Reuters

In a world in which fundamentals no longer drive risk prices (that task is left to central banks, and HFT stop hunts and momentum ignition patterns) or anything for that matter, it only makes sense that the day on which Japan posted a better than expected annualized, adjusted Q1 GDP of 3.5% compared to the expected 2.7% that the Nikkei would be down, following days of relentless surges higher. Of course, Japan's GDP wasn't really the stellar result many portrayed it to be, with the sequential rise coming in at 0.9%, just modestly higher than the 0.7% expected, although when reporting actual, nominal figures, it was up by just 0.4%, or below the 0.5% expected, meaning the entire annualized beat came from the gratuitous fudging of the deflator which was far lower than the -0.9% expected at -1.2%: so higher than expected deflation leading to an adjustment which implies more inflation - a perfect Keynesian mess. In other words, yet another largely made up number designed exclusively to stimulate "confidence" in the economy and to get the Japanese population to spend, even with wages stagnant and hardly rising in line with the "adjusted" growth. And since none of the above matters with risk levels set entirely by FX rates, in this case the USDJPY, the early strength in the Yen is what caused the Japanese stock market to close red.

With the scandal-ridden administration in major need of a geopolitical distraction, preferably of the exothermic variety, and with Syria still in desperate need of "liberation" by remote controlled-airborne units, the Senate may have put two and two together, and following today's introduction of the bipartisan "Syria Transition Support Act", at least one part of the US legislative process - the Senate Foreign Relations Committee - is set to vote as soon as next week on whether to arm Syrian rebels. The ultimate passage of such a move through Congress is guaranteed to finally escalate the regional mid-east conflict to the next stage with the inevitable involvement of Russia which as a reminder yesterday, in a very demonstrative and well-timed move, exposed a CIA agent operating in the heart of Moscow.

• Once a beacon, Obama under fire over civil liberties (Reuters)
• Eurozone in longest recession since birth of currency bloc (FT)
• EU Oil Manipulation Probe Shines Light on Platts Pricing Window (BBG)
• BMWs Cheaper Than Hyundais in Korea as Tariffs Crumble (BBG)
• Stock Boom Isn't a Bubble, Says BOJ's Kuroda (WSJ)
• Struggling France strives to shake off economic gloom (FT)
• JPMorgan investors take heat off Dimon (FT)
• Private-Equity Firms Build Instead of Buy (WSJ)
• Bloomberg Saga Highlights Clash Between Two Worlds (WSJ)
• Bank documents portray Cyprus as Russia's favorite haven (Reuters)
• HSBC Signals 14,000 Jobs Cuts in $3 Billion Savings Plan (BBG)
• Argentines Hold More Than $50 Billion in U.S. Currency (BBG)

So much for Europe's "recovery." In a quarter when the whisper was that some upside surprise would come out of Europe, the biggest overnight data releases, European standalone and consolidated GDPs were yet another flop, missing across the board from Germany (+0.1%, Exp. 0.3%), to France (-0.2%, Exp. 0.1%), to Italy (-0.5%, Exp. -0.4%), and to the entire Eurozone (-0.2%, Exp. 0.1%), As SocGen recapped, the first estimate of eurozone Q1 GDP comes in at -0.2% qoq, below consensus of a 0.1% drop. The economy shrank by 1.0% yoy, the worst rate since Dec-09. The decline of 0.5% qoq in Italy means that the economy has been in recession continuously since Q4-11. A 0.2% qoq drop in France means the economy has ‘double-dipped’, posting a second back-to-back drop in GDP since Q4-08. The increase of 0.1% qoq in Germany was disappointing and shows the economy is not in a position to support demand in the weaker member states (table below shows %q/q changes).

For the first time in naval history, a unmanned stealth drone (the bat-wing X-47B) was launched from an aircraft carrier. As Reuters reports, the launch from the USS George H.W. Bush marks an important step toward expanded use of drones in "providing very long range stealth" capabilities. Seen as a potential answer to the threat of medium-range anti-ship missiles developed by China and Iran; with a range of 2000 nautical miles the X-47B is "strategically very important." Because of its long range and the Navy's need to have it take off and land, day and night, from an aircraft carrier, the X-47B has been designed to operate with far greater autonomy than the remotely piloted aircraft currently in use. That has raised concerns among some organizations worried about the heavy U.S. reliance on drones in warfare and the rising use of autonomous robots by the American military; but Rear Admiral Ted Branch sees it as a "red letter day... we all saw history happen."

