It has been more of the same in the latest quiet overnight session where many await tomorrow's NFP data for much needed guidance, and where Chinese markets opened weaker, rose during the day, then went through a mini rollercoaster, then sold off in the afternoon. The Shanghai Composite and HS China Enterprises indices finished down .9% and .3%, respectively. Trading volume continued to be very subdued, running at half the thirty day average as some 20 million "investors" have pulled out of the market to be replaced with HFTs such as Virtu. But while stock action has been muted, the story of the night so far is oil and the energy complex broke out of a tight overnight range early in the European session to continue yesterday's downward trend, seeing WTI Sep'15 futures fall below the USD 45.00 handle after yesterday's DoE crude oil inventories saw US crude output rise by 0.552%. As of this moment oil was trading at $44.72, just pennies above the low print of 2015.
This is how DB summarizes what has been the primary feature of capital markets this week - the huge move in European bond yields: "On April 17th, 10-year Bunds traded below 0.05% intra-day. Two and a half weeks later and yesterday saw bunds close around 1000% higher than those yield lows at 0.516% after rising +6.2bps on the day." Right out of the European open today, the government bond selloff accelerated with the 10Y Bund reaching as wide as 0.595% with the periphery following closely behind when at 9:30am CET sharp, just as the selloff seemed to be getting out of control, it reversed and out of nowhere and a furious buying wave pushed the Bund and most peripheral bonds unchanged or tighter on the day! Strange, to say the least. Also, illiquid.
Things in risk land started off badly this morning, with the worst start to a year ever was set to worsen when European equities came under early selling pressure following news of German unemployment falling to record low, offset by a record high Italian jobless rate, with declining oil prices still the predominant theme as Brent crude briefly touched its lowest level since May 2009, this consequently saw the German 10yr yield print a fresh record low in a continuation of the move seen yesterday. However, after breaking USD 50.00 Brent prices have seen an aggressive bounce which has seen European equities move into positive territory with the energy names helping lift the sector which is now outperforming its peers. As a result fixed income futures have pared a large majority of the move higher at the EU open. But the punchline came several hours ago courtesy of Eurostat, when it was revealed that December was the first deflationary month for the Eurozone since the depths of the financial crisis more than five years ago, when prices dropped by -0.2% below the -0.1% expectation, and sharply lower than the 0.3% increase in November, driven by a collapse in Energy prices.
Confused why in the lack of any horrible economic news (unless of course someone leaked a worse than expected November payrolls print which would put QE4 right back on the table) futures are higher, especially in the aftermath of yesterday's disappointing ECB conference? Then look no further than the Yen which has now lost pretty much all control and is in freeplunge mode, rising some 25 pips moments ago on no news, but merely as wave after wave of momentum ignition algos now make a joke of the Japanese currency, whose redline of 123 (as defined by SocGen)is now just 240 pips away. At this pace, Japan's economy, which as reported yesterday has just seen a record number of corporate bankruptcies due to the plummeting yen, may well be dead some time next week. Which, with Paul Krugman as its new and improved economic advisor, is precisely as expected. RIP Japan.
Today's Market-Boosting Disappointing Economic News Brought To Your Courtesy Of Euroarea's Service PMIsSubmitted by Tyler Durden on 12/03/2014 08:11 -0400
Those wondering why European stocks are higher but off earlier highs, the answer is simple: the latest Service ISM was bad but it wasn't a complete disaster. And while RanSquawk notes that "the particularly disappointing slew of Eurozone Service PMI’s from France and Spain capped any potential upside seen across the European indices" stocks are clearly green on hopes Europe's ongoing economic devastation accelerates enough for the ECB to finally start buying Stoxx 600 and various other penny stocks. This is what happened, in Goldman's words: the November Euro area final composite PMI came in at 51.1, 0.3pt below the flash (and Consensus) estimate. Relative to October, the composite PMI fell by 0.9pt. The weaker final composite PMI was driven by flash/final downward revisions to the German manufacturing PMI and the French services PMI. Today’s data also showed some improvement in the Italian services PMI, and a deterioration in its Spanish counterpart.
Following last week's holiday-shortened week, which was supposed to be quiet and peaceful and was anything but thanks to OPEC's shocking announcement and a historic plunge in crude prices, we have yet another busy week of macroeconomic reports to look forward to.
The Macro Mauling Continues: Germany Contracts, Japan Downgraded, Copper Tumbles, WTI Lowest Since 2009, Gold UpSubmitted by Tyler Durden on 12/01/2014 08:19 -0400
Another day full of global macroeconomic disappointments is certain to send the S&P500 to all time-higherest records as 100,000 or so E-mini contracts exchange hands between central banks and Citadel's algos.
