While the trading world, or at least the kneejerk reaction algos, is focused on today's US nonfarm payrolls due out in just 2 hours (consensus expects 240K, with unemployment declining from 5.8% to 5.7%) the key event overnight came out of China, (where inflation printed at just 1.5% while PPI has imploded from -1.8% in September to -2.2% in October to -2.7% in November to a whopping -3.3% in December because as per BofA "soft domestic demand over-capacity issue have kept inflation pressures low") and Europe, after a Bloomberg report that as recently as Wednesday, ECB staff "presented policy makers with models for buying as much as 500 billion euros ($591 billion) of investment-grade assets... options included buying only AAA-rated debt or bonds rated at least BBB-, the euro-area central bank official said. Governors took no decision on the design or implementation of any package after the presentation." In other words less than two weeks before the fateful ECB meeting and Mario Draghi not only still hasn't decided on which of three public QE version he will adopt, but the ECB has reverted back to a private QE plan. Not surprisingly the EURUSD jumped back over 1.18 on the news (and USDJPY and stock markets dropped) on the news that Europe still is completely unsure how to proceed with QE despite the endless jawboning.
For now, they've failed............but the fact that this watering-down was even considered is something I find sickening.
“You never know where the skeletons in the closet are or what company will be next," warns one Chinese credit analyst and as the CNY30 billion indebted Chinese developer Kaisa Group (that we initially discussed here) admits it can’t say if it plans to meet a bond deadline today as a local news website said lenders took steps to preserve assets. The builder of residential communities and shopping centers must pay about $26 million in interest on its 10.25 percent 2020 debentures today (which appears unlikely) and its bonds have crashed to below 30c. The big question, as Bloomberg notes, is who's next?
With QE terminated and expectations of a near-term rate hike looming, the Fed “put” is now much further out-of-the-money. More importantly, the discounting function for future cash flows is moving away from zero. In addition, as the Fed’s policy pivot is tightening the spigot of easy money, share buyback programs that have enhanced the illusion of the power of the equity market will wane. Going forward, prices will have to be supported by fundamental values rather than easy money and speculation. The upside vs. downside distribution now looks skewed to the ‘left-tail’. The Junk bond market started declining last June. The bottom line is that we expect a large equity price adjustment (down) to occur imminently.
Will there be Parity in the EUR/USD? Will OIL build on a possible support level?
Market Wrap: Evans' "Catastrophe" Comment Blasts Overnight Futures Into Overdrive, 10-Year Rises To 2%Submitted by Tyler Durden on 01/08/2015 06:56 -0500
After subdued trading in the overnight session until a little after 8pm Eastern, algos went into overdrive just around the time the Fed's 2015 voting member and uberdove Charlie Evans told reporters that "raising rates would be a catastrophe", hinting that the first rate hike would likely be - as usual - pushed back from market expectations of a mid-2015 liftoff cycle into 2016 or beyond (but don't blame the US, it is the "international situation's" fault), in the process punking the latest generation of Eurodollar traders yet again. Whatever the thinking, S&P futures soared on the comments and were higher by just under 20 points at last check even as Crude has failed to pick up and the 10Y is barely changed at 2.00%.
History literally appears to be repeating. The mainstream media and our politicians are promising Americans that everything is going to be okay somehow, and that seems to be good enough for most people. But the signs that another massive financial crisis is on the horizon are everywhere.
While various CNBC anchors may be willing to say that the US is "growing gangbusters" yet again confusing the liquidity-oozing equity markets with the economy, there are a couple hundred million Americans who would bet to differ (which incidentally may also explain why the Comcast channel no longer wishes to have its viewership calculated by Nielsen): the reason is that according to the latest Bankrate survey released today, more than three in five Americans don't have money in their savings accounts to cover any unexpected bills such as a $500 car repair or a $1,000 emergency room visit. In fact, only 38% of respondents said they have enough funds in their bank accounts to cover even the most mundane of spending emergencies.. Most others would need to take on debt or cut back elsewhere.
