The bottom line is that unfortunately for the BTFDers, with the Fed no longer giving explicit buy signals with the "considerable time" language struck, and with an implicit economic upgrade suggesting a rate hike is still on the table, it is becoming increasingly more difficult to frontrun the Fed's "wealth creation" intentions.
While all the algos are programmed and set to scan today's FOMC statement for whether both "patient" and "considerable time" are still there (as it did last time when it supposedly sent a pseudo-hawkish message while telling Virtu and Getco to buy, buy, buy), the market is torn between the trends observed in recent days: on one hand finally succumbing to the adverse impact of USD strength, which overnight also saw the Singapore Dollar admit defeat in the ongoing currency wars, is crushing both revenues and EPS, as well as outlooks, for the bulk of US companies, even as millennials - long since given up on buying a house - allocate their meager savings to the annual incarnation of Apple's flagship product as seen in yesterday's record, blowout numbers by AAPL which is up 8% in the premarket and sending Nasdaq futures soaring compared to the stagnant DJIA or S&P. And then there is Europe where the mood is decidedly sour this morning, with Greece imploding on fears Tsipras really means business and concerns the Greek "virus" may spread to other peripheral nations whose bonds have also seen a lack of a bond bid this morning.
Market Wrap: Futures Tumble On Spike Of "Strong Dollar" Earnings Disappointments And Profit WarningsSubmitted by Tyler Durden on 01/27/2015 07:25 -0500
Following yesterday's earnings disappointments, most notably from Microsoft which is down 7% this morning following the usual after-the-fact downgrades from JPM, Citi and Nomura, futures were already on a the back foot heading into this morning - no doubt impacted by the deja vu ridiculous move in the EURCHF noted earlier - when the latest batch of earnings just hit, of which Dow component Procter and Gamble stood out and which missed the top and bottom line. But the punchline, and in direct refutation of what Jack Lew said previously about a strong dollar being good for the US economy, was this:"The outlook for the year will remain challenging. Foreign exchange will reduce fiscal 2015 sales by 5% and net earnings by 12%, or at least $1.4 billion after tax." In other words, P&G will "offset" the surge in the USD with more layoffs. So when Jack Lew said "good" he really meant "bad."
This morning both the SNB stunner from two weeks ago, and the less than stunning ECB QE announcement from last Thursday are long forgotten, and the only topic on markets' minds is the startling surge of Syriza and its formation of a coalition government with another anti-bailout party - a development that many in Europe never expected could happen, and which has pushed Europe to the bring of the unexpected yet again. And while there is much speculation that this time Europe is much better positioned to "handle a Grexit", the reality is that European bank balance sheets are as bad if not worse than in 2014, 2013, 2012 or any other year for that matter, because none of ther €1+ trillion in NPLs have been addressed and the only thing that has happened is funding bank capital deficiencies with newly printed money. You know what they say about solvency and liquidity.
Euro Crash Continues Sending Stocks Higher, Yields To Record Lows; Crude Stabilizes On New King's CommentsSubmitted by Tyler Durden on 01/23/2015 07:03 -0500
Today's market action is largely a continuation of the QE relief rally, where - at least for the time being - the market bought the rumor for over 2 years and is desperate to show it can aslo buy the news. As a result, the European multiple-expansion based stock ramp has resumed with the Eurostoxx advancing for a 7th day to extend their highest level since Dec. 2007. As we showed yesterday, none of the equity action in Europe is based on fundamentals, but is the result of multiple expansion, with the PE on European equities now approaching 20x, a surge of nearly 70% in the past 2 years. But the real story is not in equities but in bonds where the perfectly expected frontrunning of some €800 billion in European debt issuance over the next year, taking more than 100% of European net supply, has hit new record level.
With less than two hours until the ECB unveils its first official quantitative easing program, the markets appear to be in a unchanged daze. Well, not all markets: the Japanese bond market overnight suffered its worst sell off in months on a jump in volume, although for context this means the 10Year dropping from 0.25% to 0.32%. Whether this is a hint of the "sell the news" that may follow Draghi's announcement is unclear, although Europe has seen comparable weakness across its bond space as well and the US 10 Year has sold off all the way to 1.91%, which is impressive considering it was trading under 1.80% just a few days ago. Stocks for now are largely unchanged with futures barely budging and tracking the USDJPY which after rising above 118 again overnight, has seen active selling ever since the close of the Japanese session.
Market Wrap: Futures Lower After BOJ Disappoints, ECB's Nowotny Warns "Not To Get Overexcited"; China SoarsSubmitted by Tyler Durden on 01/21/2015 06:55 -0500
Three days after Chinese stocks suffered their biggest plunge in 7 years, the bubble euphoria is back and laying ruin to the banks' best laid plans that this selloff will finally be the start of an RRR-cut, after China's habitual gamblers promptly forget the market crash that happened just 48 hours ago and once again went all-in, sending the Shanghai Composite soaring most since October 9, 2009. It wasn't just China that appears confused: so is the BOJ whose minutes disappointed markets which had been expecting at least a little additional monetary goosing from the Japanese central bank involving at least a cut of the rate on overnight excess reserves, sending both the USDJPY and US equity futures lower. Finally, in the easter egg department, with the much-anticipated ECB announcement just 24 hours away, none other than the ECB's Ewald Nowotny threw a glass of cold water in the faces of algos everywhere when he said that tomorrow's meeting will be interesting but one "shouldn’t get overexcited about it."