Following the just concluded recent visit by John Kerry to Russia, one may have been left with the impression that the tensions of the Cold War are dead and buried. Just the opposite it appears. In what may be a well-timed and orchestrated announcement, moments ago Russia announced that it had caught an American, Ryan Fogle, a third-secretary at the US Embassy in Moscow, "red-handed" as he tried to recruit a Russian intelligence officer to work for the CIA. There goes any leverage the US may have had in attempting to persuade Russia to relent on the joint-Western push to "liberate" Syria. Just as Russia, run by a former KGB spy, had intended all along, and just another slap in the face of the US department of state, which lately can't seem to find its way out of a scandal-ridden (and redacted) paper bag to save its life. But perhaps most amusing is that in the attached letter given to the recruitment prospect, the CIA give out the email address to be used to indicate interest in working for Langley as follows: unbacggdA@gmail.com. How the times have changed.

• Controversies give Obama new governing headaches (Reuters)
• About that Capex... BHP to Rein In Investment, Chief Says (WSJ), considers returning cash to shareholders (FT)
• Bloomberg users’ messages leaked online (FT)
• Japanese mayor sparks China outrage with sex-slave remarks (Reuters)
• Economists Cut China Forecasts (WSJ)
• U.S. oil boom leaves OPEC sidelined from demand growth (Reuters)
• U.S. banks push back on change in loan loss accounting (Reuters)
• Fed’s Plosser Says Slowing Inflation No Concern for Policy (BBG)
• Watchdog probes 1m US swap contracts (FT)
• Used Gold Supply Heads for ’08 Low as Sellers Balk (BBG)
• Ex-BlackRock Manager Said to Be Arrested in U.K. Probe (BBG)

There was a time three months ago, when "beating" German confidence served as an upward stock and EURUSD catalyst not once but twice in the same week. One would therefore assume a German confidence miss, such as with today's German ZEW, which barely budged from 36.3 to 36.4 on expectations of a rise to 40.0, with the current situtation dropping from 9.2 to 8.9, on expectations of a rise to 9.8, should be risk negative. Well, it wasn't: it is the new normal after all, and in fact the EURUSD jumped in a kneejerk reaction at 5 am, rising over 1.3000, albeit briefly, assisted by ZEW members saying that respondents do not see a further ECB rate cut - well, of course not - they are Germans, and Draghi isn't. Perhaps the news of a better than expected Eurozone Industrial Production print, which rose from 0.3% to 1.0%, on expectations of a more modest increase to 0.5%, is what catalyzed the subsequent drop in both the EUR, and US stock futures. The IP strength was driven by Germany, Spain and Netherlands offset be decline in France and Italy. 

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">Driving the sentiment was the report that U.S. jobless benefits decreased to their lowest rate since 2007. Philadelphia Fed President Charles Plosser forecasted that day unemployment will drop to 7% by December 2013 and he favours reducing the Fed’s $85 billion monthly bond purchases next month. Plosser however has no vote on Fed policy this year.

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">While hedge funds are seeing outflows of $20.8 billion from gold funds this year, BlackRock Inc. the world’ biggest money manager is still bullish, reported Bloomberg.

• Hilsenrath: A Top Contender at the Fed Faces Test Over Easy Money (WSJ)
• Yen drops further as G7 avoids criticizing Japan (Reuters)
• Markets missed Flaherty’s clues on next Bank of Canada chief (G&M)
• Republicans turn screws over Tea Party tax probes (FT)
• Dual-track Libor replacement lined up (FT)
• Risks to China recovery seen as factory output underwhelms (Reuters)
• Barack Obama’s goal of universal healthcare could be set back significantly by Texas Governor Rick Perry (FT)
• Gold Bears Pull $20.8 Billion as BlackRock Says Buy (BBG)
• Mexico sets shelters as volcano shakes, spews ash (AP)
• Europe Eases Corporate Tax Dodge as Worker Burdens Rise (BBG)
• IPOs Set to Raise Most Cash Since Crisis (WSJ)
• Melting Ice Opens Fight Over Sea Routes for Arctic Debate (BBG)
• Top hedge funds bet on Greek banks (FT)
• Icahn Asks Investors to Make Big Bet on a Debt-Laden Dell (BBG)

