The bells are ringing for the markets, but few are noticing.
Another right of perfectly round number supports: while the Shanghai Composite once again dipped below 2000 overnight to as low as 1991 only to close modestly higher, and the Nikkei followed suit, also sliding below the psychological support level of 14,000 to an intraday low of 13,964 only to close just above 14,000 if in the red, it was the USDJPY that has suffered the most technical pain when shortly after 2:30 am eastern time, the USDJPY dropped by nearly 40 pips, hours after the BOJ indicated that not only is it happy with where in the QE process it stands, but hinted there may well be no more QE, and certainly nothing imminent . In the process, the USDJPY fully smashed the 200 DMA, with the next key parallel support being the 200DMA in the EURJPY at 138.08 (which was at 138.34 last). When that too gives way, it is a straight line to double digits in the USDJPY, and the countdown to the end of the Abe regime begins in earnest.
“The stock market is filled with people who know the price of everything, but the value of nothing.” – Philip Fisher.
A 51-point personal perspective on some of the challenges facing today’s investor...
To compare Japanese and European bond yields in order to justify an argument for US bond yields staying historically low once the Federal Reserve is completely out of bond buying is a failed comparison.
Ben Bernanke told those that could afford to hear that rates would not "normalize" in his lifetime and just last week we noted the market's shifting attitude towards what a post-rate-hike 'rate normalization cycle' might look like. As longer-term bond yields tumble, the Fed's Bill Dudley just confirmed the lower post-rate-hike "terminal rate" meme:
DUDLEY: LONG-TERM RATES LIKELY TO BE LOWER THAN HISTORIC NORM, SAYS EQUILIBRIUM REAL RATE MAY BE LOWER THAN NORMAL
In other words, if and when the Fed starts raising rates, the highest rate to which it will raise rates in the next cycle is now expected to be notably below previous historical 'norms'. And stocks didn't like it and long-term bond yields tumbled...
Equity markets are not happy about the Fed's Charles Plosser's economic exuberance ("3% growth no matter the weather" which is 20% above consensus of 2.5%) and his 'good-news-bad-news' monetary policy hawkishness ("may need to raise rates sooner rather than later"). But perhaps the most crucial part of his speech this morning was what the headlines notably left out. Plosser admonished his global central bank brethren: "if central banks do not limit their interventionist strategies and focus on returning to more normal policymaking aimed at promoting price stability and long-term growth, then they will simply encourage the financial markets to ignore fundamentals and to focus instead on the next actions of the central bank." Simply put, he warned, "central bankers have become too sensitive and desirous of managing prices in the financial world.."
European officials are purposely talking the euro lower, but objected when Japan and China did. See why curency manipulation is different than interest rate manipulation.
Not much going on tonight, except for the non-coupy martial law announcement in Thailand where the government is said to still be in charge of everything except for martial law decisions taken by the army of course, which in turn is in charge of everything else apparently including the central bank which intervened so extensively in the market, the Baht was barely changed at one point. There was also news of explosions and clashes in Benghazi but as everyone knows, what difference does Libya make at this, or any other, point. Additionally overnight there were reports that the cities of Slavyansk and Kramatorsk in east Ukraine were being shelled by the Ukraine army but that too barely registered as bullish for the USDJPY (which in now traditional fashion ramped during the US day session then sold off during Asia hours).
Fed's Williams and Fisher are talking this morning in an oddly frank (and concerning) manner...
WILLIAMS SAYS 'SOFT LANDINGS' IN MONETARY POLICY NEVER HAPPEN
WILLIAMS: FED NEEDS TO CONTINUE TO BE WARY OF EXCESSIVE RISK
Williams says our extraordinary policies could have adverse consequences down the road
Fisher must be wary of markets potential to overshoot
So, we have had Tarullo (Feb) and Yellen (May) warning of bubbles in small caps and credit and now Williams and Fisher sounding some alarms... Don't fight the Fed! (unless the Fed says 'sell') It seems the market is heeding the message in the short-term...
It was supposed to be a blistering Mega Merger Monday following the news of both AT&T'a purchase of DirecTV and Pfizer's 15% boosted "final" offer for AstraZeneca. Instead it is shaping up to be not only a dud but maybe a drubbing, with AstraZeneca plunging after its board rejected the latest, greatest and last offer, European peripheral bond spreads resume blowing out again, whether on concerns about the massive Deutsche Bank capital raise or further fears that "radical parties" are gaining strength in Greece ahead of local elections. But the worst news for BTFDers is that not only did the USDJPY break its long-term support line as we showed on Friday, but this morning it is taking even more technician scalps after it dropped below its 200 DMA (101.23) which means that a retest of double digit support is now just a matter of time, as is a retest of how strong Abe's diapers are now that the Nikkei has slid to just above 14,000, while China, following its own weak housing sales data, saw the Shanghai Composite briefly dip under 2000 before closing just above it. Overall, it is shaping up to be a less than stellar day with zero econ news (hence no bullish flashing red headlines of horrible data) for the algos who bought Friday's late afternoon VIX slam-driven risk blast off.
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Dispassionate discussion of the investment climate.
St. Louis Fed James Bullard said on Friday that he expects the Fed to start raising rates sometime near the end of the first quarter of 2015.
Bernanke's legacy: a deceptive case for a failed policy.
Sophistry: the use of fallacious arguments, especially with the intention of deceiving. The Federal Reserve's core policy of quantitative easing (QE) is based on a deceptive but appealing argument voiced by former Fed Chair Ben Bernanke.