While there was a plethora of macro data (starting with some ugly numbers out of Australia which clobbered AUD pairs overnight), China HSBC Services PMI dipping slighlty from 52.6 to 52.5, Final Eurozone PMI Services (printing at 51.2 up from 50.9 and beating expectations of the same on an increase in German PMI numbers from 54.5 to 55.7 and a decline in French PMI from 48.8 to 48.0), Eurozone retail sales declining by 0.2%, on expectations of an unchanged print, and much more (see below), perhaps the most important news of the day came from Japan which many expect will be the source of much more easing in the coming months and thus serve as marginal lever to push global fungible markets higher. However, not only did various BOJ officials for the first time in a while talk down expectations of a QE boost, but the head of the Japan GPIF said that it doesn't need to sell JGBs right now as it would "rock markets" and that instead can achieve its targeted 52% weighing as bonds mature, that it may buy foreign bonds instead to raise weighting to core target (as the Fed buys Japan bonds?), and that it will be very difficult for Japan to hit the BOJ's inflation target in 2 years. Is Japan already getting cold feet on rumors of more QE and did it realize there are only so many assets it can monetize. If so, watch out below on the EURJPY which has now priced in about 700 pips of expected BOJ QE boosting in early 2014.
Something snapped overnight, moments after the EURJPY breached 140.00 for the first time since October 2008 - starting then, the dramatic weakening that the JPY had been undergoing for days ended as if by magic, and the so critical for the E-Mini EURJPY tumbled nearly 100 pips and was trading just over 139.2 at last check, in turn dragging futures materially lower with it. Considering various TV commentators described yesterday's 0.27% decline as a "sharp selloff" we can only imagine the sirens that must be going off across the land as the now generic and unsurprising overnight carry currency meltup is missing. Still, while it is easy to proclaim that today will follow yesterday's trend, and stocks will "selloff sharply", we remind readers that today is yet another infamous double POMO today when the NY Fed will monetize up to a total of $5 billion once at 11am and once at 2 pm.
Regular readers know that at the end of every month we look at the next month's POMO schedule, and urgently advise against shorting stocks on POMO days. That in the New Normal POMO days are pretty much every single day, may have something to do with why the S&P is set for a +30% close in 2013. However, in December the Fed has something very special served up. In addition to the usual $45 billion in total monthly wealth effect injections (which happen to quietly end up directly in Singapore private wealth offshore accounts), in the next month, Ben Bernanke's parting gift to the 0.1% will be not one... not two... but a whopping three days with double POMOs: December 3, December 9 and, drumroll, December 19, aka the day after the final 2-day FOMC meeting of 2013, when Kevin Henry and his peers will monetize up to a whopping $7.5 billion in one day!
In fitting with the pre-holiday theme, and the moribund liquidity theme of the past few months and years, there was little of note in the overnight session with few event catalysts to guide futures beside the topping out EURJPY. Chinese stocks closed a shade of red following news local banks might be coming under further scrutiny on their lending/accounting practices - the Chinese banking regulator has drafted rules restricting banks from using resale or repurchase agreements to move assets off their balance sheets as a way to sidestep loan-to-deposit ratios that constrain loan growth. The return of the nightly Japanese jawboning of the Yen did little to boost sentiment, as the Nikkei closed down 104 points to 15515. Japan has gotten to the point where merely talking a weaker Yen will no longer work, and the BOJ will actually have to do something - something which the ECB, whose currency is at a 4 year high against Japan, may not like.
Another day, another carry currency-driven futures melt-up to daily record highs (the all important EURJPY soared overnight on the return of the now standard overnight Japanese jawboning of the JPY which sent the EURJPY just shy of a new 4 year high of 138 overnight), and another attempt by the ECB to have its record high market cake, and eat a lower Euro too (recall DB's said the "pain threshold" for the EUR/USD exchange rate - the level at which further appreciation impairs competitiveness and economic recovery - is $1.79 for Germany, $1.24 for France, and $1.17 for Italy) this time with ECB's Hansson repeating the generic talking point that the ECB is technically ready for negative deposit rates. However, with the halflife on such "threats" now measured in the minutes, and soon seconds, the European central bank will have to come up with something more original and creative soon, especially since the EURJPY can't really rise much more without really crushing European trade further.
Hugh Hendry Capitulates: "Can't Look At Himself In The Mirror" As He Throws In The Towel, Turns BullishSubmitted by Tyler Durden on 11/22/2013 12:55 -0500
"I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends."
- Hugh Hendry
Many have wondered why one of the greatest boxers of our generation, Philippines' Manny Pacquiao, has not retired gracefully into hero-dom following his loss to Marquez late last year. For a fighter - it could be pride, ego, or, sadly, lack of funds. In Pacquiao's case it is none of the above, we suspect as a politician, the diminutive boxer has realized the wealth effect-creating impact of his victories of the nation - which at no other time in history needs something positive to reflect on. While in the US, investors have POMO to almost guarantee an up-day in stocks, in the Philippines, stocks rise 73% of the time after a Pacquiao win (compared to 52% average) and rise a stunning 0.5% (against a 0.04% average). Pacquiao is 6-1 on to win against Brandon "Bam Bam" Rios on Saturday (86% likely to win); is there a Philippines ETF?
