If Obama's intention in his CNBC interview was to get Wall Street to start selling, then congratulations: today he finally made some headway. However, he will have to do more before the capitulation dump we saw in the summer of 2011 pushes the House, and Boehner to finally fold (in the case of the latter, for the last time). Much More. Goldman's Sales and Trading desk explains: "Today was the first day that concerns about the debt ceiling really started to be felt."
Recent speeches from the SEC indicate they plan to use Midas to look at the details behind quote stuffing, excessive order cancellations, the cause of mini flash crashes, and other nefarious activities. While these are all good uses for a market analysis tool (Midas), they pale in comparison to a data-feed delay analysis, because the former are governed by blanket, hard-to-prove manipulation laws, while the latter can be tied directly to a core rule that lies at the heart of Regulation NMS. An improper data-feed delay was the reason for the $5 million fine against an exchange in September 2012. Furthermore, millions of people are directly affected and disadvantaged by illegal data-feed delays. Therefore, it would be a great waste of public resources to not immediately pursue a data-feed delay analysis, because there exists ample evidence that an illegal speed advantage exists in direct feeds over the public quote.
Looking at the equity market and some of the background dynamics Citi's FX Technical group cannot help but be reminded of 2011. They also warn, despite the constant hope-driven rallies this week, there are also some aspects of what we saw in 1998 and similarities with 2000 that are worth noting. The bottom line, we have had the view for some time that we would see a much deeper correction in the equity market (in excess of 20%). Recent price action and developments might (just might) be suggesting that it is time to revisit that theme.
The dump into last night's close marked the lows of the last 24 hours as US equities decided that worrying about government shutdowns, near-record negative earnings pre-announcements, disappointing job growth, debt-ceiling dynamics that are increasingly feared in money markets, and a reversal in the key "soft" survey data was not enough to stop them BTFATH (thanks to confused banter from several Fed heads). Sell Gold, Sell Bonds, Buy Stocks - sure why not!
Bonds were well bid into the US open this morning and stocks had given up all their 'shutdown' gains and slid further on the ADP news which had nothing to further the case for taper or no taper. The big turnaround happened when rumors circulated of a 'deal' - which were later denied - but by then the momentum had caught on. Luckily the rumor coincided with POMO and we lifted a majestic 7 S&P points into the European close. Treasuries initially ignored the rise but gave in after a while with yields rising but stocks remaining notably disconnected from bonds by the close. The late-day collapse in VIX yesterday evaporated was smashed higher, divergent from stocks in the afternoon until another pathetic ramp into the close which lifted the S&P to its day-session highs but closed down for the 8th of the last 10 days. Gold and Silver blew higher on the day recovering all yesterday's losses.
UPDATE: *NASDAQ, NYSE ARCA, AMEX OPTIONS REVOKE SELF-HELP AGAINST CBOE
The stock market is trading down - therefore, options markets have broken:
- *BATS OPTIONS HAS DECLARED SELF-HELP VS CHICAGO BOARD OPTIONS
- *BATS: ROUTING TO CHICAGO BOARD OPTIONS EXCHANGE SUSPENDED
- *NASDAQ OPTIONS MARKET (NOM) HAS DECLARED SELF HELP AGAINST CBOE
Seems that options markets were not broken last night as VIX was banged into the close?
If there is one day the Fed's trading desk actually did want futures lower, if only for purely optical purposes and to at least suggest that the government, and not the Fed, is still in charge of the US, it is the day when the US government - for the first time in 17 years - has shut down. They certainly did not want the S&P to be up nearly 0.5% mere hours after Congress and the presidency confirmed to the world that in a world in which "the Chairman gets to work", a functioning government is completely irrelevant. Yet this is precisely what is going on. What is making matters worse is that on the other side of the world, Japan also finally announced the well-telegraphed sales tax increase to8%, offset by a JPY5 trillion yen "stimulus" which however Japan said, much to the Chagrin of Mrs. Watanabe and a 100 pip overnight plunge in the USDJPY, would be funded not with more new bond issuance (and thus without new "wealth effect" generating monetization). It is unclear just how it will be funded but since increasingly more global fiscal and monetary policy is based on science fiction we know better than to ask.
