Baltic Dry and decelerating Chinese growth). This can't be related to "war premia" right? - as we noted here - because stocks (which always know best) have discounted all this tomfoolery. However, as the following chart shows, each time gas prices have surged up toards the Maginot Line of $3.80, US macro-economic fundamentals have collapsed... the only problem is, this time is different - because macro data is already weak going in (and expectations for the post-weather pop are high).
As China's ravenous appetite for oil surpasses that of the US which is enjoying an unexpected, if transitory, boom of shale oil production, which according to some experts may have already peaked, it means suddenly China is far more are the mercy of its core suppliers - the same way that for decades the US had no choice but to be best friends with Saudi Arabia, at least until Canada became the biggest supplier of crude to the US by a huge margin. So which are the countries that China relies most on for its daily energy importing needs? The map below has the answer.
After a solid day for risk yesterday, surging higher on a continuation of the rumor that Japan's economy will deteriorate so much the BOJ will have to print more money (even though overnight ex BOJ governor Sekido said Kuroda won't print more) we have a more cautious tone this morning heading into the Easter long weekend. A double earnings miss from Google and IBM following the US market close, comments from the Chinese Premier suggesting that the government will keep its policy settings unchanged, and a press conference from Russia’s President Putin in which the Russian president as expected, has refused to back down, has put a small dampener on sentiment today. Add the fact that due to Good Friday April equities Op-Ex will take place today and trading in the next 9 hours promises to be more unrigged than ever, especially if the NY Fed trading desk manages to slam the VIX into single-digit territory
Having been stopped out of his "long punt" in copper futures (which are, we remind readers, levered via margin and not a simple cash percentage loss of capital), world-renowned (for something) Dennis Gartman has issued his latest missive - ultimate contrarian call - advice... "we are sellers this morning of copper and buyers of crude oil, one relative to the other, with the problems in China weighing upon the former while crude has held impressively as other commodity prices have fallen." Crude oil longs beware... prepare to be Gartman'd.
Last month's industrial production beat was revised up dramatically to its biggest beat since 1998 - courtesy of the annual revision of the data series as noted below - which left this month showing fading growth. Perhaps more disappointingly was the 4th miss of the last 5 months for manufacturiung production. Capacity Utlization rose to an impressive 79.2% as "slack" in the un-job-producing economy is rapidly disappearing. This was also the highest capicty utilization print (once again courtesy of the annual data revision) since June 2008.