Can the US economy ignore or even benefit from the winds of deflation blowing from offshore? With a current CAPE (Cyclically Adjusted PE) in excess of 27X, the US market is clearly answering this question in the affirmative. It is worth pausing to ponder just how much this optimism for a US de-coupling has already been reflected in prices. The Solid Ground was very bullish on global equities from 1Q 2009 to 1Q 2011, but then turned bearish, believing that QE was insufficient to prevent deflation. The failure of QE to generate ever higher inflation is now a matter of record, but very clearly US equities cheered this failure and the need for continual QE from 2011 to 2014.
Things in risk land started off badly this morning, with the worst start to a year ever was set to worsen when European equities came under early selling pressure following news of German unemployment falling to record low, offset by a record high Italian jobless rate, with declining oil prices still the predominant theme as Brent crude briefly touched its lowest level since May 2009, this consequently saw the German 10yr yield print a fresh record low in a continuation of the move seen yesterday. However, after breaking USD 50.00 Brent prices have seen an aggressive bounce which has seen European equities move into positive territory with the energy names helping lift the sector which is now outperforming its peers. As a result fixed income futures have pared a large majority of the move higher at the EU open. But the punchline came several hours ago courtesy of Eurostat, when it was revealed that December was the first deflationary month for the Eurozone since the depths of the financial crisis more than five years ago, when prices dropped by -0.2% below the -0.1% expectation, and sharply lower than the 0.3% increase in November, driven by a collapse in Energy prices.
Will 2015 be a year of financial crashes, economic chaos and the start of the next great worldwide depression? Over the past couple of years, we have all watched as global financial bubbles have gotten larger and larger. Despite predictions that they could burst at any time, they have just continued to expand. But just like we witnessed in 2001 and 2008, all financial bubbles come to an end at some point, and when they do implode the pain can be extreme.
Same slide, different day, as the crude crash continues, with both WTI and Brent tumbling to multi-year highs, below $49 and $52 respectively. This happened despite the news overnight that China is accelerating 300 infrastructure projects valued at 7 trillion yuan ($1.1 trillion) this year, suggesting that China will focus more on fiscal policy than monetary easing, which in turn led to much confusion in the SHCOMP, which fluctuated up and down for the day several times before finally closing unchanged. There was no confusion about the stops slamming USDJPY, and its Nikkei225 derivative which tumbled 3%, sending Japanese Treasury yields to fresh record lows. Record low yields were also seen in Germany, Austria, Belgium, Netherlands, Finland, France (and many other places), which in turn forced the US 10 Year to finally dip back under 2.00%. In fact, taken together, the average 10Y bond yield of the U.S., Japan and Germany has dropped below 1% for the first time ever, according to Citi.
“Don’t look back - something might be gaining on you,” Satchel Paige famously warned. For connoisseurs of civilizational collapse, 2014 was merely annoying, a continued pile-up of over-investments in complexity with mounting diminishing returns, metastasizing fragility, and no satisfying resolution. So we enter 2015 with greater tensions than ever before and therefore the likelihood that the inevitable breakdown will release more destructive energy and be that much harder to recover from.
That markets are rigged, at both the macro level, through central banks, and micro, through HFTs, dark pools and purposeful market fragmentation, should be painfully obvious to everyone by now. But when even the regulators engage in "jury rigging", or in this case blocking prominent HFT-critic Joseph Stiglitz, a Nobel prize winning economist (a prize which doesn't count for much on these pages but should - at least on paper - impress such statist cronies as the SEC), has been blocked from a government panel that will advise regulators on issues facing U.S. equity markets, it becomes clear as day that the rigging is not just in the markets: worse, it is openly involves the market's "regulator" and "enforcer."
While the predictions of Blackstone's Byron Wien (born in 1933) have been all over the place in the last few years, they nevertheless provide some color on just what the mainstream does not believe... This is the 30th year Byron has given his views on a number of economic, financial market and political surprises for the coming year. From "our luck running out on cyberterrorism" to "shock and awe no longer working in Japan", Wien's non-predictions range from The Fed to China and from Oil to Hillary Clinton...