Judging by the surprising reversal in futures overnight, which certainly can not be attributed to the latest data miss out of Europe in the form of the June German IFO Business Climate report (print 109.7, Exp. 110.3, Last 110.4) as it would be naive to assume that centrally-planned markets have finally started to respond as they should to macro data, it appears that algos, with their usual 24 hour delay, have finally discovered Dubai on the map. The same Dubai, which as we showed yesterday had just entered a bear market in a few short weeks after going turbo parabolic in early 2014. It is this Dubai which crashed another 8% just today, as fears that leveraged traders are liquidating positions, have surfaced and are spreading, adversely (because in the new normal this needs to be clarified) to other risk assets, while at the same time pushing gold and silver to breakout highs. Recall that it was Dubai where the global sovereign crisis started in the fall of 2009 - will Dubai also be the place where the first domino of the global credit bubble topples and takes down the best laid plans of central-planners and men?
Following last night's laughable (in light of the slow motion housing train wreck that is taking place, not to mention the concurrent capex spending halt and of course the unwinding rehypothecation scandal) Chinese PMI release by HSBC/Markit (one wonders how much of an allocation Beijing got in the Markit IPO) which obviously sent US equity futures surging to new record highs, it was almost inevitable that the subsequent manufacturing index, that of Europe, would be a disappointment around the board (since it would be less than "optical" to have a manufacturing slowdown everywhere in the world but the US). Sure enough, first France (Mfg PMI 47.8, Exp. 49.5, 49.6; and Services PMI 48.2, Exp. 49.4, Last 49.3) and then Germany (Mfg PMI 52.4, Exp. 52.5, Last 52.2; Services 54.8, Exp. 55.7, Last 56.0), missed soundly, leading to a broad decline in the Eurozone PMIs (Mfg 51.9, Exp. 52.2, Last 52.2; Services 52.8, 53.3, Last 53.2), which meant that the composite PMI tumbled from 53.2 to 52.8: the lowest in 6 months.
With almost metronomic regularity, Japan will gush forth a headline proclaiming the ever-closer time when all the nation's retirees savings will be greatly rotated to the stock market and away from the nation's largest bond market in the world. This week was no exception; however, as Nikkei Asian Review reports, it appears the "all-talk" has turned to action...The Government Pension Investment Fund and other public pensions sold about 1.8 trillion yen ($17.4 billion) more in Japanese government bonds than they bought in the first three months of the year, fueling speculation that the GPIF may be rebalancing its portfolio sooner than expected. It seems rotating away from government bonds (which the GPIF has been worried about since 2011) into junk bonds and junk stocks is a far better use of 'wealth' - we can only imagine the GPIF risk models just got switch to '11'. As we explained last year, Japan's Plan B is not only not a panacea, but it is a House of Bonds Cards that would not survive an even modest gust of wind, and an even more modest contemplation into its true internal dynamics. We would urge Messrs Abe and Kuroda to come up with a fall back plan to the fall back plan before it, once again, becomes too late.
According to the latest CapGemini wealth report the number of high net worth individuals increased by nearly 1.8 million in the past year, the second biggest surge since 2000, which also happened to be the crazy days of the first tech bubble (not to be confused with the current tech bubble). In other words, the epic, unprecedented stock bubble reflated by the world's coordinated central banks, has succeeded. Succeeded, that is, if its goal was to make the world's richest people wealthy beyond their wildest dreams. As for everyone else, just over 7 billion people, better luck next time.
As of this moment, US equity futures are perfectly unchanged despite what has been an almost comical reactivation of the 102.000 USDJPY tractor beam. Considering the pair has been trading within a 75 pips of the 102.000 level for the past month, one has to wonder when and what the next BOJ Yen equilibrium level will be reset to. Oddly enough, even as the USDJPY is very much unchanged, the Nikkei continues to rise suggesting that, as Nikkei reported, the GPIF is already investing Japanese pension funds in stocks. Which is great for the Nikkei catching up with the global bond bubble, what is not so great is what happens when the market realizes that the largest holder (excluding the BOJ) of JGBs is dumping, and the world's most illiquid major sovereign bond market rushes for the exits. Just recall the daily halts of Japanese bond trading from the summer of 2013 - we give it 3-6 months before it returns with a vengeance.
- Currency Probe Widens as U.S. Said to Target Markups (BBG)
- Battle for Iraq refinery as U.S. hesitates to strike (Reuters)
- Ukraine forces battle separatists after truce 'refused' (Reuters)
- Fed Dots Ignored as Investors Focus on Yellen’s Message (BBG)
- Retirees Suffer as $300 Billion 401(k) Rollover Boom Enriches Brokers (BBG)
- American Apparel ousts CEO; source says Dov Charney 'will fight like hell' (LA Times)
- House Panel Is Subpoenaed as Trading Probe Heats Up (WSJ)
- GM Officials Ignored Alert on Car Stalling (WSJ)
- Russia’s $20 Billion Bond Void Filled by China to Mexico (BBG)
She came, she spoke, and she sent stocks to a new all time high. That is perhaps the simplest summary of what Janet Yellen did yesterday when, as a result of her droning monotone, she managed to put the VIX literally to sleep, which closed at the lowest since 2007 and the resulting surge in the S&P was a fresh record high, because despite the "concerns" Fed member have about record high complacency, all they are doing is adding to it. And now that apparently the Fed has a market "valuation" department, and Yellen can issue fairness opinions on whether the S&P is overvalued, the only question is whether today, as a follow through to yesterday's "buy everything, preferably on leverage, sincerely - the Fed" ramp, the VIX will drop to single digits today.
