Futures Euphoria Deflated By Latest Batch Of Ugly European News: Germany Can't Exclude "Technical Recession"Submitted by Tyler Durden on 10/14/2014 05:47 -0500
So far the overnight session has been a mirror image of Monday's, when futures languished at the lows only to ramp higher as soon as Europe started BTFD. Today, on the other hand, we had a rather amusing surge in the AUDJPY as several central banks were getting "liquidity rebates" from the CME to push the global carry-fueled risk complex higher, only to see their efforts crash and burn as Europe's key economic events hit. First, it was the Eurozone Industrial Production, which confirmed that the triple dip is well and here, when it printed -1.8%, below the expected -1.6%, and far below last month's 1.0%. This comes in the month when German IP plunged most since 2009, confirming that this time it's different, and it is Germany that is leading Europe's collapse into the Keynesian abyss not the periphery. And speaking of Germany, at the same time Europe's former growth dynamo released an October ZEW survey of -3.6%, the 10th consecutive decline and well below the 0.0% expected: first negative print since late 2012!
And just like that. everything is crashing. Whether it is Asia, Europe, or even US futures, an entire generation of traders are waking up to something few have seen in the past 6 years: a very rare sea of red only this time with the main difference that the perpetual backstop of all risk, the Fed and/or "Edward Quince", may not be there to halt the collapse.
- IRELAND SELLS 10-YEAR BONDS AT RECORD-LOW YIELD OF 1.63%
- GERMAN 10-YEAR BUNDS RISE; YIELD FALLS 2 BASIS POINTS TO 0.88%
- DUTCH 10-YEAR GOVERNMENT BOND YIELD DROPS TO RECORD-LOW 1.021%
- PORTUGUESE 10-YEAR BOND YIELD DROPS TO RECORD-LOW 2.942%
- FRENCH 10-YEAR GOVERNMENT BOND YIELDS DROP TO RECORD-LOW 1.214%
- U.S. 10-YEAR NOTE YIELD DROPS TO 2.296%, LOWEST SINCE JUNE 2013
- SPANISH 10-YEAR BOND YIELD DROPS TO RECORD-LOW 2.038%
- FINNISH 10-YEAR YIELD DROPS TO 1% FOR FIRST TIME ON RECORD
While the biggest micro news of the weekend is certainly the report that Hewlett-Packard has finally thrown in the towel on organic growth (all those thousands laid off over the past ten years can finally breathe easily - they were not fired in vain), and has proceeded to do what so many said was its only real option: splitting into two separate companies, a personal-computer and printer business, and corporate hardware and services operations (which will certainly lead to even more stock buybacks only not at one but two companies) which in turn has sent its stock and futures higher, perhaps the most notable development in the macro world is Japan's realization finally that the weaker Yen is crushing domestic businesses, which has resulted in the USDJPY sliding to lows last seen at Friday's jobs report print, and also generally leading to across the board wekness for the dollar, whose relentless surge in the past 3 months is strongly reminiscent of the euphoria following the Plaza Accord, only in the other direction (and making some wonder if the Plaza Hotel caterer are about to see a rerun of September 22, 1985 in the coming weeks).
In is only fitting that a week that has been characterized by deteriorating macroeconomic data, and abysmal European data, would conclude with yet another macro disappointment in the form of Markit's sentiment surveys, for non-manufacturing/service (and composite) PMIs in Europe which missed almost entirely across the board, with Spain down from 58.1 to 55.8 (exp. 57.0), Italy down from 49.8 to 48.8 (exp. 49.8), France down from 49.4 to 48.4 (exp. 49.4), and in fact only Russia (!) and Germany rising, with the latter growing from 55.4 to 55.7, above the 55.4 expected, which however hardly compensates for the contractionary manufacturing PMI reported earlier this week. As a result, the Composite Eurozone PMI down from 52.3 to 52.0, missing expectations, as only Germany saw a service PMI increase. And yet, despite or rather thanks to this ongoing economic weakness, futures have ignored all the negative and at last check were higher by 9 points, or just over 0.4%, as the algos appear to have reconsidered Draghi's quite explicit words, and seem to be convinced that his lack of willingness to commit is merely "pent up" commitment for a future ECB meeting. That or, more likely just another short squeeze especially with the "all important" non-farm payrolls number due out in just over 2 hours, which for the past 24 hours has been hyped up as sure to bounce strongly from the very disappointing, sub-200K August print.
The plunge in the price of crude oil in the last few months has many global-recovery-truthers questioning their assumptions. Between slowing growth expectations, US (and Libya and Iraqi Kurds and Russia) supply, and Saudi Aramco cutting prices (argued as maintaining market share but has the smell of a quid pro quo over Syria), oil prices have broken below $90 today to 17-month lows. However, for some major suppliers there is concern that more pressure is to come, as Reuters reports, Russia's central bank is working on measures to support the economy should oil prices fall by as much as a third or more, as First Deputy Governor Ksenia Yudayeva as saying the central bank was working on a "stress scenario" that was likely to envisage an oil price of $60 per barrel. Of course, as we noted previously, there is always the 'oil-head-fake' and as one analysts noted, "the main OPEC countries would experience budget difficulties long before that and would have to take action to cut supply."
While we already documented the crash in Japanese stocks earlier, the biggest market development overnight is the plunge in crude, with both Brent and WTI plunging, the latter sliding under $90 for the first time in 17 months, extending yesterday's selloff after Saudi Aramco cut Arab Light OSP in Asia to 2008 levels. Brent drops to lowest since June 2012. This also confirms that the global slowdown whose can is kicked every so often in a new bout of money printing, is arriving fast. That, and the imminent crackdown on today's Hong Kong protest will likely be the biggest stories of the day, even as the spread of Ebola to the US is sure to keep everhone on edge.
A quick anecdote that should quickly confirm just how broken everything is: earlier today MarkIt reported European manufacturing data that was atrocious, with both German and European PMIs tumbling to levels not seen since mid-2013, and with Europe's growth dynamo now in a contraction phase clearly signalling what has been long overdue: a European triple dip recession. So what happens? Moments later Germany sells €4.1 billion in 10 Year paper at a record low yield below 1%.... even as the Bundesbank had to retain a whopping 17.84% of the auction, the highest since June, with only €4.663 Bn in bids for the €5 Bn target, the first miss since May 21. So hurray for the central banks, boo for the economy, and as for that mythical creature, once known as bond vigilantes, our condolences: good luck figuring out what the hell just happened, and good luck recalling what a free market is.