To summarize (even though with liquidity as non-existant as it is, this may be completely stale by the time we go to print in a minute or so), European shares erase gains, fall close to intraday lows following the Fed’s decision to end QE. Banks, basic resources sectors underperform, while health care, tech outperform. Companies including Shell, Barclays, Aviva, Volkswagen, Alcatel-Lucent, ASMI, Bayer released earnings. German unemployment unexpectedly declines. The Italian and U.K. markets are the worst-performing larger bourses, the Swiss the best. The euro is weaker against the dollar. Greek 10yr bond yields rise; German yields decline. Commodities decline, with nickel, silver underperforming and wheat outperforming. U.S. jobless claims, GDP, personal consumption, core PCE due later.
Shinzo Abe has lost his magical touch as Japan's economy is nose-diving again...
As Deutsche Bank observes, the Fed has been wanting to hike rates on a rolling 6-12 month horizon from each recent meeting but never imminently which always makes the actual decision subject to events some time ahead. They have seen a shock in the last few weeks and a downgrade to global growth prospects so will for now likely err on the side of being more dovish than in the last couple of meetings. They probably won't want to notably reverse the recent market repricing of the Fed Funds contract for now even if they disagree with it. However any future improvements in the global picture will likely lead them to step-up the rate rising rhetoric again and for us this will again lead to issues for financial markets addicted to liquidity. And so the loop will go on for some time yet and will likely trap the Fed into being more dovish than they would ideally want to be in 2015.
If yesterday's markets closed broadly unchanged following all the excitement from the latest "buy the rumor, sell the news" European stress test coupled with a quadruple whammy of macroeconomic misses across the globe, then today's overnight trading session has been far more muted with no major reports, and if the highlight was Kuroda's broken, and erroneous, record then the catalyst that pushed the Nikkei lower by 0.4% was a Bloomberg article this morning mentioning that lower oil prices could mean the BoJ is forced to "tone down or abandon its outlook for inflation." This comes before the Bank of Japan meeting on Friday where the focus will likely be on whether Kuroda says he is fully committed to keeping current monetary policy open ended and whether or not he outlines a target for the BoJ’s asset balance by the end of 2015; some such as Morgan Stanely even believe the BOJ may announce an expansion of its QE program even if most don't, considering the soaring import cost inflation that is ravaging the nation and is pushing Abe's rating dangerously low. Ironically it was the USDJPY levitation after the Japanese session, which launched just as Europe opened, moving the USDJPY from 107.80 to 108.10, that has managed to push equity futures up 0.5% on the usual: nothing.
ECB Stress Test Fails To Inspire Confidence Again As Euro Stocks Slide After Early Rally; Monte Paschi CrashesSubmitted by Tyler Durden on 10/27/2014 06:09 -0500
It started off so well: the day after the ECB said that despite a gargantuan €879 billion in bad loans, of which €136 billion were previously undisclosed, only 25 European banks had failed its stress test and had to raised capital, 17 of which had already remedied their capital deficiency confirming that absolutely nothing would change, Europe started off with a bang as stocks across the Atlantic jumped, which in turn pushed US equity futures to fresh multi-week highs putting the early October market drubbing well into the rear view mirror. Then things turned sour. Whether as a result of the re-election of incumbent Brazilian president Dilma Russeff, which is expected to lead to a greater than 10% plunge in the Bovespa when it opens later, or the latest disappointment out of Germany, when the October IFO confidence declined again from 104.5 to 103.2, or because "failing" Italian bank Monte Paschi was not only repeatedly halted after crashing 20% but which saw yet another "transitory" short-selling ban by the Italian regulator, and the mood in Europe suddenly turned quite sour, which in turn dragged both the EURUSD and the USDJPY lower, and with it US equity futures which at last check were red.
And just like that, the Ebola panic is back front and center, because after one week of the west African pandemic gradually disappearing from front page coverage and dropping out of sight and out of mind, suddenly Ebola has struck at global ground zero. While the consequences are unpredictable at this point, and a "follow through" infection will only set the fear level back to orange, we applaud whichever central bank has been buying futures (and the USDJPY) because they clearly are betting that despite the first ever case of Ebola in New York, that this will not result in a surge in Ebola scare stories, which as we showed a few days ago, may well have been the primary catalyst for the market freakout in the past month.
Futures Bounce On Stronger Europe Headline PMIs Despite Markit's Warning Of "Darker Picture" In "Anaemic" InternalsSubmitted by Tyler Durden on 10/23/2014 05:59 -0500
Perhaps the most interesting question from late yesterday is just how did the Chinese PMI rebound from 50.4 to 50.2, when the bulk of its most important forward-looking components, New Orders, Output, New Export Orders, posted a material deterioration? When asked, not even Markit could provide an explanation that seemed remotely reasonable so we can only assume the headline was goalseeked purely for the kneejerk reaction benefit of various algos that only focus on the headline and nothing else. Luckily, we didn't have much time to ponder this quandary as a few hours later we got the latest batch of Eurozone PMI numbers.