Supported by economic weakness overnight in Asia and a weak Philly Fed print (bad news is good news) along with hope from more QE out of the BoJ, JPY weakness floated all boats today as homebuilders and financials surged lifting stocks tick for tick with carry. Yellen's nomination provided yet another lift. Treasuries rallied (though the long-end remains +10bps on the week). Precious metals were monkey-hammered early then dead for the rest of the day (-4% on the week) as oil prices surged higher ( +1.6% on the week). The USD Index glitched lower on no neg rates chatter early from Europe but the quietness in the index hid major dispersion as AUD was craushed (now 1.6% lower on the week). Credit markets rallied (but remain well off stocks) and VIX was compressed as low volumes meant a slow lift higher (and Trannies best day in almost 5 weeks). Shorts suffered the most until POMO ended - tripling market performance.
With the market not sure what bad news would send it soaring higher today, here comes the Philly Fed to save the day by tumbling from October's 19.8 to a paltry 6.5, slamming through expectations of 15.0 - the biggest miss since February - and assuring that ahead of today's POMO there is enough ammunition for a stock ramp to end the three days of declines. And now, since the economy is once again sliding on every possible banana peel, we can calmly go back to the "market" ramp.
After the DJIA and S&P briefly crossed the key resistance levels of 16000 and 1800, the upper bound on the markets has been looking increasingly more distant and this morning's lack of an overnight ramp only makes it more so. Perhaps the biggest concern, however, is that with both Yellen and Bernanke on the tape yesterday, the S&P still was unable to close green. This follows on Monday's double POMO day when the S&P once again closed... red. Not helping things was the overnight announcement by the Japanese government pension fund, the GPIF, in which the fund announced it would lower its bond allocation further however the new law to reform the GPIF could be written by spring 2015. This was hardly as exciting as the market had expected, and as a result both the USDJPY and the ES-moving EURJPY find themselves at overnight lows. Will the EURJPY engage in its usual post 8 am ramp - keep a close eye, especially since the usual morning gold and silver slam down just took place.
Despite Yellen, Bullard, and Evans on the tape, markets limped lower on the day. Of course, we had the standard POMO-based ramp but once again credit markets and VIX indicated more than a few were seeking protection rather than loading the boat at these all-time high round-numbers. Stocks had reached their 'richest' in 3 months relative to the Fed's balance sheet and so were perhaps due a little more turmoiling but Treasuries sold off all day (and not on growth expectations) to end unchanged across the curve on the week. The USD oscillated but ended lower (JPY unch on the week) and commodities dribbled higher (though all remain red on the week). Perhaps the most worrisome thing today was the total disconnect between stocks and FX carry after Europe closed...
Yesterday it was Carl Icahn explaining some uncomfortable truths to the mainstream media (who rapidly turned their cognitively dissonant backs on his status quo defying statements). Today, it is uber-bull Larry Fink's turn to unleash truth-hell...
- *FINK SAYS PENSION FUNDS TO START SELLING STOCKS TO REBALANCE
- *FINK SAYS STRUCTURAL UNEMPLOYMENT GROWING
- *FINK SAYS QE NOT HELPING WITH STRUCTURAL UNEMPLOYMENT
- *FINK SAYS CENTRAL BANKS' POWERS TO CREATE JOBS LIMITED
His remarks - coinciding with Europe's close and the end of POMO (and this EURJPY's levitation) has knocked half of this morning's gains off stocks...
The ECB tried to "do whatever it takes" this morning by floating QE rumors (Constancio - QE is a possibility but not discussed in any detail) with the endgame being a weaker EUR (since a stronger EUR has crushed Eurozone corporate earnings). But, the Fed was having none of that, and as POMO started it dominated the ECB's "weak" kung-fu, ramping stocks and EURUSD to new highs... as we chronicled on Twitter... banging EURJPY (the all-important carry driver of all thinsg risk) to new 4-year highs).
It is time for the centrally-planned markets to "try" for the round number trifecta of 16000, 1800 and 4000 again, although it may be a tad more difficult on a day in which there is no double POMO and just $2.75-$3.50 billion will be injected by the NY Fed into the S&P - perhaps it is Bitcoin that will hit the nice round number of $1000 first? Overnight, the Chinese Plenum news rerun finally was priced in and the SHComp closed red, as did the Nikkei 225 as the Asian euphoria based on communist promises about what may happen by 2020 fades. What's worse, the Chinese 7-day repo rate is up 140bp this morning to 6.63% amid talk of tightening domestic liquidity conditions, and back to levels seen during the June liquidity squeeze. All this is happening as China continues leaking more details and hope of what reform the mercantilist country can achieve, and how much internal consumption the export-driven country can attain: overnight there were also additional reports of interest rate liberalization and that the PBOC are to set up a floating CNY rate. Good luck with that.
Carl Icahn, who is currently speaking at the Reuters Global Investment Outlook Summit, just poured cold water over the Fed's 16,000 DJIA EOD price target.
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But... but.. two POMOs... Still, not too late for K-Fed and his merry unlimited balance sheet trading men to pull a record third POMO today and keep the "wealth effect" illusion going. Was it just a month ago that we warned "Carl Icahn's nightmare" was about to occur? - as the credit market became saturated...