Nikkei

As Citi's Todd Elmer notes, today's BoJ outcome looks far closer to 'shock and awe' than disappointment. It appears the BoJ's actions may speak as loud as their words for now - JPY is weakening and the Nikkei is rallying after Kuroda's last shot at a first impression appeared to beat expectations (covering for disappointing macro data - despite six months of jawboning and a 20% devaluation). Expectations, though tough to extract given the range of possible actions, appeared centered on extending maturities of bond purchases, increasing the size (median expectations of around JPY5.2tn per month or 50% higher than in Q1), bringing forward the open-ended nature of the program, and increasing scope to foreign bonds and REITs. In his effort to do "whatever it takes", the BoJ is upping asset purchases, extending the maturity of purchases and merging its asset purchase program; increasing the size to JPY7tn and buy securities out to 40 years. Though no mention of foreign bond-buying was made, and increase in ETFs and REITs is included. They have given themselves a two-year window to achieve the 2% inflation goal - paging Kyle Bass - and ironically, as the news broke Tokyo was hit by a significant earthquake.

The driftless overnight sessions are back. After the Nikkei soared by 3% following several days of declines, and the Shanghai Composite continued its downward ways despite Non-Manufacturing PMI prints for March which rose both per official and HSBC MarkIt data, Europe was unsure which way to go, especially with the EURUSD once more probing the 1.28 support level. The USDJPY was no help, and even with the BOJ meeting at which new governor Kuroda is finally expected to do something instead of only talking about it, imminent, has hardly seen the Yen budge and provide the expected carry-funding boost to global risk. In terms of newsflow there was little of it: European CPI in March printed at 1.7%, above expectations of 1.6%, but below February's 1.8% rise in inflation. UK continued telegraphing the inevitability of Mark Carney's imminent QE, with construction PMI the latest indicator missing, at 47.2, below expectations of 48.0 (above 46.8 last).  Elsewhere, Spanish Prime Minister Mariano Rajoy on Wednesday called for Europe to implement growth policies to balance its austerity drive and for countries with room for fiscal manoeuvre to increase public spending. "Europe is the only region in the world in recession. To overcome this situation we need three things: every country needs to do its homework, we need more (European) integration and we need growth policies," Rajoy said in a televised speech to leaders of his People's Party. "That's why countries which can afford it should spend more." Surely Europe will get right on it: after all, it's only "fair."

I don't care how much money Japan prints. Those printing presses can't offset the powerful force of demographics, at least not for long.

Economists have adjusted their forecasts and it will be difficult for the US data to continue to surprise on the upside. Moreover, there are signs that the economy lost some momentum into the end of Q1 that will likely spill over in Q2. We look at the relatively subdued reaction to the losses that will be incurred by uninsured depositors in Cyprus and recognize that it is far from unprecedented. In the US, the last time uninsured depositors took a hit (50%) was in the IndyMac failure. We show a deterioration of the financial situation in Italy, on top of the political and economic challenges. Lastly, we bring to your attention the deteriorating technical tone for the dollar against the yen and Japanese shares.

The driver of today's episode of "make the futures levitate" is not so much a rise in the EURUSD as Europe reopens - a very unhappy Europe where Italy's Monte Paschi was already halted down once on news from this weekend it was the first peripheral bank to suffer a depositor "run" - but curiously the USDJPY which after tumbling to under 93 and pushing the Nikkei 225 down by another 1% to just over 12,000 has been ramping gradually all morning to end well above the start of Japanese trading and was back to 93.25 at last check. It certainly is not the European economic news which continue to be about depressionary and getting worse: fresh unemployment record at 12%, final manufacturing PMIs well into contraction and getting worse especially for the doomed PIIGS: Italian PMI dumping even more to 44.5 vs Flash 45.4 and down from 45.8 last, Spain PMI crashing to 44.2, vs flash 46.2 and 46.8 last, UK 48.3 vs Flash 48.7, Germany 49.0 vs Flash 48.9 down from 50.3; France 44.0 vs Flash 43.9 and so on, rumors that the Cypriot Finance Minister is about to be sacked, and most disturbingly, the Slovenia central bank vice-governor Fabijan said that "Slovenia must start credible measures to avoid aid." Where was the last place we heard this.... Oh, yes, Cyprus. The same Cyprus, which paradoxically, is presented by some as the reason for the overnight "rally", with pundits attributing the Troika's "easing" of MOU terms by pushing back the fiscal target from 2016 to 2017 as reported yesterday. How that is even remotely news is shocking since none of the actual austerity measures themselves have been eased. But any goal seeked narrative is fair in the central banks' intervention in the farce formerly known as the "market."

The past 10 days have seen the Japanese Yen strengthen 3% against the USD - its largest such move in two years - with today's rally prompting a rather painful 'crash' in the Nikkei 225 at the open and envoking the anger of Abe:

• *ABE SAYS CURRENCY CORRECTION HELPING EXPORTERS COMPETITIVENESS (except that there is no evidence of this in any macro data at all)
• *ABE SAYS IT'S POSSIBLE BOJ WILL FAIL TO REACH INFLATION TARGET (like for the last two decades)
• *ABE SAYS ECONOMY SUBJECT TO UNFORSEEN CIRCUMSTANCES (unpossible)
• *ABE SAYS BOJ MUST EXPLAIN IF IT FAILS TO REACH INFLATION TARGET (not my fault!)

It seems that perhaps the wise investing public is waking up to the fact that words do not speak louder than actions, that macro fundamentals are bad and getting worse, and that 36,000 target for the Nikkei may be a stretch goal here.