With last night's latest Japanese flash crash firmly forgotten until the next time the trapdoor trade springs open and swallows a whole lot of momentum chasing Virtu vacuum tubes, it is time to look from east to west, Frankfurt to be precise, where in 45 minutes the ECB may or may not say something of importance. As Deutsche Bank comments, "Today is the most important day since.... well the last important day as the ECB hosts its widely anticipated monthly meeting." Whilst not many expect concrete action, the success will be judged on how much Draghi hints at much more future action whilst actually probably doing nothing.
While hardly a surprise, the spin for the latest round of overnight BOJ USDJPY-buying exuberance, which sent the pair higher by another 100 pips to a fresh 7 year high of 114.500 and just over 500 pips from the Albert Edwards "line in the sand" 120 and pushed US equity futures higher with it, has been the Republican sweep in the midterm elections which not only solidified GOP control of the House but also gave Republicans outright control of the Senate.
Lack Of Daily Central Bank Intervention Fails To Push Futures Solidly Higher, Yen Implosion ContinuesSubmitted by Tyler Durden on 11/03/2014 07:47 -0400
While it is unclear whether it is due to the rare event that no central bank stepped in overnight with a massive liquidity injection or because the USDJPY tracking algo hasn't been activated (moments ago Abe's deathwish for the Japanese economy made some more progress with the USDJPY hitting new mult-year highs just shy of 113.6, on its way to 120 and a completely devastated Japanese economy), but European equities have traded in the red from the get-go, with investor sentiment cautious as a result of a disappointing the Chinese manufacturing report. More specifically, Chinese Manufacturing PMI printed a 5-month low (50.8 vs. Exp. 51.2 (Prev. 51.1)), with new orders down to 51.6 from 52.2, new export orders at 49.9 from 50.2 in September. Furthermore, this morning’s batch of Eurozone PMIs have failed to impress with both the Eurozone and German readings falling short of expectations (51.4 vs Exp. 51.8, Last 51.8), with France still residing in contractionary territory (48.5, vs Exp and Last 47.3).
Even as the NATO summit began hours ago in Wales, conveniently enough (for Obama) at the venue of the 2010 Ryder Cup, so far today geopolitics has taken a backseat to the biggest event of the day - the ECB's much hyped and anticipated announcement. So anticipated in fact that even as it has been priced in for the past month, especially by BlackRock which is already calculating the Christmas bonus on its "consultancy" in implementing the ECB's ABS purchasing program and manifesting itself in record low yields across Europe's bond market, Reuters decided to milk it some more moments ago with the following blast: "Plans to launch an asset-backed securities (ABS) and covered bond purchase programme worth up to 500 billion euros are on the table at Thursday's European Central Bank policy meeting..." The notable being the size of the program, which at €500 billion, is precisely what Deutsche Bank said a week ago the size of the ABS program would be. Almost as if the bank with the world's biggest derivative exposure is helping coordinate the "Private QE"...
With everyone focused on China as the source of next systemic risk, most forgot or simply chose to ignore Europe, which through Draghi's verbal magic was said to be "fixed." Or at least everyone hoped that the rigged European bond market would preserve the "recovery" illusion a little longer giving the world some more time to reform pretend it is doing something to fix it. Turns out that was a mistake, confirmed earlier not only by the plunge in German Factory Orders which cratered -4.3%, down from 7.7% and below the 1.1% revised, and UK Industrial production which missed expectations of a 0.6% boost, rising only 0.3%, but most importantly Italy's Q2 GDP shocker, which as we reported earlier, dropped for the second consecutive quarter sending the country officially into recession. As a result, European stock markets, Stoxx600, has joined the DJIA in the red for the year while Germany's 2 Year Bund just went negative on aggressive risk aversion, the first time since 2012.
US Services PMI fell from June's 61.0 level to 60.8 (slightly below the flash print of 61.0 suggesting modest weakness in the latter end of the month) ending a two-month streak of post-weather exuberance as new orders and jobs data slowed, and Markit warns "growth may have peaked." Factory Orders rose 1.1% for the biggest beat in 9 months. ISM Services smashed expectations and surged to Nov 2005 highs (from 4-year lows just 4 months ago - volatile?) with most sub-indices improving except new export orders fell to 4-month lows.
It is unclear how much of this morning's momentum-busting weakness in futures is the result of China's horrendous Service PMI, which as we reported last night dropped to the lowest print on record at the contraction borderline, but whatever low volume levitation was launched by the market after Europe's close yesterday may have fizzled out if only until Europe close (there is no POMO today). Still, futures may have been helped by yet another batch of worse than expected European data, namely the final Eurozone PMI prints, which in turn sent the EURUSD to day lows and the offsetting carry favorite USDJPY to highs, helping offset futures weakness. Because in the New Normal there is nothing like a little bad macro data to goose the BTFATH algos...
Dispassionate, non-conspiratorial rant , fact-based high level discussion of the sigificant drivers of the week ahead.