Yesterday's market reaction to Yellen's commentary was curious: there was none, because when all was said and done the S&P and DJIA traded precisely where they traded just before the show began. Which, of course, was unacceptable, because one way or another the hawkish for the USD - the USDJPY just traded at the highest since 2008 - statement and conference had to be promptly interpreted for the algos as dovish for stocks - Futures are again just why of record highs - if not so much for the Fed-hated bonds, and sure enough, European equities traded in the green from the get-go even as RanSquawk notes, "there has been no major fundamental catalyst behind the spike higher seen in the morning, although do note that the move comes in the backdrop of the positive close on Wall Street which saw the S&P 500 (+0.13%) touch record highs before paring a large portion of the gains." In other words, the upside volatility in the intraday move is now a bullish catalyst, closing print notwithstanding. And what did US equity futures do? Why they followed Europe higher, with the ES now +8, on what is "explained" as a European move to intraday US futures previously. That, ladies and gentlemen, means we may have finally achieved perpetual motion, because all that would take to send the market higher is... for the market to go higher, etc, ad inf.
For the 41st month in a row, the Japanese Trade Balance is in deficit (around JPY1 trillion). Of course, the fact that exports fell 1.3% (but but devalued currency means competitive?) means nothing as all that really matters is the collapsing JPY (now at 108.60) at its weakest against the USD in 6 years. That can mean only one thing - a surging Japanese stock market - as the Nikkei breaks 16,000. What is odd - just as in the US - is the rising equity index (no doubt helped by Japanese pension funds buying JPY393billion in Q2) against a backdrop of plunging indivdidual stocks. Sony is limit down (as we explained earlier) with offers outnumbering bids 8-to-1. And that's Japan...
Obviously, today's market was all about the Fed. some brief stop-running early on took out yesterday's highs only to fall back before Yellen... then the fireworks began. The initial kneejerk reaction was to sell stocks, sell bonds, and buy USDs. Then came the re-reaction - VIX was slammed below 12, the S&P 500 surged to near intraday record highs, bond yields accelerated higher, EUR and JPY weakness sparked USD bid, and PMs slipped lower as Yellen meandered uncomfortably through a two-faced press conference. By the close, the USD had hit fresh 4-year highs (USDJPY over 108), stocks had roundtripped to unchanged from FOMC, Treasury yields were notably higher, VIX back over 12.5, Trannies surged.
It has been a story of central banks, as overnight Asian stocks reversed nearly two weeks of consecutive declines - the longest stretch since 2001 - and closed higher as the same catalysts that drove US equities higher buoyed the global tide: a combination of Chinese liquidity injection (for the paltry amount of just under $90 billion; "paltry" considering Chinese banks create over $1 trillion in inside money/loans every quarter) and Hilsenrath leaking that despite all the "recovery" rhetoric, the Fed will not be turning hawkish and there will be no change in the Fed language today (perhaps not on the redline but Yellen's news conference at 2:30pm will certainly be interesting), pushed risk higher, if not benefiting US equities much which remains largely unchanged.
If over the weekend we got some terrible economic news out of China, then overnight it was turn for a major disappointment in capital flows, when Chinese Foreign Direct Investment in August crashed by 14%, far below the 0.8% increase expected, attracting just $7.2 billion in FDI, and the lowest in four years. This once again sparked fears of a Chinese hard landing and sent the Shanghai Composite tumbling 1.82%, the biggest drop in six months. In addition to China, there was the German ZEW Survey, which while beating expectations of a 5.0 print, dropped from 8.6 to 6.9 in August, the lowest since 2012. In fact, the gauge has decreased every month since December when it reached a seven-year high. And while there is not much other news today ahead of the blitz assault of data later in the week, including the Fed tomorrow, the TLTRO announcement on Thursday and the Scottish referendum results and the BABA IPO on Friday, we are stunned futures aren't as usual, soaring.