With Europe and the UK closed today, it was unclear if the traditional overnight futures levitation would take place as scheduled. To nobody's big surprise, it did, driven as usual by the EURUSD, which rose from an overnight low in the mid 1.27s following news that the Cypriot parliament head wanted to pull his country out of the Eurozone as reported here, but more importantly as that second ramp funding carry pair of choice, the USDJPY fell to the lowest in a month following yet another miss in the Japan Tankan big manufacturer index, touching under 93.30 for the first time since March 6, pushing the Nikkei 225 lower by over 2% - has the magic of Japanese rhetoric finally worn off and is the market finally demanding action instead of hollow promises, threats and simply, words? In China we got a miss in the official PMI data setting up yet another Schrodinger PMI split in Chinese economic growth indicators where the official details once again deteriorating while those tracked by HSBC/Markit are mysteriously improving. Also in Asia, rumblings out of South Korea, which continues to miss on key export and economic growth indicators, that it should cut rates mean the export-driven country is on the verge of joining the global currency warfare at which point the free Japanese lunch is over.

Overview of the major central bank meetings and data preview as well as the latest from Cyprus and Italy.

The BTFD mantra is alive and well in a market, where futures overnight briefly dipped to a low of -0.5% only to be set to open at record high, following the biggest one day drubbing in China in months, where the Shanghai Composite closed -2.82% after new rules were issued by the Chinese banking regulator to limit the expansion and improve the transparency of so-called “wealth management products”. The products, which are marketed as higher yielding alternatives to bank deposits, are often used to fund risky projects including property developments, short-term corporate lines of credit or for speculative purchases of commodities and have been identified as contributing to the rise of shadow-banking in China’s financial system. As Deutsche reports, Fitch estimates the total amount of outstanding wealth-management products was around 13 trillion yuan at the end of last year—equal to about 15% of total banking-system deposits. Japanese equities were also weaker overnight (Nikkei –1.3%) and the yen is 0.3% firmer against the dollar after BoJ Governor Kuroda told parliament that he has no intention of buying foreign bonds because doing so could be seen as currency intervention. Finally, South Korea informally entered the currency wars after it slashed its GDP forecast from 3% to mid-2%, announcing it would use "interest rates" to boost growth, which naturally means use of monetary means and directly challenging the BOJ.

Deja Deja... oh forget it. S&P failed to make its all-time highs. We dipped (on heavy volume) and wiggled all the way back on no volume in stocks. Healthcare and Utilities lead the week but high-beta momo-monkeys chased homebuilders on the day. Wherever you looked today - apart from stocks - risk assets were being sold. VIX is higher on the day (and 2.5 vols disconnected from stocks); high-yield and investment-grade credit markets are ending near their worst level of the week - suggesting the S&P is 20 points rich; Treasuries ended off their low yields but stil down 7bps on the week and notably more post-Cyprus (with stocks in the green post Cyprus). The USD strengthened further during the EU session and flatlined in the US afternoon (with EURJPY leading the way down and not supportive at all of the equity rally). Apple lost its 50DMA again, dropping 2.2%. Equity volume was extremely low (cash and futures) and average trade size the lowest of the year. The phrase of the day is - irrational divergence.

Another session in which the market continues to be "cautiously optimistic" about Europe, but is confused about Cyprus which keeps sending the wrong signals: in the aftermath of the Diesel-Boom fiasco, the announcement that the preciously announced reopening of banks was also subsequently "retracted" and pushed back to at least Thursday, did little to soothe fears that anyone in Europe has any idea what they are doing. Additional confusion comes from the fact that the Chairman of the Bank of Cyprus moments ago submitted his resignation: recall that this is the bank that is supposed to survive, unlike its unluckier Laiki competitor which was made into a sacrificial lamb. This confusion has so far prevented the arrival of the traditional post-Europe open ramp, as the EURUSD is locked in a range below its 200 DMA and it is unclear what if anything can push it higher, despite the Yen increasingly becoming the funding currency of choice.

With stocks holding near all-time highs, exhibiting similar fear-and-greed driven ebbs and flows (more flow than ebb for now), we thought these three charts would provide some interesting analogs. As Citi's Tom Fitzpatrick notes, the current charts for Gold, The USD Index, and USDJPY have some intriguing similarities to (respectively) 2006/7, 1996/7, and 2000/1. If history rhymes, it appears it is time to buy Gold, buy the USD, and prepare for a hiatus in JPY's collapse. With the USD, it is perhaps worth noting that both the (similar) 1981 and 1997 periods followed housing/credit/banking crises. In both instances the Fed eased rates and kept them too low for too long….in the 70’s period leading to a stagflationary environment.

All eyes should remain focused on Cyprus today, especially since there is no data being reported elsewhere. Financial markets closed Friday on a positive note, as an agreement on Cyprus appeared to be taking shape and a minor relief rally across most asset classes overnight vindicated hopes of a positive outcome as details of the detail were announced overnight. More clarity is still required on some aspects of the agreement (deposit and bondholders) but the fact that the national parliament does not need to vote again should stop the deal from unravelling as it did last week. Whether this is enough to restore confidence and prevent a possible cautionary deposit flight from Cyprus remains to be seen.

There are no regulated financial markets open today; no BIS-buffered FX market, no Fed-spoon-fed US equity market, no BoJ-jawboned Nikkei 225, and no ECB-sponsored Spanish bond market to judge today's news and rumors. But there is one 'market' open - a market that prices in the belief (or lack thereof) in the status quo to a lesser or greater extent. Illiquid as it may be, today's Bitcoin prices (and volume) says a lot about the headlines of the day...