France

Now that the 3:30 pm pump has been exposed to the world, and having been priced in and frontran (such as yesterday) it changed to the 3:30 dump, algos are desperately searching for another daily calendar trading opportunity. It appears the opening of Europe and Japan for trading are just these two much needed "fundamental" catalysts. As the charts below show, it appears there is nothing more bullish for the two key carry pairs, the USDJPY and the EURUSD, than Japan opening at 8pm Eastern, and then Europe opening next, at 3:30 am Eastern.

Anyone who wants to get to the truth behind the inflationary threats to their wealth should ignore everything the Central Banks say about inflation and look instead at their actions.

When European governments buys goods and services they often do not pay their suppliers in full. Many countries in the euro area are in arrears. These are not included in the Maastricht definition of debt. Italy is the most egregious and this in turn has aggravated the credit crunch for the SMEs and increase the non-performing loans at banks.

France is engulfed by a political, economic and moral paralysis. The president has record low popularity, unemployment is making new highs and the tax czar of a supposedly left wing government just quit after repeatedly lying about a pile of cash he had stashed in a Swiss bank account. From such a sorry state of affairs, you might think that things could only get only get better. Unfortunately, economic cycles do not work this way and it is my contention that France is about to enter what was known during the gold standard era as a “secondary depression.” The rigid design of the euro system means the whole eurozone is prone to the kind of brutal cyclical adjustments seen in that hard money era of the 19th and early 20th centuries. But having reached the logical limits of its decades long experiment in state-run welfare-capitalism France is far more exposed than even its struggling neighbors. Until quite recently, our working assumption was that a full-blown French debt crisis would occur between 2014 and 2017. In light of the extraordinary malfeasance of the current government we have changed our mind and believe that France is now extremely near to that abyss. Fasten your seat belt in Europe - the world’s last truly Communist country is about to implode.

We started off the overnight session with various pseudo-pundits doing the count-up to a 100 in the USDJPY. It was only logical then that moments before the 4 year old threshold was breached, the Yen resumed strengthening following comments from various Japanese politicians who made it appear that the recent weakening in the currency may suffice for now. This culminated moments ago when Koichi Hamada, a former Yale professor and adviser to Japanese Prime Minister Shinzo Abe, told Reuters that level of 100 yen to dollar is suitable level from the perspective of competitiveness. The result has been a nearly 100 pip move lower in the USDJPY which puts into question the sustainability of the recent equity rally now that the primary carry funding pair has resumed its downward trajectory. Another result is that the rally in the Nikkei225 was finally halted, closing trading unchanged, and bringing cumulative gains since the morning before the BoJ’s announcement last Thursday to 8.9%. Over that the same time period, the TOPIX Real Estate Index is up an incredible 24%, no doubt reflecting the prospect of renewed buying of REIT stocks from the BoJ’s asset purchasing program.

When we said several months ago, that the French military incursion in Mali would have a hilarious, if sad ending, we didn't quite have this in mind but it will do. It turns out that after the French "liberation" of Mali, French president Francois Hollande, already the most unpopular president in French history and last week's Cahuizac tax-evasion affair hardly doing much to boost his popularity, was awarded a two-humped (there is some debate if it had one or two humps) camel as a present for driving away the "evil" Al Qaeda and various other "evil" extremists. Sadly for Hollande, and for animalistic symbolism as indicative of French foreign policy, said camel was just killed and "put in a stew". And it only goes downhill from here.

Slew of headlines out of the UK reporting that after suffering a stroke, the Iron Lady and former Prime Minister of the UK, Margaret Thatcher, has died. Rest in Peace.

The week ahead is light on major market moving data releases. From a policy perspective and in light of the recent moves in treasuries, FOMC minutes are likely to be followed by markets. Retail sales in the US are likely to print below consensus both on the headline and on the core metrics. That said, this needs to be seen against the backdrop of first quarter retail consumer spending data surprising to the upside. Producer prices are also likely to come in on the soft side of market expectations. Finally, do not expect large surprises from the U of Michigan consumer confidence.

