As reported ealier this morning, here, courtesy of Bloomberg, are the nominees for the next European Commission under the presidency of Jean-Claude "If Serioues Then lie" Juncker, with one from each of the European Union’s 28 countries. Job assignments were announced today by the incoming president, Jean-Claude Juncker of Luxembourg. What do these appointments mean for the European Union? The attached flash analysis from Open Europe should answer most initial questions.
Markets Digest Wristwatch, NIRP Monetization, Catalan Independence News; Push Yields, USDJPY Even HigherSubmitted by Tyler Durden on 09/10/2014 07:08 -0400
Overnight the most notable move has been the ongoing weakness in rates, with USTs reversing earlier Tokyo gains after BoJ Deputy Governor Iwata, in addition to commenting on a lot of things that didn't make much sense, said he didn’t see any difficulties in money market operations even if BoJ bought bought government debt with negative yields, as InTouch Capital Markets notes. As a reminder, yesterday we noted that in a historic first the "Bank Of Japan Monetizes Debt At Negative Rates." As Bloomberg notes, this may be interpreted that BoJ may target negative yields to penalize savers, which "all boosts the appeal of yen-funded carry trades." In other words, first Europe goes NIRP, now it's Japan's turn! So while this certainly lit the fire under the USDJPY some more, which overnight broke about 106.50 and hit as high as 106.75 on Iwata's comments, it does not explain why the 10Y is currently trading 2.52% - after all the fungible BOJ money will eventually make its way into US bonds and merely add to what JPM has calculated is a total $5 trillion in excess liquidity sloshing in the global market.
Scottish voters are going to the polls in just over a week to decide if they should break away from the UK. And from the looks of things, the independence movement has a very strong chance of winning. Whenever major changes happen, this brings opportunities as well. For example, a newly independent Scotland would create its own tax and corporate laws, potentially providing a number of major incentives to attract foreign talent and productive companies. A Scottish passport would also be attainable for many people. Some basic guidance has already been issued...
While overnight US equity futures have done nothing notable, what everyone's attention has been fixed on, in addition to the GBP and the read-through to all things UK-ish ahead of the Scotland independence referendum, is the sudden flare up in USDJPY trading and volatility, which exploded by some 100 pips in the past 24 hours hitting fresh post-2008 highs, on what appears to be a major capital reallocation move (it surely is not driven by any news) and/or forced squeeze. What is more perplexing is the change in correlations signals, because while until recently the USDJPY was synonymous with the E-Mini, and thus the S&P, as of late the USDJPY pair has moved tick for tick with the 10Year yield: almost as if the NY Fed's favorite HFT trading shop was instructed to change its vast array of signal inputs away from the S&P and to force a gentle levitation in the 10Y.
“At This Point You Just Have to Laugh”. In every important respect, the Fed and the ECB and their brethren are no longer central banks at all. They are Ministries of Markets, no different from a Ministry of Industry or – even more eerily similar – the Ministry of Culture you would find in most European governments. At this point the Narrative hegemony is complete. There’s no longer even a cursory bow to the idea that fundamentals matter. So I’m calling a top. Not a top in markets, because I honestly have no idea what’s going to happen next. But I’m calling a top in the Narrative of Central Bank Omnipotence because it has, in fact, reached its asymptotic limit of influence and belief.
As I have said for at least a year now, until and unless we see a weekly close (ideally consecutive weekly closes) in the VIX index below 10, then I judge risk-on has more to go. We got close in June/early July, but we did not get there. I would expect that, if I am right about the next quarter or two, then VIX should hit this target during this timeframe. At that point, positioning for the big turn and reversal of large chunks of the nominal wealth/asset price gains since early 2009 would take over as my key investment strategy.