Overnight risk continues to ignore all newsflow (today the economic reporting finally picks up with advance retail sales due at 8:30 am as expectations for a second modest decline in a row of -0.3%) and is focused entirely on what the consensus decides to make of the Hilsenrath piece, even as the difficulty level was raised a notch following another late Sunday Hilsenrath piece, which puts more variable into the "tapering" equation, and whose focus is whether Bernanke will be replaced by Janet Yellen, Geithner or Summers, or anyone. With all three classified as permadoves, one does scratch their head how the market can be confused: worst case Fed tapers by $10/20 billion per month, market tumbles, then Bernanke's replacement or Ben himself ploughs on even more aggressively with QE. QED.

As reported on Friday, the most recent example of a breach in informational Chinese walls was confirmed at Bloomberg, where it was discovered that reporters have the same degree of client surveillance as workers on the API/terminal side. The reason why this is problematic is that since Bloomberg is a monopolist in the financial terminal industry, with such competitor attempts as Reuters' Eikon being massive failures, virtually every finance professional needs a terminal (even if the rate of sale of such terminals is slowing down as a result of the ongoing financial margin headaches). Which means that Bloomberg journos, an increasingly competitive service to the likes of Dow Jones, Reuters and AP, may have had an unfair advantage when it comes to tracking their "pray" - Bloomberg's own clients. And now, following the original Goldman complaint which Bloomberg said ended such informational commingling, it is the turn of the Treasury and the Fed (certainly very heave users of the BBG Trading terminal) to complain. What is left unsaid in all of this is the simple question of just why is it material information what the Fed, arguably an entity that at least in a normal world should not have any day to day trade interactions with financial markets, looked up on its trading terminal.

While the H7N9 birdflu epidemic is still raging in China, with 4 news deaths bringing the total confirmed death toll to 31 (and who knows how many unconfirmed) on 129 infections leading to a mortality rate that is simply staggering, even if the mordibity rate is largely a function of Chinese data censorship, Europe and the middle east may be set for a viral breakout of their own. First is the case of Saudi Arabia where two more people have died from novel coronavirus, a new strain of the virus similar to the one that caused SARS, in an outbreak in al-Ahsa region of Saudi Arabia, the deputy health minister for public health said on Sunday. What is more troubling is that with the lack of accurate newsflow out of Saudi Arabia, come unforeseen consequences, such as the eventual spread of the virus from its localized region to a new area, such as Europe or in this case France, to start. Reuters report that a "second diagnosis of the new SARS-like coronavirus has been confirmed in France, the Health Ministry said on Sunday, in what appeared to be a case of human-to-human transmission. The new infection was found in a 50-year-old man who had shared a hospital room with France's only other known sufferer, the ministry said in a statement."

• PBOC Says China Shouldn’t Be ’Blindly Optimistic’ on Inflation (BBG)
• Foreigners Buying Half of London New Homes Prop Up Building (BBG) - first they come for the foreign deposits, then for the real assets...
• Investors Rediscovering Margin Debt (WSJ) - well, yes: it is at record highs
• China issues new rules targeting wealth management fund pools (RTRS)
• Navy $37 Billion Ships Seen Unsuitable Have 2-Year Window (BBG)
• New York may have to drop claims against BofA over Merrill (RTRS)
• FBI Rejects Boston Police Stance in Spat Over Terror Data (BBG)
• In eastern Syria oil smugglers benefit from chaos (RTRS)

This is not Thursday Humor - though perhaps it should be. First, the Japanese promoted bond-buying as not just patriotic, but a manly endeavour that will get you the girls; but now the idea of inflating assets has been taken one step further. The Japanese have argued that 'sex sells bonds' in the past but now, as Reuters reports, the lingerie-maker Triumph's Japanese division has launched a special edition "growth strategy" Abenomics Bra. "We hope that, as the Japanese economy grows, we can also help bust sizes to get bigger," a spokewoman noted as the bra features a rising trendline, three arrows pointing up, and promises a 2% increase in volume with extra padding. The analogy of an exogenous force maintaining a natural force at an unsustainable size is just too easy - as, just as in the real-life, at some point that 'supportive bra' of monetary policy has be removed.