Eurozone

Goldman's Stolper Opines On The EUR, Says ECB Rate Cut Is A Buying Opportunity

After briefly becoming the strongest currency in the world for 2013, yesterday's stunning inflation report out of the Eurozone has not only left the massively overblown European recovery story in tatters (but... but... those soaring PMIs, oh wait, John Paulson is investing in Greece - the "recovery" is indeed over), has sent the sellside penguins scrambling with the new conviction that the ECB now has no choice but to lower rates once again, either in November or in December. So with everyone confused, we were hoping that that perpetual contrarian bellwether Tom Stolper, who just came out with a report, may have some insight. And sure enough, while the long-term EUR bull admits that "the ECB could move the EUR/USD cross by about 5 big figures by cutting the refi rate by 25bp" and that "it is quite possible that we will see EUR/$ drop further towards 1.33", he concludes that "an ECB rate cut could turn out to be a buying opportunity to go long the EUR." And now we know: because what Stolper tells his few remaining muppets to buy, Goldman is selling: if and when the ECB cuts rates, do what Goldman does, not what is says: sell everything.

Hungover Markets Enter November With Quiet Overnight Session

After a blistering October for stocks, drunk on yet another month of record liquidity by the cental planners, November's first overnight trading session has been quiet so far, with the highlight being the release of both official and HSBC China PMI data. The official manufacturing PMI rose to 51.4 in October from 51.1 in September. It managed to beat expectations of 51.2 and was also the highest reading in 18 months - since April 2012. October’s PMIs are historically lower than those for September, so the MoM uptick is considered a bit more impressive. The uptrend in October was also confirmed by the final HSBC manufacturing PMI which printed at 50.9 which is higher than the preliminary reading of 50.7 and September’s reading of 50.9. The Chinese data has helped put a floor on Asian equities overnight and S&P 500 futures are nudging higher (+0.15%). The key laggard are Japanese equities where the TOPIX (-1.1%) is weaker pressured by a number of industrials, ahead of a three day weekend. Electronics-maker Sony is down 12% after surprising the market with a profit downgrade with this impacting sentiment in Japanese equities.

BNP Warns "You Can Never Leave" From The Fed's "Hotel California"

In the 1977 Eagles song, Hotel California, a luxury hotel appears inviting and offers a tired traveller comforting relief from his journey. It turns out to be something of a nightmare, however, and he finds that "you can check out anytime you like, but you can never leave". BNP's Paul Mortimer-Lee asks "does that sound a little bit like QE and the Fed?" The FOMC signalled its intention to check out of QE at its June meeting, but by September, it found it could not leave. Is that not just like QE1 and QE2, the scheduled ends of which had to be reversed within relatively short periods? The question now is whether or not we should expect repeated market obstacles to a QE3 exit. Why? Because, as we have noted numerous times, flows matter.

Futures Unable To Ramp Higher Despite Cornucopia Of Disappointing Macro News

In addition to the bevy of ugly European unemployment and inflation news just reported, the overnight session had a dollop of more ugly macro data for the algos to kneejerkingly react to and ramp stocks to fresh time highs on. First it was China, where the PBOC did another reverse repo, however this time at a fixed 4.3% rate, 0.2% higher than the Monday iteration and well above the 3%-handle from early October, indicating that China is truly intent on tightening its monetary conditions. Then Japan confirmed that despite the soaring imported food and energy inflation, wages just refuse to rise, and have declined now for nearly 1.5 years. Then, adding core insult to peripheral injury, Germany reported retail sales that missed expectations of a +0.4% print wildly, declining -0.4% from a prior downward revised 0.5% to -0.2%. And so on: more below. However, as usual what does matter is how the market digests the FOMC news, and for now the sense is that the risk of a December taper has risen based on the FOMC statement language, whether warranted or not, which as a result is pushing futures modestly lower following an epic move higher in the month of October on nothing but pure balance sheet and multiple expansion.  The big data week in the US rolls on with the highlights being the Chicago PMI and initial jobless claims, which are expected to print their first accurate, non-impaired reading since August.