A year ago we wished TEPCO the best of luck with the construction of the "Game of Thrones"-esque 1.4km giant wall of ice that was designed to surround the exploded Fukushima power plant and slow the movement of irradiated water below the damaged reactors, preventing it from flowing over into the ocean and surrounding land. A plan so idiotic we were at a loss for words trying to list the ways it could go wrong. And, as it turns out, making a project overly complicated and ridiculous doesn't assure it will be a success. Quite the contrary. As Japan JIJI reports, Tepco said the project, which remains in its early stages, is experiencing a problem with an inner ice wall designed to contain highly radioactive water that is draining from the basements of the wrecked reactors. A Tepco spokesman added that "We have yet to form an ice plug because we can’t get the temperature low enough to freeze the water."
it is suddenly not fun being a Fed president (or Chairmanwoman) these days: with yesterday's 2.1% CPI print, the YoY rate has now increased for four consecutive months and is above the Fed's target. Concurrently, the unemployment rate has also dipped well below the Fed’s previous 6.5% threshold guidance, in other words the Fed has now met both its mandates as set down previously. There have also been fairly unambiguous comments from the Fed’s Bullard suggesting that this is the closest the Fed has been to fulfilling its mandates in many years. Finally, adding to the "concerns" that the Fed may surprise everyone were BOE Carney’s comments last week that a hike “could happen sooner than the market currently expect." In short: continued QE here, without a taper acceleration, merely affirms that all the Fed is after is reflating the stock market, and such trivial considerations as employment and inflation are merely secondary to the Fed. Which, of course, we know - all is secondary to the wealth effect, i.e., making the rich, richer. But it is one thing for tinfoil hat sites to expose the truth, it is something else entirely when it is revealed to the entire world.
With newsflow out of Iraq having slowed down as has the ISIS offensive, which appears to have been halted north of Baghdad, the market now shifts its attention to the Fed's two-day meeting which begins today and continues through tomorrow afternoon, when it will be leaked by media outlets to ultra-wealthy speculators and robots, breaching the embargo (in exchange for a hefty payoff) some 10 minutes before 2 pm.
It's one of those days: despite the Iraq conflict spilling out of control and about to involve US drones and warplanes, despite China's naval conflict with Vietnam over an oil rig in disputed territory set to go "kinetic" at any moment, despite the Ukraine civil war having its deadliest day yet this weekend and adding insult to injury Russia halting gas supplies to Ukraine (letting Kiev and Berlin fight for the scraps), despite crude prices rising ever higher and about to unleash a "discretionary income" shockwave on America's summertime motorists, despite yet another massive tax inversion M&A deal in which the buyer has made abundantly clear its stock is overvalued and will be used as the purchasing currency, stocks are inexplicably not at all time highs this morning.
With the 2014 calendar nearly half way done, and the macro hedge fund community not only underperforming the S&P 500 for the 6th year in a row, but generating a negative return YTD, what is a macro hedge fund universe to do? Why lose all pretense of being sophisticated fundamental trend pickers and do what Bernanke and Yellen have been forcing everyone to do from day one: go all in stocks of course! According to JPM as of this moment there is no difference in the positioning of both traditional long/short hedge funds and macro funds, both of which have increased their equity exposure to the highest since May 2011!
It is difficult to talk about the dollar in the abstract, especially when it is falling against the dollar-bloc and rising against the euro bloc. Dispassionate overview.
- Tea Party struggles to repeat Cantor-style shock in Tennessee (Reuters)
- Iran Deploys Forces to Fight al Qaeda-Inspired Militants in Iraq (WSJ)
- Oil Rallies as Militant Advance in Iraq Threatens Crude (BBG)
- Gold Set for First Back-to-Back Weekly Gain Since April (BBG)
- Hedge Funds Get Stung by Slow Markets (WSJ)
- Sterling nears 5-year high after Carney speech (FT)
- Britain Warns Boom in Real-Estate Prices Threatens Economy (WSJ)
- East Europe Leaders Urge EU Unity to Counter Russia (BBG)
- Formula One Said to Be Valued at $8 Billion as Malone Seeks Stake (BBG)
- Dumb and dumber: Abe Plans Company Tax Cut in 2015 as Kuroda Warns on Budget (BBG)
Believe it or not, the main driver of risk overnight had nothing to do with Iraq, with the global economy or even with hopes for more liquidity, and everything to do with a largely meaningless component of Japan's future tax policy, namely whether or not Abe (who at this pace of soaring imported inflation and plunging wages won't have to worry much about 2015 as he won't be PM then) should cut the corporate tax rate in 2015. As Bloomberg reported, Abe, speaking to reporters in Tokyo today after a meeting with Finance Minister Taro Aso and Economy Minister Akira Amari, said the plan would bring the rate under 30 percent in a few years. He said alternative revenue will be secured for the move, which requires approval from the Diet.