After a solid day for risk yesterday, surging higher on a continuation of the rumor that Japan's economy will deteriorate so much the BOJ will have to print more money (even though overnight ex BOJ governor Sekido said Kuroda won't print more) we have a more cautious tone this morning heading into the Easter long weekend. A double earnings miss from Google and IBM following the US market close, comments from the Chinese Premier suggesting that the government will keep its policy settings unchanged, and a press conference from Russia’s President Putin in which the Russian president as expected, has refused to back down, has put a small dampener on sentiment today. Add the fact that due to Good Friday April equities Op-Ex will take place today and trading in the next 9 hours promises to be more unrigged than ever, especially if the NY Fed trading desk manages to slam the VIX into single-digit territory
We summarized yesterday's both better and worse than expected Chinese GDP data as follows: "a substantial deterioration of the economy, one which was to be expected yet one which can be spun as either bullish thanks to the GDP "beat", and negatively if the purpose is to make a case for more PBOC stimulus." Sure enough here are the headlines that "explain" the latest overnight futures surge which has once again brought the S&P into the green on the year - a 40 point Spoo move in hours since yesterday's bottom when the Nikkei "leaked" Japan's economy is on the ropes :
- Stocks Rise on China Stimulus Speculation
Here one should of course add the comment that launched yesterday's rebound, namely the Japanese warning that its economy is about to contract, adding to calls for more BOJ stimulus, and finally this other Bloomberg headline:
- The Strengthening Case for ECB Easing
And there you have it - goodbye "fundamental" case; welcome back "central banks will once again bail everyone out" case. Hopefully today's news are absolutely abysmal to add "US economic contraction fear renew calls for untapering" to the list of headlines that should send the S&P to all time highs by the end of today.
One can see that while the traditional 6:00 AM USDJPY buy program is just duying to resume aggressive upward momentum ignition, futures are still leery and confused by the recent post-open high beta selloffs. Then again, things like yesterday's ridiculous no news 3:30pm ramp happen and confused them even more just as momentum is about to take a downward direction. Stocks in Asia (ex-China) advanced amid a reversal in sentiment after Citigroup (+4.15%) inspired positive close on Wall Street, however Shanghai Comp (-1.4%) underperformed as concerns over GDP data on Wednesday following weak money supply data weighed on sentiment. Stocks remained on the back foot (Eurostoxx50 -0.42%), with Bunds supported by the release of lower than expected German ZEW survey and also ongoing concerns surrounding the stand-off between Ukraine/Russia. Short-Sterling bear steepened after UK CPI fell to its lowest level since October 2009, but house prices across Britain posted its biggest rise since June 2010, reviving concerns over an overheating market.
The main overnight event, which we commented on previously, was China's trade data which was a disaster. March numbers turned out to be well below market consensus with exports falling 6.6% YoY (vs +4.8% expected) and imports falling 11.3% YoY (vs +3.9% expected). The underperformance of imports caused the trade balance to spike to $7.7bn (vs -$23bn in Feb). Pricing on the Greek 5-year syndicated bond is due later today, with the final size of the bond boosted to EUR 3bln from EUR 2.5bln as order books exceed EUR 20bln (equating to a rough bid/cover ratio of over 6) as the final yield is set at 4.75% (well below the 5.3% finance ministry target and well above our "the world is a bunch of idiots managing other people's money" 3% target). Ireland sold EUR 1bln in 10y bonds, marking the third successful return to the bond market since the bailout. Also of note, this morning saw the release of lower than expected French CPI data, underpinning fears of potential deflation in the Eurozone.
The positive sentiment stemming from a positive close on Wall Street and saw Shanghai Comp (+0.33%), Hang Seng (+1.09%) trade higher, failed to support the Nikkei 225 (-2.10%), which underperformed its peers and finished in the red amid JPY strength as BoJ's Kuroda failed to hint on more easing. Stocks in Europe (Eurostoxx50 +0.32%) traded higher since the open, with Bunds also under pressure amid the reversal in sentiment.
Alcoa kicked off earnings season yesterday, with shares up 3% in after-market hours. Focus now turns to the release of the FOMC meeting minutes.
It took Virtu's idiot algos some time to process that the lack of BOJ stimulus is not bullish for more BOJ stimulus - something that has been priced in since October and which sent the USDJPY up from 97.000 to 105.000 in a few months, but it finally sank in when BOJ head Kuroda explicitly stated overnight that there is "no need to add stimulus now." That, and the disappointing news from China that the middle kingdom too has no plans for a major stimulus, as we reported last night, were the final straws that forced the USDJPY to lose the tractor-beamed 103.000 "fundamental level", tripping the countless sell stops just below it, and slid 50 pips lower as of this moment to overnight lows at the 102.500 level, in turn dragging US but mostly European equity futures with it, and the Dax was last seen tripping stops below 9400.
No Yen carry levitation overnight and, naturally, no Spoo levitation, with the futures struggling following the Nikkei's -1.7% drubbing (pushing it back to nearly -10% on the year) and down well from Friday's closing print. Risk averse sentiment following on from lower close on Wall Street on Friday, NASDAQ 100 (-2.7%) marked the worst session since 2011 dominated the price action in Asia, with JGBs up 32 ticks and the Nikkei 225 index (-1.7%). The Shanghai Composite was closed for a market holiday. Overall, stocks in Europe have recovered off lows but remain in negative territory (Eurostoxx50 -0.64%), with tech sector under performing in a continuation of sector weakness seen in the US and Asia, however Bunds remained under pressure as speculation of QE by ECB continued to undermine demand for core EU bonds. No major tier 1 releases scheduled for rest of the session, with focus likely turning to any policy related comments from ECB’s Weidmann, Constancio and Fed’s Bullard.