Hours after the IMF cut its global economic growth forecast yet again (which for the permabullish IMF is now a quarterly tradition as we will shortly show), now expecting 3.5% and 3.7% growth in 2015 and 2016, both 0.3% lower than the previous estimate (but... but... low oil is unambiguously good for the economy) and both of which will be revised lower in coming quarters, and hours after China announced that its entirely made up 2014 GDP number (which was available not 3 weeks after the end of the quarter and year) dropped below the mandatory target of 7.5% to the lowest in 24 years, it only makes sense that stock markets around the globe are solidly green if not on expectations of another year of slowing global economies, which stopped mattering some time in 2009, but on ever rising expectations that the ECB's QE will be the one that will save everyone. Well, maybe not everyone: really only the 1% which as we reported yesterday will soon own more wealth than everyone else combined and who are about to get even richer than to Draghi.
The world of investing as we’ve come to know it is over. Financial markets have been distorted to such an extent by the activities, the interventions, of central banks – and governments -, that they can no longer function, period. The difference between the past 6 years and today is that central banks can and will no longer prop up the illusionary world of finance. And that will cause an earthquake, a tsunami and a meteorite hit all in one. If oil can go down the way it has, and copper too, and iron ore, then so can stocks, and your pensions, and everything else.
A few days after the SNB shocked the world when it became the first central bank to pull out of its currency war with the ECB, leading to an epic defeat not only for the Swiss economy whose exports are now set to crash and various brokers and macro hedge funds who were short the Swissy (even as the SNB is nursing an epic balance sheet as as result of its failed 3+ year intervention), and following the latest Chinese snub of its overzealous stock gamblers, next up on the "shock and awe" bandwagon may be none other than the Bank of Japan (something we noted over the weekend in "Is The BoJ The Next SNB?"), where according to Reuters, any hopes for even more QE may be dashed after a ruling party lawmaker and one of the architects of Prime Minister Shinzo Abe's "Abenomics" policies said that the Bank of Japan "does not need to ease monetary policy further this year unless the economy is hit by a severe external shock."
Market Wrap: Chinese Stocks Crash As Financials Suffer Record Drop; Commodities Resume Decline; US ClosedSubmitted by Tyler Durden on 01/19/2015 07:12 -0500
Following last week's Swiss stock market massacre as a result of a central bank shocker, and last night's crack down by Chinese authorities, it almost appears as if the global powers are doing what they can to orchestrated a smooth, painless (as much as possible) bubble deflation. If so, what Draghi reveals in a few days may truly come as a surprise to all those- pretty much everyone - who anticipate a €500 billion QE announcement on Thursday.
the major story for us right now is that the broad concept incorporated in “Exter’s Pyramid” is in operation. This something we mentioned in Autumn last year and it’s occurring across currency and credit markets and, to some extent, in equities. To recap, John Exter (a former Fed official, ironically) thought of the post-Bretton Woods financial system as an inverted pyramid resting on its apex, emphasizing its inherent instability compared with a pyramid resting on its base. Within the pyramid are layers representing different asset classes, from the most risky at the top down to the least risky at the bottom. He foresaw a situation where capital would progressively flow from the top layers of the pyramid towards the bottom layers. “…creditors in the debt pyramid will move down the pyramid out of the most illiquid debtors at the top of the pyramid…Creditors will try to get out of those weak debtors & go down the debt pyramid, to the very bottom."
A promise is a promise is a promise... especially if it's from a Central Bank. That was true and undeniable for decades of BTFD 'equity market put'-provision by the world's central planners... until Wednesday. But now, on the heels of the Swiss National Bank's 'victory' against the vicious cycle of currency wars and monetary debauchment, The Asian Nikkei Review reports stirrings in the Bank of Japan as one official warns, "we have caused tremendous trouble for the financial industry," and many others growing anxious about continuing its massive purchases of government bonds (confronted with the program's negative side effects) and pressure from the financial industry is strengthening by the day "to scale back monetary easing soon."
Simple cogent analysis of the price action in the capital markets. Take it or leave it.
One day after the SNB stunner roiled markets, overnight global markets have seen - as expected - substanial downward pressure, with the Swiss market slide resuming post open, while European stocks have seen some pressure despite what is now an assured ECB QE announcement next week. However, the one trade that can not be mistaken is the global rush into the safety of government paper, with every single treasury yielding less today than yesterday (the Swiss 10Y was trading below 0% at last check), except for Greek 10Y which are wider on deposit run fears. That said, with capital market liquidity absolutely non-existent even the smallest trade has a disproportionate effect on futures, and expect to see much more rangebound trading until the damage report from the SNB action is fully digested, something which will take place over the weekend.