With no major macro news on today's docket, it is a day of continuing reflection of Friday's abysmal jobs report, which for now has hammered the USDJPY carry first and foremost, a pair which is now down 170 pips from the 105 level seen on Friday, which in turn is putting pressure on global equities. As DB summarizes, everyone "knows" that Friday's US December employment report had a sizeable weather impact but no-one can quite grasp how much or why it didn't show up in other reports. Given that parts of the US were colder than Mars last week one would have to think a few people might have struggled to get to work this month too. So we could be in for another difficult to decipher report at the start of February. Will the Fed look through the distortions? It’s fair to say that equities just about saw the report as good news (S&P 500 +0.23%) probably due to it increasing the possibility in a pause in tapering at the end of the month. However if the equity market was content the bond market was ecstatic with 10 year USTs rallying 11bps. The price action suggests the market was looking for a pretty strong print.
- From the guy who said the market is not overvalued: Q&A with Fed’s Williams on Upbeat 2014 Outlook and What Keeps Him up at Night (Hilsenrath)
- Obama Readies Revamp of NSA (WSJ)
- Indian envoy leaves U.S. in deal to calm diplomatic row (Reuters)
- China overtakes US as largest goods trader (FT)
- Wall Street Predicts $50 Billion Bill to Settle U.S. Mortgage Suits (NYT)
- Low-End Retailers Had a Rough Holiday: Family Dollar, Sears Struggle as Lower-Income Customers Remain Under Pressure (WSJ)
- ECB charts familiar course as Japan, US and UK begin to diverge (FT)
- Housing experts warn of hiccups as new U.S. mortgage rules go live (Reuters)
- It's a HFT eat HFT world: Infinium ex-employees sue over $4.1m loss (FT)
- Slowing China crude imports to challenge exporters (FT)
Risks surrounding the looming release of the latest jobs report by the BLS later on in the session failed to weigh on sentiment and heading into the North American open, stocks in Europe are seen higher across the board. The SMI index in Switzerland outperformed its peers since the get-go, with Swatch Group trading up over 3% after the company said that it expects good results for 2013 at operating profit and net income level. At the same time, in spite of stocks trading in the green, Bunds remained better bid, with peripheral bond yield spreads wider as market participants booked profits following the aggressive tightening observed earlier in the week amid solid Spanish bond auctions, as well as syndications by Ireland and Portugal. Fake Chinese trade data failed to boost Chinese stocks, which dropped anoter 0.7% and is just 13 points above 2000 as Shanghai remains one of the world's worst performing markets since the financial crisis. The yoyoing Nikkei was largely unchanged. All eyes today will be fixed on the headline streamer at 8:30 when the latest nonfarm payrolls report is released.
Another day of 'spot the difference' between AUDJPY and the S&P 500 saw an odd overnight spike in stocks fade soon after the US open, bounce higher (again) at the European close then oscillate around VWAP (with the ever-ready-to-please 330 RAMP). Stocks remain red for the year and still the worst start since 2008. "Most Shorted" names continue to outperform. Copper and WTI crude were notable underperformers (both ending an oddly similar -1.75% on the week so far) with oil rebounding modestly off 8-month lows into the close. VIX and credit markets were quiet - ending practically unch ahead of tomorrow's NFP. CAD weakness continues (-2% on the week) but the USD leaked lower to unch on the week. Treasuries rallied 2-3bps (and the curve flattened very modestly) with 2Y unch and 10Y -3bps.
At $91.70, front-month WTI crude prices have dropped to a fresh 7-month-low this morning. The mainstream media is already crowing of what this means for gas prices and how that will be an implicit "tax-cut" - even though gas prices remain at or near record-high levels for this time of year. The issue with this thinking, of course, is Brent crude (which more closely correlates to US gasoline prices) remains stubbornly high at around $107 as the spread between WTI and Brent surges over $15.
The overnight session began on a dour mood, with both the Shanghai Composite and Nikkei sliding (the former once again just barely above 2,000, latter once again dropping below 16,000), even though Chinese CPI came below expectations suggesting the PBOC has some more room to ease and not rush into liquidity extraction (which just happens to blow out repo rates like clockwork), while in Japan BOJ board member Shirai implied the Japanese QE can be extended and expanded as needed. Europe had a weak start although shortly after 3 am Eastern staged a dramatic turnaround supported by a bounce in the EUR (and ES driving EURJPY) leading to broadly higher stocks, supported by solid demand for Portuguese 5y bond syndication, as well as oversubscribed debt auctions by the Spanish Treasury which sold above the targeted amount and consequently saw SP/GE 10y spread fall to its tightest level since April 2011. At the same time, having been propped up by touted redemption flows ahead of Spanish and French bond auctions, absorption of supply shortly after 1000GMT resulted in an immediate selling pressure on Bunds. Helping lift spirits was a rumored $1 billion trade order in September S&P futures, as well as chatter by the Greek PM that the country was like Portugal and Ireland, prepared to get back into the bond markets.
Armed groups, demanding autonomy for eastern Libya, have invited foreign companies to buy oil from ports they have seized in defiance of the central government in Tripoli. As Reuters reports, "If a ship docks in one of the closed ports," warned Libya's defense ministry, "then we will destroy it," but the group, led by tribal leader and 2011 civil war hero Ibrahim Jathran, shrugged off Tripoli’s warning, stating "we welcome global oil companies ... The oil security guards will guarantee the safety of tankers." The development adds to an air of chaos as the weak Tripoli government struggles to rein in the armed groups that helped oust Muammar Gaddafi in 2011 but which kept their guns and are now demanding political power and a bigger share of the country’s oil wealth.