Being that markets are unrigged and all, at least according to every single proponent of HFT that is, futures have done their overnight levitation as they have every day for the past month driven by the one staple - the Yen carry trade - even if in recent days the broader market slump during the actual daytrading session mostly impacted biotechs yesterday. And since any news is good news, we don't expect today's main event, the ECB's rate announcement and Draghi press conference, both of which are expected to announce nothing new despite Europe's outright inflationary collapse which most recently dropped to 0.5%, the lowest since 2009.
As expected, the Federal Reserve has released its Permanent Open Market Operations (POMO) non-monetizing-of-the-debt schedule for April with $30 billion of Treasury purchases (and $25 billion MBS). This is a 33% reduction from the 'normal' $45 billion Treasury purchase of last year. The POMO schedule very generously allows traders 3 days of non-money-printing potential shorting opportunities (Friday 4th, Thursday 17th, and Wednesday 30th)... however, this Friday is non-farm payrolls day and we will not be allowed a red day after that...
After ramping in overnight trading, following the spike in Japanese stocks following another batch of disappointing economic data out of the land of the rising sun and setting Abenomics which sent the USDJPY, and its derivative Nikkei225 surging, US equity futures have pared some of the gains in what now appears a daily phenomenon. Keep in mind, the pattern over the past 6 consecutive days has been to ramp stocks into the US open, followed by a determined fade all the way into the close, led by "growthy" stocks and what appears to be an ongoing unwind of a hedge fund basket by one or more entities. Could the entire market be pushed lower because one fund is unwinding (or liquidiating)? Normally we would say no, but with liquidity as non-existant as it is right now, nothing would surprise us any more.
By this point, one has to be impressed at the resilience with which algos repeat the same pattern over and over again, hoping for a different outcome. It is now the 6th day in a row that the JPY-carry trade (be it USDJPY, EURJPY or AUDJPY) driven levitation has pushed equity futures smartly up in overnight trading. And by all accounts - in the absence of ugly macro news which in today's sparse data line up (just Personal Income and Spending and UMich consumer condfidence) - the same post early highs fade we have seen every day in the past week will repeat again. The overnight euphoria was driven primarily by Europe where Bloomberg reported 2 Year Spanish yields have traded below those of the UK for the first time since 2009. And since it is obviously not the strong fundamentals, what is continuing to happen, as has been the case since October 2013, is everyone is pricing in the ECB's QE, which even Weidmann is openly talkin about now, which simply means it will most likely never actually happen, certainly not until it is too late.
After tumbling overnight to just around 101.80, the USDJPY managed to stage a remarkable levitating comeback, rising all the way to 102.3, which in turn succeeded in closing the Nikkei 225 at the highs, up 1% after tumbling in early trade. The Shanghai Composite was not quite as lucky and as fear continue to weigh about a collapse in China's credit pipeline, the SHCOMP was down more than 0.8% while the PBOC withdreww even more net liquidity via repos than it did last week, at CNY 98 billion vs CNY 48 billion. That said, this morning will be the fifth consecutive overnight levitation in futures, which likely will once more surge right into the US market open to intraday highs, at which point slowy at first, then rapidly, fade again as the pattern has seemingly been set into algo random access memory. Which in a market devoid of human traders is all that matters.
Another morning melt up after a less than impressive session in China which saw the SHCOMP drop again reversing the furious gains in the past few days driven by hopes of more PBOC easing (despite China's repeated warning not to expect much). A flurry of market topping activity overnight once again, with Candy Crush maker King Digital pricing at $22.50 or the projected midpoint of its price range, and with FaceBook using more of its epically overvalued stock as currency to purchase yet another company, this time virtual reality firm Oculus VR for $2 billion. Perhaps an appropriate purchase considering the entire economy is pushed higher on pro-forma, "virtual" output, and the Fed's capital markets are something straight out of the matrix. Despite today's pre-open ramp, which will be the 4th in a row, one wonders if biotechs will finally break the downward tractor beam they have been latched on to as the bubble has shown signs of cracking, or will the mad momo crowd come back with a vengeance - this too will be answered shortly.
With another session in which US futures levitate into the open, despite a modest drop in the Nikkei225 (to be expected after the president of Japan’s Government Pension Investment Fund, the world’s largest pension fund, said that a review of asset allocations into stocks is not aimed at supporting domestic share prices) and an unchanged Shanghai Composite while the currency pair du jour, the USDCNY, closes higher despite tumbling in early trade (which also was to be expected after a former adviser to the People’s Bank of China said China is headed for a “mini crisis” in its local- government debt market as economic reforms lead to the first defaults) everyone is asking: will it be deja vu all over again, and after a solid ramp into 9:30 am, facilitated without doubt by the traditional Yen carry trade, will stocks roll over as first biotech and then all other bubble stocks are whacked? We will find out in just over two hours.
Remember when we said in January 2011 that Dealers merely game the daily POMO reverse auction to generate abnormal - and now confirmed criminal - profits on the back of the central bank, i.e. taxpayer? Guess what - we were right. Again.