With every modestly positive datapoint being desperately clung to, now that even Goldman's Hatzius has once more thrown in the economic towel after proclaiming an economic renaissance in late 2012 just like he did in late 2010 only to issue a mea culpa a few months later (and just as we predicted - post coming up shortly), the key prerogative is to ignore the elephant in the room. That, of course, is that the JPY 1 quadrillion bond market had to be halted for the second day in a row as the Japanese capital markets are fast becoming a very big and sad joke. The resulting flight to safety from Japanese investors, who sense that their own bond market is on the verge of breaking down completely, has managed to send French and Belgian bonds to record lows, the Spanish 2 Year to sub 2%, the German 6 month bill negative in the primary market, the US 10/30 year constantly bid and so on. The immediate result is that the bond-equity disconnect continues to diverge until one day we may get negative 10 Year rates coupled with an all time high stock market. Gotta love the fake New Normal market, in which the Japanese penny stock market was up another 2.8% to well over 13,000 even as the Shanghai Composite plumbs ever redder territory for 2013 on fears the birdflu contagion will hurt the already struggling economy even more.

A big picture look at the drivers of the global capital markets.

“I need to hire more people, but the government won’t let me”

Witches Brew: Part 4 - Reality Bites

• The Specter of Things to Come

The road to ruin is on plain display and the playbook is easily seen at this juncture. Let’s take a look at how that playbook will unfold. Contrary to popular outrage of the SOLUTION being IMPOSED it is the correct one once the insured depositors where PROTECTED.  In this edition the elites suffered FIRST followed by the private sector depositors who foolishly believed false BALANCE sheets which were POLITICALLY CORRECT but PRACTICALLY incorrect fictions approved by fiduciarily (regulations and regulators allowed ONGOING insolvent operations rather than protect the public by ending and prohibiting them) challenged governments (work for the banks and crony capitalists not for the public at large).

With all three major non-Fed central banks on the tape today, all economic data will be merely "noise" as the market digests what the central-planners' intentions are. The BOJ came and went, and following its substantial balance sheet expansion announcement, which many called "shocking and awing" the USDJPY has pushed higher by 2.5 big figures, although not reaching the 96 levels seen prior to Kuroda's actual announcement. In fact, from this point on there is likely downside as Japan's biggest export competitor, South Korea, has no choice but to join the race to debase which in turn will be JPY-positive. The Bank of England is next, which as expected did nothing moments ago, and will keep doing nothing until Carney joins officially this summer. In some 45 minutes, the ECB headlines will hit the tape where Draghi may bur more likely may not lower deposit rates, and instead will focus on recent deterioration in the economy. None of this will be surprising, and the EUR continues to trade sufficiently weak in line with sub-200DMA levels seen in the past few weeks. What we look forward to the most will be Draghi once again discussing the legal term-sheet details of the ECB's OMT program. His answer will be amusing as there still is no answer, and the OMT is for all intents and purposes the biggest straw man ever conceived by a central bank.

Why has the Euro-zone fallen back into recession, and why can't it shake of its seemingly never-ending crisis? Is there light at the end of the tunnel - or is that an approaching train? A walk through the Euro-zone with charts of macro-economic data reveals the crisis is far from over. Instead, most trends are pointing towards further deterioration - facts as opposed to the hope and anecdote that we are bombarded with on a daily basis. While perusing these charts, consider EU President Barroso's comments just today that, "the worst of the crisis is over." You decide.

When wondering why AAPL disappoints once more on its next earnings release, please pull a Bill Gross and look in the mirror, dear broke consumer, because it is your fault. At least that is the spin by the CEO of France Telecom, who says that iPhone sales are now being threatened by, drumroll please, "frugal buyers." That's right: in France "frugal" is now a dirty word. Not socialism, not 75% taxes, not budget ministers charged with rooting out tax fraud and lying about their Swiss bank accounts, not movie legends who can't wait to get Russian passports - it's "frugality" that is at fault. Because how dare French consumers not load up on cheap, government subsidized credit card debt and splurge like good old Americans who can't wait to pledge their shotguns as collateral for clunkers, and who haven't paid their mortgage in years courtesy of pervasive debt forgiveness for deadbeats, spending on iCrap instead? The France Telecom CEO demands answers now!