The reactions in USDJPY, Nikkei 225, S&P futures, Gold, Treasury futures, and oil (in a word - none!) tells you all you need to know about the market's total loss of faith in the soft-survey-based PMI data from around the world (and in particular China and Japan). Despite dramatic weakness in a slew of hard-date economic indicators for both nations, the PMIs rose and beat. Japan's to 7-month highs (so much for moar QQE?) but New orders and Output tumbled. China rose and beat but all key components dropped. As the two charts below suggest... things in PMI data production-land need some better "adjustments" if they are to keep the dream alive...
Equity Levitation Stumbles After Second ECB Denial Of Corporate Bond Buying, Report Of 11 Stress Test FailuresSubmitted by Tyler Durden on 10/22/2014 05:57 -0500
If the ultimate goal of yesterday's leak was to push the EUR lower (and stocks higher of course), then the reason why today's second rejection did little to rebound the Euro is because once again, just after Europe's open, Spanish Efe newswire reported that 11 banks from 6 European countries had failed the ECB stress test. Specifically, Efe said Erste, along with banks from Italy, Belgium, Cyprus, Portugal and Greece, had failed the ECB review based on preliminary data, but gave no details of the size of the capital holes at the banks.
Latest Central Bank Sticksave Halts Futures Slide, Sends E-Mini Soaring After ECB Said "Looking To Buy Bonds"Submitted by Tyler Durden on 10/21/2014 05:41 -0500
To summarize: the S&P 500 is now almost 100 points higher from last Tuesday as the global central bank plunge protection team of first Williams and Bullard hinting at QE4, then ECB's Coeure "ECB buying to start in a few days", then China's latest $30 billion "targeted stimulus", then the Japanese GPIF hinting at a 25% stock rebalancing in the pension fund, and finally again the ECB, this time "buying of corporate bonds on secondary markets", rolls on and manages to send stocks into overdrive. Even as absolutely nothing has been fixed, as Europe is still tumbling into a triple-drip recession, as Emerging Markets are being slammed by a global growth slowdown and the US corporate earnings picture is as bleak as it gets. Because "fundamentals."
"Did a few loose strands of Ebola seep into the organs and tissues of global finance last week? The US equity markets sure enough puked, the Nikkei bled out through its eyeballs, all the collagen melted out of Greek bonds, and treasuries bloated up grotesquely on a putrid stream of terrified “liquidity” that led two Federal Reserve proctologists to maunder about the possibility of a QE-4 laxative, out of which, in due time, will surely gush explosive bloody fluxes of deeper financial sickness."
- Stick to tapering and rates pledge, says Boston Fed chief (FT)
- Turkey to let Iraqi Kurds reinforce Kobani as U.S. drops arms to defenders (Reuters)
- Obama makes rare campaign trail appearance, some leave early (Reuters)
- Japan GPIF to Boost Share Allocation to About 25%, Nikkei Says (BBG)... or three months of POMO
- Japan Stocks Surge on Report GPIF to Boost Local Shares (BBG)
- China Growth Seen Slowing Sharply Over Decade (WSJ)
- Russia, Ukraine Edge Closer to Natural-Gas Deal (WSJ)
- Leveraged Money Spurs Selloff as Record Treasuries Trade (BBG)
- After clashes, Hong Kong students, government stand their ground before talks (Reuters)
And the overnight futures ramp started off so promising.
UPDATE: A little early to call yet but Fed's Rosengren quoted in FT "QE will end in October unless something dramatic happens" has knocked USDJPY and S&P lower...
More incoherent chatter from Japan about raising Japan's GPIF allocation to "more than 20%, or around 25%" on the basis of Prime Minister Shinzo Abe's 'expert views' have sent USDJPY higher out of the gate and thus S&P 500 futures are tracking - just as they did Friday afternoon - higher. Treasury futures prices are 6 ticks lower (+2.5bps yield) - retraced all the bond-short capitulation gains from Wednesday. S&P futures are 9pts higher - retracing 50% of last week's losses.
If the last three days all started with a rout in futures before the US market open only to ramp higher all day, today it may well be the opposite, when shortly after Europe opened it was the ECB's turn to talk stocks higher, when literally within minutes of the European market's open, ECB's Coeure said that:
- COEURE SAYS ECB WILL START WITHIN DAYS TO BUY ASSETS
Which was today's code word for all is clear, and within minutes US futures, which until that moment had languished unchanged, soared by 25 points. So will today be more of the same and whatever early action was directed by the central bankers will be faded into a weekend in which only more bad news can come out of Ebola-land?