It's Risk Off time.
Things got really out of control, and the USDJPY plunged by some 150 pips in the matter of hours, plunging as low as 102, when EM revulsion once again hit participants, in particular TRY and ARS which also supported bid tone in USTs. This also saw spot TRY rate print fresh record high, while 5y Turkish CDS rate advanced to its highest level since June 2012, while at the same time Argentina announced it would life currency controls and dollar purchases in the aftermath of the ARS devaluation by 13%. And since everything tracks the JPY carry pair as we have been showing for the past year, futures once again plunged overnight, for now held by 1810 support, Treasurys are bid throughout, with the same treasury yields that have "no where to go but up" sliding to 2.71% from 2.87% at the beginning of the week, while gold is finally spiking as the realization that absolutely nothing has been fixed, that apparently nobody got the taper is priced in memo, and that soon the Fed will have to untaper, begins to spread. Are the central planners finally starting to lose control?
But fear not, dear poor people of the world, for Lloyd Blankfein, Mark J. Carney, Mario Draghi, Haruhiko Kuroda, Christine Lagarde, Jacob Lew, Shimon Peres, Larry Fink, David Cameron, Shinzo Abe, Marissa Meyer, and many others are there fighting for you. Fighting all the way...
Weak results from Intel, American Express and Capital One, not to mention Goldman and Citi? No problem: there's is overnight USDJPY levitation for that, which has pushed S&P futures firmly into the green after early overnight weakness: because while the components of the market may have such trivial indicators as multiples and earnings, the USDJPY to which the Emini is tethered has unlimited upside. And now that the market is back into "good news is good, bad news is better" mode, today's avalanche of macro data which includes December housing starts and building permits, industrial production, UofMichigan consumer confidence and JOLTs job openings, not to mention the up to $3 billion POMO, should make sure the week closes off in style: after all can't have the tapped out consumer enter the weekend looking at a red number on their E-trade account: they might just not spend as much (money they don't have).
With no major macro news on today's docket, it is a day of continuing reflection of Friday's abysmal jobs report, which for now has hammered the USDJPY carry first and foremost, a pair which is now down 170 pips from the 105 level seen on Friday, which in turn is putting pressure on global equities. As DB summarizes, everyone "knows" that Friday's US December employment report had a sizeable weather impact but no-one can quite grasp how much or why it didn't show up in other reports. Given that parts of the US were colder than Mars last week one would have to think a few people might have struggled to get to work this month too. So we could be in for another difficult to decipher report at the start of February. Will the Fed look through the distortions? It’s fair to say that equities just about saw the report as good news (S&P 500 +0.23%) probably due to it increasing the possibility in a pause in tapering at the end of the month. However if the equity market was content the bond market was ecstatic with 10 year USTs rallying 11bps. The price action suggests the market was looking for a pretty strong print.
Heading into the North American open, stocks in Europe are seen broadly higher, with peripheral EU stock indices outperforming after Ireland successfully returned to capital markets with its 10y syndication that attracted over EUR 10bln. Financials benefited the most from the consequent credit and bond yield spreads tightening, with smaller Italian and Spanish banks gaining around 4%. Following the successful placement, IR/GE 10y bond yield spread was seen at its tightest level since April 2010, while PO/GE 10y spread also tightened in reaction to premarket reports by Diario Economico citing sources that Portuguese govt and debt agency IGCP consider that the current level of yields already allows Portugal to go ahead with a bond sale. Looking elsewhere, the release of better than expected macroeconomic data from Germany, together with an in line Eurozone CPI, supported EUR which gradually moved into positive territory. In addition to that, smaller MRO allotment by the ECB resulted in bear steepening of the Euribor curve and also buoyed EONIA 1y1y rates. The Spanish and Italian markets are the best-performing larger bourses, Swedish the worst. The euro is stronger against the dollar. Japanese 10yr bond yields fall; Spanish yields decline. Commodities gain, with wheat, silver underperforming and Brent crude outperforming. U.S. trade balance data released later.
What time can you go home today? Find out with the schedule of early market closures below:
- CME/CBOT - Early Close: Equities - 12:15PM Central; Interest Rates, FX, Commodities - 12:00PM Central
- NYMEX - Early Close: 1:30PM Eastern
- COMEX - Early Close: 11:30AM Central
- NYSE - Early Close: 1:00PM Eastern