European Central Bank
Moments ago, Russia casually hinted that Ukraine should use part of the IMF aid (which has been promised in virtually all increments between $1 billion up to $18 billion, but at last check not one penny has been wired) to repay Gazprom's debt, which is anywhere between the $2.2 billion Gazprom has said Ukraine is delinquent on for 2014 gas supplies, and an additional $11.4 billion which is what Gazprom said Ukraine's state-owned energy firm Naftogaz owes for unused take-or-pay arrangements in 2013. This happened just hours after Ukraine reportedly used the 'nuclear option' and halted the bulk of water supply to Russia's newest territory: Crimea. Tit for tat?
It is not true that there has been a secret protocol, reintroducing fixed exchange rates, though the lackluster price action in the foreign exchange market and the continued erosion of volatility make it feel almost like it.
In a rhetorical self-QE released by its strategist Peter Oppenheimer, discussing recent changes to long-running market trends, among which the crash in momo stocks, and the EM to DM inversion, the punchline was the most important. To wit: "We see less scope for this peripheral index... Peripheral spreads may narrow further, but more now via higher bund yields. After all, 5-year Spanish and Italian bond yields have converged to the same levels as the US. We still like selected parts of the peripheral markets, particularly the banks, but would prefer to express this via single names than via index overweights... the drivers of returns may have shifted away from some areas such as US growth and European periphery towards more of a cyclical bias across markets, with a particular focus on exposure to a DM macro recovery." In other words, while the momentum bubble may have popped (if still has a loooooong way to go before it deflates) the European peripheral bubble is about to go pop as well. For all those who just bought Spanish 10 Years at a record low yield (yes, record low) yesterday, our condolences. Then again, it's only other people's money.
Hollande's promise to bring jobs to the nation is failing dismally. It is no surprise that Le Front National are gaining power as for the 32nd time in the last 34 months, joblessness has risen in France (to a new record high). Nothing to add here, yields continue to fall in Europe as nothing matters but hope for ECB QE as the 2nd biggest economy in Europe (and 5th largest in the world) is getting worse faster...
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.
The most important chart from AAPL's earnings release is the one showing Apple's total cash and cash equivalents, for the simple reason that for the first time since before the Lehman collapse, Apple actually burned through cash, or $8.2 billion to be precise, which brought the company's cash hoard to just over $150 billion.
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.
Pre-crisis levels of confidence... never before seen bond yields... stocks surging back toward record highs... just don't tell the record number of unemployed Europeans...
Gold is down 6 days in a row and has broken back down to its lowest since mid-February (under its 200DMA once again). The reason... aside from growth stocks are rallying which must mean the economy is fixed and therefore no need for the world's central banks to print any more money (oh wait apart from the BoJ and ECB)... is unclear... though we suspect the driver is to do with the following crucial chart...
- Ukraine Accord Nears Collapse as Biden Meets Kiev Leaders (BBG)
- Novartis reshapes business via deals with GSK and Lilly (Reuters)
- Moscow Bankers See Fees Slide 67% as Ukraine Crisis Grows (BBG)
- Why ECB's QE will be Ukraine's fault: Draghi Gauges Ukraine Effect as ECB Tackles Low Inflation (BBG)
- As Phone Subsidies Fade, Apple Could Be Hurt (WSJ)
- Amazon Sales Take a Hit in States With Online Tax (BBG)
- Ford Speeds Up Succession Plan: Mark Fields, Auto Maker's No. 2, Seen Replacing Alan Mulally as CEO Ahead of Schedule (WSJ)
- U.S. force in Afghanistan may be cut to less than 10,000 troops (Reuters)
- IBM End to Buyback Splurge Pressures CEO to Boost Revenue (BBG)
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.
Dear Gennady, ...So you see, Gennady, we are actually quite prepared to see the stock market crash, to see all the stock markets in the world crash, and the yields on our dollar bonds rise to whatever level. We are prepared for much worse things... The inevitable economic setback may result in some political opposition within Russia itself, but in the context of an escalating confrontation with Europe it shouldn’t be too difficult to cope with.... I hope that makes things a little clearer. Yes, it is a risky strategy, but a Europe dominated by Russia, or at least detached from the United States and disunited, is a prize worth risking everything for. Beppo is worth a crash.... Think about what I’ve said – some of it may come as a shock, but in the end, I think you’ll agree that it’s actually good news that the long tense period of waiting is finally over. We can’t win a conventional or a nuclear conflict, but this plan really might succeed. If not, well, we Russians are used to overcoming adversity.. Your Friend, Sasha
While hardly coming as a surprise to anyone, Russia is getting increasingly more vocal about the near certainty that the country is about to slam headfirst into a technical (at first), and then outright recession.
- RUSSIA MAY ENTER `TECHNICAL RECESSION' IN 2Q, ORESHKIN SAYS
- RUSSIAN 2014 CAPITAL OUTFLOWS MAY REACH $70B-$80B: ORESHKIN
- RUSSIAN 2014 CURRENT-ACCOUNT SURPLUS MAY EXCEED $50B: ORESHKIN
- RUSSIAN GDP MAY CONTRACT IN 2Q OR 3Q VS YR EARLIER: ORESHKIN
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.
An explanation of how fractional reserve banking infringes on everyone’s freedom.