Europe Stuns With "Surprising" Record High Unemployment Print, Inflation At 4 Year Low; Euro Tumbles

Those following the Euro FX pairs saw a plunge at 6 am Eastern, when Eurostat released the latest Eurozone unemployment and inflation statistics. They were, in a word, abysmal. After the August unemployment data finally saw a modest drop forcing many to announce the end of the European depression, not only did the the September number revise the August print from 12.0% to 12.2%, a new record high as 73,000 thousand people became unemployed, but more importantly made the September unemployment rate 12.2% as well following another 60,000 Eurozoneans losing their jobs, effectively meaning that for all the talk of a European recovery, its unemployment rate keeps hitting new all time record highs every single month.

Despite (Or Thanks To) More Macro Bad News, Overnight Futures Levitate To New All Time Highs

The overnight fireworks out of China's interbank market, which saw a surge in repo and Shibor rates (O/N +78 to 5.23%, 1 Week +64.6 to 5.59%) once more following the lack of a follow through reverse repo as described previously, and once again exposed the rogue gallery of sellside "analysts" as clueless penguins all of whom predicted a quick resumption of Chinese interbank normalcy, did absolutely nothing to make the San Diego's weatherman's forecast of the overnight Fed-driven futures any more difficult: "stocks will be... up. back to you." And so they were, despite as DB puts it, "yesterday saw another round of slightly softer US data that helped drive the S&P 500 and Dow Jones to fresh highs" and "the release of weaker than expected Japanese IP numbers hasn’t dampened sentiment in Japanese equities" or for that matter megacorp Japan Tobacco firing 20% of its workforce - thanks Abenomics. Ah, remember when data mattered? Nevermind - long live and prosper in the New Normal. Heading into US trading, today the markets will be transfixed by the FOMC announcement at 2 pm, which will likely say nothing at all (although there is a chance for a surprise - more shortly), and to a lesser extent the ADP Private Payrolls number, which as many have suggested, that if it prints at 0 or goes negative, 1800 on the S&P is assured as early as today.

What Spanish Recovery?

One of the prevailing themes in recent weeks has been that Spain has transformed out of Europe's economic basket case into a success story. This was further exemplified today by the following quotes by DieselBOOM:SPANISH RECOVERY IS ON TRACK;SPAIN COULD BE FRONT RUNNER OF EURO-AREA RECOVERY. It could, if one listens to bureaucrats peddling snake oily hope, but certainly not based on actual dynamics in its housing market, where mortgage apps have tumbled 90% from all time highs... and certainly not based on loan to companies or households, which continue to be the worst in the Eurogroup.

USD Strength Stuns US Stocks Into Morning Nosedive

Across the board the USD is rallying against the majors (having once again tested 17 month low resistance in the USD index). Much of the strength is coming from EUR weakness as excess liquidity in the eurozone drops to a fresh two-year low (prompting talk of renewed liquidity injections or LTROs). This has knocked US and European stocks notably lower from overnight highs leaving S&P futures an odd shade of red in the pre-open. Treasury yields are also pressing higher in the last few hours along with Commodities.

October FOMC Week Starts With Traditional Overnight Meltup

Just as it is easy being a weatherman in San Diego ("the weather will be... nice. Back to you"), so the same inductive analysis can be applied to another week of stocks in Bernanke's centrally planned market: "stocks will be... up." Sure enough, as we enter October's last week where the key events will be the conclusion of the S&P earnings season and the October FOMC announcement (not much prop bets on a surprise tapering announcement this time), overnight futures have experienced the latest off the gates, JPY momentum ignition driven melt up.