Credit markets had been nervous for the last 48 hours heading into today's Fed minutes and reflective of the FOMC's worries over small-cap forward multiple and covenant-lite loan issuance (both of which we have discussed in great detail as excessive) sparked weakness in the Russell and credit spreads. Yesterday's bounce gave way to selling after the minutes (and on a "good" data day). But a late-day no-JPY-supported melt-up saved the day but stocks are still down after first 5 days of the year - still worst since 2008. Treasury yields leaked higher into the minutes then flattened dramatically with 10s and 30s rallying and 5s and below weakening. 5s30s dropped 7bps on the day - biggest flattening since Taper. 10y did not close above 3%. Gold and silver slipped lower after 2pm then recovered into the close, but WTI crude slid all day - holding losses after the Fed ($92.50). The USD limped lower after the Fed with EURUSD unch on the week before tomorrow's ECB statement.
Some better than expected economic news out of Europe, Greek 10 Year yields dropping to 7.65% or the lowest since May 2010, and futures are... red? Alas, such is life in a world in which the S&P500, aka the E-mini, is simply a derivative of the Yen funding currency pairs, where the USDJPY touched on 105 after a straight line diagonal move only to sell off in recent trading. Heading into the North American open, stocks in Europe are seen mixed, with peripheral stock indices outperforming, buoyed by the prospect of Portugal echoing yesterday’s Irish NTMA return to capital markets with its 10y bond syndication. As such, despite the cautious sentiment, financials led the move higher, with Italian banks gaining for 4th session as IT/GE 10y spread narrowed to its tightest level since early July 2011. Of note, FTSE-100 index underperformed its peers since the get-go, with retailers and tobacco names under pressure. In spite of opening higher by over 3%, Sainsbury's shares have since reversed and are seen lower by almost 2% after co. CFO said that he expects FY LFL sales to be just below 1% and expects Q4 to be similar to Q3. Elsewhere, tobacco names came under selling pressure following reports that China is planning a ban on smoking in public by year's end.
Despite the surge in prices for NatGas (and record time-of-year prices for gasoline), WTI crude oil prices are stumbling back to $93.50 this morning. Copper is also sliding but the real action - once again - is in Gold and Silver. Following yesterday's flash crash in gold, silver is having a conniption this morning as the 8amET period once again brings volatility. The selling coincided with the smaller-than-expected trade deficit - perhaps indicating indirectly less room for Fed QE? But in this new normal market, do they really need a reason to smack them down. Stocks are not moving as this occurs but bonds and the USD are modestly bid.
Following October's disappointing bounce in the US trade deficit, it was only expected that the November data would come leaps and bounds ahead of the expected $40 billion print, instead sliding 12.9% to $34.3 billion from October's revised $39.3 billion - this was the lowest monthly trade deficit since October 2009. The delta was the result of a modest boost in exports, up $1.7 billion, to a record high of $194.9 billion, compounded by a more pronounced slide in imports, which were $3.4 billion less than October's $232.5 billion. Some other highlights: exports to China climbed to a record high (we certainly expect "matching" Chinese exports to the US to also rise to a record when reported next), while the US petroleum deficit was the lowest since May 2009 thanks to shale.
Heading into the North American open, stocks in Europe are seen broadly higher, with peripheral EU stock indices outperforming after Ireland successfully returned to capital markets with its 10y syndication that attracted over EUR 10bln. Financials benefited the most from the consequent credit and bond yield spreads tightening, with smaller Italian and Spanish banks gaining around 4%. Following the successful placement, IR/GE 10y bond yield spread was seen at its tightest level since April 2010, while PO/GE 10y spread also tightened in reaction to premarket reports by Diario Economico citing sources that Portuguese govt and debt agency IGCP consider that the current level of yields already allows Portugal to go ahead with a bond sale. Looking elsewhere, the release of better than expected macroeconomic data from Germany, together with an in line Eurozone CPI, supported EUR which gradually moved into positive territory. In addition to that, smaller MRO allotment by the ECB resulted in bear steepening of the Euribor curve and also buoyed EONIA 1y1y rates. The Spanish and Italian markets are the best-performing larger bourses, Swedish the worst. The euro is stronger against the dollar. Japanese 10yr bond yields fall; Spanish yields decline. Commodities gain, with wheat, silver underperforming and Brent crude outperforming. U.S. trade balance data released later.
The predictions of Blackstone's octogenarian Byron Wien (born in 1933) have been all over the place in the past 10 years, some correct, most wrong (with a recent hit rate of about 25%) - his 2013 year end S&P forecast was for 1300 - yet always entertaining. Which is the only value in the latest release of his 10 forecasts for 2014. Naturally, take all of these with a salt mine.
With Trader Monthly magazine having, ironically, gone out business long ago, all those traders whose egos demanded that their insider trading connections put them at least in one of the iconic "Top X under X" league tables, pardon, rankings, had to bide their time in expectation of one day when their prowess to frontrun others or move markets with repeated calls to 555-7617 (with or without references to Anacott Steel) would be appreciated by such sterling Wall Street "experts" as Anthony Scaramucci. Well, for this year's crop of some 30 traders under 30, the day has arrived. And while Forbes may not be Trader Monthly, the amusement, the hubris and the behind the scenes dealing to appear in such a list, sure are still the same...
All signs point to serious trouble for the Chinese economy. The best ways to play a China downturn: short-selling Australian banks, China property and the yuan.