Something appears to have changed not only because the USDJPY is not some 100 pips higher overnight on, well, nothing but because the S&P, which is treading water, has yet to spike on no volume reasons unknown. That something may be algos which are too confused to buy ahead of this week's Fed announcement which may or may not have some notable changes in language or the Scottish referendum on the 18th. Or it could simply be that algos are no longer allowed to openly manipulate and rig the market on the CME as of today now that "disruptive market practices" are banned (why weren't they before)? In any case, keep a close eye on the market today: not all is at it has been for a while, unless of course it is still just a little early and the rigging algos (which haven't gotten the Rule 575 memo of course) haven't woken up just yet.
Why The Collapse Of Abenomics Is Important: It's A Large-Scale Failure Of Keynesian Stimulus In Real TimeSubmitted by Tyler Durden on 09/14/2014 21:07 -0400
We have frequently discussed the nonsensical attempt by Japanese prime minister Shinzo Abe and BoJ governor Haruhiko Kuroda to print and spend Japan back to prosperity. By now it is well known that devaluing the yen has not achieved the desired effect, but rather the opposite. Not only have exports not really received the expected boost, but Japan’s trade and current account surplus have decreased markedly, even posting negative numbers for the first time in decades. Of course, currency debasement never works: it cannot work. This is Keynesian logic and brilliance in all it splendor.
Simple review of technical condition of the capital markets. Light on polemical zeal, and heavy on technical analysis.
While today's key news event will likely be the preannounced latest, third, round of anti-Russian sanctions and the Russian retaliation, the reality as DB notes, is that the market seems to be seeing "some fatigue" in this story with the ECB, Scotland and next week's Fed meeting taking center stage. As a result, and ahead of expectations of change in Fed language which should carry a more hawkish tone, the dollar has been bid up some more overnight, leading to fresh multi-year highs in the USDJPY, and the now-paired TSY trade, with 10Y yields up to 2.57%, although this may now be in short-term oversold territory. The latest Scottish poll appears to have dented some of the "Yes" momentum, with 52% of the polled saying they would vote No in the referendum, although right now neither side has a clear majority when factoring in the undecideds: which means it will come down to the wire next week, with clear implications for Europe's secessionist movements if the Yes vote still manages to prevail, not to mention massive ramifications for the UK.
Following yesterday's confusing exuberance, which saw the sluggish market rise in the last hours of trading as the latest Scottish poll showed a reverse of the "Yes" momentum (and fading Gartman's latest reco of course), overnight European jitters have re-emerged once more following a speech by Catalonia's Artur Mas, who has long pushed for independence of the region, and who said that while there are different ways Catalonia can vote, the important issue is that Catalans vote somehow. Mas says Spanish govt will likely try to block Catalan vote "the reasons why the central government is blocking the vote are political not legal", which in turn has once again brought attention to Europe's artificial, unstable and temporary political and monetary union, which threatens a reversion of the nightmare days from 2012 when Mario Draghi was promising he would do everything in his power to send the EUR higher (as opposed to now).
Today's v-shaped recovery in US equities was brought to you by the number 107 (USDJPY target) and the words "Scottish poll" which showed a majority of "no"s this afternoon. Early weakness in stocks (but not in Treasuries) reversed almost perfectly as Europe closed and JPY started to ramp towards the next logical stop run at 107.00. Nasdaq led the way (as AAPLites swept back in) and pushed into the green for the week (while the rest are still red). Treasury yields rose on the day, led by the long-end (30Y +3bps) stalling some of yesterday's flattening (5Y +9bps on the week). GBP rallied notably after the "no" poll which kept pressure on the USD (closing practically unch on the day). Gold, silver, and oil slipped lower as US woke up then stabilized. Credit spreads compressed on the day but not as exuberantly as stocks even as VIX dropped back under 13 again. For the 2nd day in a row, the S&P 500 closed below 2,000 - turmoil?
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.
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.
Turmoil! S&P 500 loses 2,000 and EURUSD breaks to 14-month lows with a 1.28 handle
US equity markets are volatile this morning but appear to have now entirely decoupled from USDJPY as it careens headlong to new 5-year highs running stops to 106.00. US Treasury yields are tracking the collapse of JPY closely since the US open. EURUSD is also plunging (as did GBP this morning). Abe will be happy as JPY collapses so Nikkei futures surge... is this 'great rotation' from every asset in the world into the Alibaba IPO?
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?