One of the more amusing comments overnight came from Bank of America, which now predicts that China's export growth will be boosted by iPhone 6 by 1% per month through year-end. Whether or not this is accurate is irrelevant, but we are happy that unlike before, BofA has finally figured out that iPhone sales are positive for Chinese GDP, not US, which was the case with the release of the iPhone 4 and 5, when clueless strategists all came out boosting their US (!) GDP forecasts on the iPhone release. We note this because the long-awaited release of Apple's new iPhone will certainly grab some attention tomorrow. According to a BofA poll last week and of the 124 respondents surveyed, 66% of those have noted that they are going to buy the new iPhone and of those planning to buy 75% of those will be replacing their iPhone 5/5s.
After being solidly ignored for weeks, suddenly the Scottish independence referendum is all anyone can talk about, manifesting itself in a plunge in the GBPUSD which ha slide over 100 pips in the past 24 hours, adding to the slide over the past week, and is now just above 1.61, the lowest since November 2013. In fact, the collapse of the unionist momentum has managed to push back overnight news from Ukraine, major Russian sanction escalations, Japan GDP as well as global trade data on the back burner. Speaking of global trade, with both China and Germany reporting a record trade surplus overnight, with the US trade deficit declining recently, and with not a single country in the past several month reporting of an increase in imports, one wonders just which planet in the solar system (or beyond) the world, which once again finds itself in a magical global trade surplus position, is exporting to?
The constant to-and-fro of lies, propaganda, and misinformation continues among all sides in Ukraine; but this 'denial' occurred very rapidly. As Reuters reports, a senior aide to Ukraine's President Petro Poroshenko said on Sunday that Kiev had reached agreement during the NATO summit in Wales on the provision of weapons and military advisers from five member states of the alliance. However, four of those five swiftly denied making any such pledge.
Today, high inflation seems so remote that many analysts treat it as little more than a theoretical curiosity. They are wrong to do so. No matter how much central banks may wish to present the level of inflation as a mere technocratic decision, it is ultimately a social choice. And some of the very pressures that helped to contain inflation for the past two decades have been retreating. Modern central banking has worked wonders to bring down inflation. Ultimately, however, a central bank's anti-inflation policies can work only within the context of a macroeconomic and political framework that is consistent with price stability. Inflation may be dormant, but it is certainly not dead.
Straight-forward discussion about the investment climate and the week ahead. Light on hyperbole, heavy on analysis.
As Fighting Rages In Mariupol, Ukraine Soldiers Say President Would "Betray The Country" If He Backs PeaceSubmitted by Tyler Durden on 09/05/2014 08:04 -0400
"Our artillery has come and is being deployed against the rebels," said the mayor of Mariupol, Yuri Khotlubey. The commander of the Azov volunteer militia, Andriy Biletsky, said his men had regained territory from the rebels in a counter-offensive after they came within just five km (three miles) of Mariupol on Thursday. And while leaders meet in Minsk to discuss peace, "A ceasefire would be a disaster, we would lose everything. By fighting we can resist the invasion and send them back. With a ceasefire they will consolidate and carry on after a while," said Ukrainian soldier Taras. And an interesting undercurrent has emerged: now the Ukraine army is stronly against a ceasefire, with one possibly leading all the way to yet another presidental coup. To wit: Another Ukrainian soldier who gave his name as Mykola said Ukrainian President Petro Poroshenko - who was attending the second day of a NATO summit in Wales on Friday - would "betray the country" if he backed a peace plan at this time.
Some believe that actions today were jointly agreed to by the Fed and ECB to allow the stimulus baton to be passed from one major central bank to another. Could this be to help ease the risk-off fallout that is likely to ensue in anticipation of the first Fed hike? Maybe the price action in US equity markets today should serve as an early warning signal.
"The entire problem we face going ahead stems from the very idea of Karl Marx that government is capable of managing the economy either through communism or autocratic-socialism where the state dictates to the economy under the pretense of caring for the people, that has truly become a derivative of fascism where the state comes first."
Simply put, "Savers are being exploited by government under the pretense of managing the economy."
Draghi cut rates and announced ABS/covered bond purchase plan to start next month. Balance sheet between TLTO and purchase scheme to increase by ovre 1 trillion euros