There may be temporary 'benefits in terms of employment gains' if the Fed creates an even more gigantic echo bubble than it has already done. We are willing to grant that much. The Fed apparently believes these days that there should be no limits whatsoever to the Fed's monetary pumping. 'Inflation' targets? Forget about it! Asset bubbles? Who cares! It is as if the past 20 years had not happened – as if they had simply erased the whole period from his memory. Do they really believe that pumping up another giant bubble will have more benefits than drawbacks? Where does it all end? However, there is no such thing as a free lunch, and there cannot be an 'eternal boom' by simply continuing to print, as once envisaged by Keynes. All that will happen is that the ultimate disaster will be even greater. In fact, is seems ever more likely that the next disaster will be the last one of the current monetary system.
Every year there seems to be a few momentum stocks defying logic, reality while bleeding all shorts getting in the way. This year, Tesla Motor is one such stock.
Despite the late-day shenanigans that usually occur on a Friday (especially in light of the end-of-month proximity), the S&P closed red with its worst 6 day run in 5 weeks. The Nasdaq and the Russell managed to cling to unchanged as the Dow, Trannies, and S&P slid 1.3% or so on the week. Treasury yields fell for the 3rd week in a row with 5Y yields plunging 36% in that time - the biggest drop in 25 months. The USD fell 0.2% on the week with GBP and JPY strength the biggest drags. Silver and Copper ended unch after a very volatile week, gold the winner +1% and WTI -2% on the week. VIX was well bid, up 1.5 vols as the term structure cracked to the flattest in 4 months... and JCP is 'Breaking Bad'.
UPDATE: BATS Halted trading
- *BATS Y HALTED TRADING AT 9:44 A.M., COMPANY SPOKESMAN SAYS
- *BATS Y EXCHANGE EXPERIENCING 'INTERNAL NETWORKING ISSUE'
Just 12 hours after NYSE and NASDAQ agree to collude on fixing the "glitches", we get another broken market...
- The new normal name of a broken market: glitches - NYSE, Nasdaq Consider Cooperating to Address Glitches (WSJ)
- Early Thursday Humor: Abe Tells Wall Street Japan’s Economy Is Exceptionally Good (BBG)
- Rising Rates Seen Squeezing Swaps Income at Biggest Banks (BBG)
- JPMorgan Mortgage Talks Said to Discuss $11 Billion Deal (BBG)
- Can't make this up: HFT firm "finds" Fed did not leak data early to benefit HFT firms (FT)
- Hertz Cuts Full-Year Forecast on Weak U.S. Airport Rentals (BBG)
- Greece does not need third bailout, seeks debt 'reprofiling' - deputy PM (Reuters) - right, it needs a fourth and fifth
- Hezbollah gambles all in Syria (Reuters)
- Twitter Adds J.P. Morgan and Morgan Stanley as Bankers on IPO (WSJ)
- Messi in Court Shows Tax Collectors Set to Pursue Star Athletes (BBG)
Another day, another POMO pump followed by a collapse to close at the the lows as the S&P 500 has its first 5-day negative closing run in 2013. Only the NASDAQ remains above Un-Taper levels with the Dow back below 'Summers' levels and the S&P heading that way. Treasury yields slid further (-4 to 5bps) to 7-week lows (down 10 of the last 11 days) as the 7Y broke back below 2.00%. Gold and Silver rallied (after the ubiquitous opening smackdown idiocy) with both positive on the week now. The USD sold off as JPY strengthened to the week's highs and EUR pushed back to unchanged on the week. WTI was slammed lower (in a seeming mirror of the PMs) ending back at $102.28 (-2.4% on the week) nearly 11 week lows. For the second day in a row VIX closed lower as stocks sold off (unwinding hedges and reducing underlying exposure perhaps?)
"As an anecdotal aside it was interesting that Apple yesterday reported above consensus iPhone sales on the first weekend of the new launches. When I upgraded in a phone shop on Friday there was no queue, a load left in stock and a number of extra staff put on who were standing around doing nothing. They said they all arrived early to handle the queues, only to find that their first customer didn't arrive until 30mins after opening. So my experience seemed to be different from the rest of the world as Apple climbed +4.97% yesterday after the impressive sales numbers and also guidance at the top of the range from the company on revenues and gross margins." - Deutsche Bank's Jim Reid