Busy, Lackluster Overnight Session Means More Delayed Taper Talk, More "Getting To Work" For Mr Yellen

It has been a busy overnight session starting off with stronger than expected food and energy inflation in Japan even though the trend is now one of decline while non-food, non-energy and certainly wage inflation is nowhere to be found (leading to a nearly 3% drop in the Nikkei225), another SHIBOR spike in China (leading to a 1.5% drop in the SHCOMP) coupled with the announcement of a new prime lending rate (a form a Chinese LIBOR equivalent which one knows will have a happy ending), even more weaker than expected corporate earnings out of Europe (leading to red markets across Europe), together with a German IFO Business Confidence miss and drop for the first time in 6 months, as well as the latest M3 and loan creation data out of the ECB which showed that Europe remains stuck in a lending vacuum in which banks refuse to give out loans, a UK GDP print which came in line with expectations of 0.8%, where however news that Goldman tentacle Mark Carney is finally starting to flex and is preparing to unleash a loan roll out collateralized by "assets" worse than Gree Feta and oilve oil. Of course, none of the above matters: only thing that drives markets is if AMZN burned enough cash in the quarter to send its stock up by another 10%, and, naturally, if today's Durable Goods data will be horrible enough to guarantee not only a delay of the taper through mid-2014, but potentially lend credence to the SocGen idea that the Yellen-Fed may even announce an increase in QE as recently as next week.

Futures Ramp On Declining European PMIs, Japan "Wealth Effect" Warning, China Tightening Fears

In addition to the already noted repeat spike in Chinese overnight repo rates as the PBOC refuses to inject liquidity for nearly a week offsetting the "news" of a better than expected HSBC PMI, the other kay datapoints to hit in the overnight session were various European PMIs which were broadly lower across the board. Of note being the French, which missed both the Manufacturing Index (49.4 vs 50.1 expected, down from 49.8) and the Services (50.2 vs 51.0 expected, down from 51.0) and Germany, which missed in Services (52.3 vs 53.7 expected, same as September), while modestly beating Manufacturing at 51.5 vs 51.4 expected, up from 51.1 last.  On a blended basis, the Composite Flash PMI fell from 52.2 to 51.5, against the consensus expectation of a modest rise (Cons: 52.4). Today's correction brings to a halt a series of six consecutive monthly rises in the Euro area composite PMI.

CAT Slaughtered With Epic Q3 Revenue, Earnings Miss And Guidance Cut: Sees "Good Deal Of Uncertainty Worldwide"

With every passing quarter, Caterpillar, perhaps the last truly industrial company in the epically misnamed Dow Jones (non)-Industrial Average, provides an ever clearer answer to the question we posed this past July, namely "Is CAT Nothing But The Dow's Most Overpriced Dog?" The most recent affirmative response came moments ago when the company announced Q3 earnings which were for lack of a better word, disastrous: EPS came at $1.45 on expectations of $1.67, revenues missed by a whopping $1 billion, when the sales print $13.4 billion missed expectations of $14.47 billion - perhaps the biggest top-line miss in the company's history since the Lehman bankruptcy. But it was the guidance that is slaying the stock right now: "The company has revised its 2013 outlook and now expects sales and revenues to be about $55 billion, with profit per share of about $5.50.  The previous outlook for 2013 sales and revenues was a range of $56 to $58 billion with profit per share of about $6.50 at the middle of that range." But don't worry: despite our continuous warnings about the sad state of this company the trend, it is only "transitory", and any minute now thing may get better. Unless they don't.

Frontrunning: October 23

  • Top China Banks Triple Debt Write-Offs as Defaults Loom (BBG)
  • PBOC suspends open market operations again (Global Times)
  • Eurozone bank shares fall after ECB outlines health check plan (FT)
  • O-Care falling behind (The Hill)
  • Key House Republican presses tech companies on Obamacare glitches (Reuters)
  • J.P. Morgan Faces Another Potential Huge Payouta (WSJ)
  • Yankees Among 10 MLB Teams Valued at More Than $1 Billion (BBG)
  • Free our reporter, begs newspaper as China cracks down on journalists (Reuters)
  • Peugeot Reviews Cost-Saving Alliance With GM (WSJ)