Following two days of rangebound moves, where Monday's modest market rebound was undone by the Tuesday just as modest decline (despite the early surge higher on the latest "bullish for stocks" European terrorism), overnight equity action continued to be more of the same, and as of this moment S&P 500 futures were unchanged, while European stocks were modestly higher. But while equities remain surprisingly uneventful despite loud warnings by both JPM and Goldman now that another bout of volatility and equity downside is coming, in FX there has been a substantial change, one which has seen the US dollar rise for a fourth day, the longest winning streak in a month, driven by the latest round of hawkish Fed jawboning courtesy of the Chicago Fed's Charlie Evens yesterday, which in turn has pushed down prices of oil, gold and copper.
This morning's Brussels suicide attacks have led to risk-off sentiment across European asset classes, with Bunds higher and equities firmly in the red, although if the Paris terrorist attacks of November are any indication, today's tragic events may be just the catalyst the S&P500 needs to surge back to all time highs. FX markets have also been dominated by events in Brussels, with USD and JPY strengthening, while EUR and GBP softening throughout the European morning.
As the battle between Brits' fiercely historic "independence" and the establishment's Project Fear, anxiety is building over the looming Brexit decision. Despite rallies in most markets over the past few weeks, UK-related risk premia remain extremely-elevates with British corporate bond risk notably decoupled from EU's credity risk but it is the FX markets where the biggest dislocations are with Cable volatility at its most elevated ever relative to EUR. While equity markets remain unimpressed by the FX and credit market concerns, Fed's Lockhart warns "BREXIT POSES RISK THAT CAN SPILL BACK TO U.S. ECONOMY."
At the same time as the PBOC was cautioning about the dangers of excess debt (just as it injected a record amount of loans into the financial system), China's central bank warned about dangers from a stock market bubble, and perhaps just to assure the bubble gets even bigger, at the same time China eased on margin debt limits, in the process sending Chinese stocks soaring higher by 2.2%, and pushing the Shanghai Composite over 3000 for the first time in months as China now appears set to attempt another housing bubble "soft landing" while at the same time restarting its housing bubble.
PBoC governor Zhou Xiaochuan is worried. The amount of debt accumulated by the country's corporate sector is "too much" and poses a "macroeconomic risk." Compounding the problem: the very same corporate sector has more than a half-trillion dollars in unpaid receivables on its books.
Despite collapsing earnings expectations and weaker than expected macro data, US equity markets have 'lifted off' since mid-February erasing the entire year's losses, and all it took was the coordinated easing from most of the world's largest central banks...
It may be option expiration day (always leading to abnormal market activity) but it remains all about the weak dollar, which after crashing in the two days after the Fed's surprisingly dovish statement has put both the ECB and the BOJ in the very awkward position that shortly after both banks have drastically eased, the Euro and the Yen are now trading stronger relative to the dollar versus prior. As DB puts it, "the US Dollar has tumbled in a fairly impressive fashion since the FOMC on Wednesday with the Dollar spot index now down the most over a two-day period since 2009" which naturally hurts those countries who have been rushing to debase their own currencies against the USD.
In the aftermath of the Fed's surprising dovish announcement, overnight there has been a rather sudden repricing of risk, which has seen European stocks and US equity futures stumble to roughly where they were when the Fed unveiled its dovish surprise, while the dollar collapse has continued, sparking deflationary fears resulting in treasury yields plunging even as gold soars, all hinting at another Fed policy error. So was that it for the Fed's latest intervention "halflife"? We don't know, but we expect much confusion today over whether even the Fed has now run out of dovish ammunition.
Gordon Brown, back when he was the UK Chancellor of the Exchequer, distinguished himself by selling off approximately one-half of Great Britain’s gold reserves at what turned out to be a near-bottom at the end of the secular bear market in gold which lasted from 1980 to 2000-ish. However, the news that the new Canadian Finance Minister Bill Morneau has completed selling all remaining Government of Canada gold reserves may remove Brown's laughing-stock status.
Today Janet Yellen and the FOMC will go back to square one and try to reset global expectations unleashed by the ill-fated December rate "policy mistake" hike, when at 2pm the Fed will announce assessment of the economy, even if not rate hike is expected today. Just like in December the Fed will be forced to telegraph that it is hiking rates as a signal of a strengthening US, and global, economy where "risks are balanced" and hope that the subsequent global reaction will not be a rerun of what happened in January and February when confusion about the Fed's intentions led to a global market rout.
One Week After Trolling Zero Hedge For Being Negative, Jefferies Posts Worst Quarter Since Financial CrisisSubmitted by Tyler Durden on 03/15/2016 11:23 -0400
Moments ago Jefferies, which is still on the investment banking cycle of reporting where its earnings (and in this case, losses) arrive one month ahead of the other banks, and as such is a good bellwether into overall Wall Street revenue trends, reported an absolute disaster of a quarter, its worst since the financial crisis.
Was that it for the great February/March bear market rally?
"On the negative side, the forward inflation targets were downgraded substantially, ECB didn’t address the issue of capacity constraints, and the shift in focus away from facilitating further currency depreciation will, in our view, end up being a negative for region’s equity market. Overall, we believe the latest package is far from a game changer."
While Asia was up on China's bad data, and Europe was higher again this morning to catch up for the Friday afternoon US surge, US equity futures may have finally topped off and are now looking at this week's critical data, namely the BOJ's decision tomorrow (where Kuroda is expected to do nothing), and the Fed's decision on Wednesday where a far more "hawkish announcement" than currently priced in by the market, as Goldman warned last night, is likely, in what would put an end to the momentum and "weak balance sheet" rally.
Less than 24 hours after European stocks tumbled on initial disappointment by Draghi's announcement that rates will not be cut further, mood has changed dramatically and the result has been that after "reassessing" the ECB kitchen sink stimulus, risk has soared overnight with both Asian and European stocks surging. As of this moment European bourses are all broadly higher led by banks, with the DAX and FTSE both up over 2.7%, while the Stoxx 600 is higher by 2.3% as of this writing.