After learning that it snowed in China this winter following the release of the abysmal February Flash HSBC PMI numbers, we found out that there had also been snow in Europe, following misses across virtually all key French, German and composite PMIs with the exception of the German Services PMI which was the sole "beater" out of 6. To wit:
- Eurozone PMI Manufacturing (Feb A) M/M 53.0 vs Exp. 54.0 (Prev. 54.0); Eurozone PMI Services (Feb A) M/M 51.7 vs Exp. 51.9 (Prev. 51.6)
- German Manufacturing PMI (Feb A) M/M 54.7 vs. Exp. 56.3 (Prev. 56.5); German PMI Services (Feb A) M/M 55.4 vs Exp. 53.4 (Prev. 53.1)
- French PMI Manufacturing (Feb P) M/M 48.5 vs. Exp. 49.6 (Prev. 49.3); French PMI Services (Feb P) M/M 46.9 vs. Exp. 49.4 (Prev. 48.9)
Of course, economic data is the last thing that matters in a manipulated market. Instead, all that does matter is what the USDJPY does overnight, and as we forecast yesterday, the USDJPY 102 tractor beam is alive and well and managed to pull equity futures from a -10 drop overnight to nearly unchanged, despite the now traditional pattern of USDJPY selling during the overnight session and buying during the US session.
Spoos Rise To Within Inches Of All Time High As Overnight Bad News Is Respun As Great News By Levitation AlgosSubmitted by Tyler Durden on 02/17/2014 08:26 -0400
After tumbling as low as the 101.30 level overnight on atrocious GDP data, it was the same atrocious GDP data that slowly became the spin needed to push the USDJPY higher as the market became convinced that like everywhere else, bad news is great news and a relapse in the Japanese economy simply means more QE is coming from the BOJ despite the numerous articles here, and elsewhere, explaining why this very well may not be the case. Furthermore, as we noted last night, comments by the chairman of the GPIF panel Takatoshi Ito that the largest Japanese bond pension fund should cut its bond holdings to 40% were used as further "support" to weaken the Yen, and what was completely ignored was the rebuttal by the very head of the GPIF who told the FT that demands were unfair on an institution that has been functionally independent from government since 2006. The FSA “should be doing what they are supposed to be doing, without asking too much from us,” he said, adding that the calls for trillions of yen of bond sales from panel chairman Takatoshi Ito showed he "lacks understanding of the practical issues of this portfolio.” What he understands, however, is that in the failing Japanese mega ponzi scheme, every lie to prop up support in its fading stock market is now critical as all it would take for the second reign of Abe to end is another 10% drop in the Nikkei 225.
With so much of the recent bad news roundly ignored or simply "priced in" and blamed on the snow, it is unknown just what it is that catalyzed the overnight round of risk-offness, but whatever the ultimate factor, it first dragged the Nikkei lower by 1.8%, as we noted previously, then sent the SHCOMP down by 0.55%, then ultimately dragged the USDJPY below the key 102 support area which in turn pulled US equity futures to set the scene for a red open (with no POMO and no Yellen testimony today which also was canceled due to snow), and, putting it all together, suddenly Europe too is back on the scene, with a blow out in Italian yields driven by the realization that the Letta government is on the edge of collapse, in a deja vu moment to those hot summers of 2011 and 2012.
After initially sending the all important USDJPY carry pair - and thus all risk assets - into rally mode, the initial euphoria over manipulated Chinese trade data (see China Trade Puzzle Revived as Hong Kong Data Diverge), has all but fizzled and at last check the USDJPY was sliding to its LOD, approaching 102 from the wrong side. That, and a statement by the ECB's Coeure that the ECB is "very seriously" considering a negative deposit rate (and that the OMT is ready to be used even though it obviously isn't following the latest brewhaha from the German top court) have so far defined the overnight session, the latter having sent the EUR sliding across all major pairs.
While there are numerous reasons why precious metals prices rise and fall - from supply, demand, manipulation, money-printing, and jawboning - it is abundantly clear that as prices drop, Asian demand has risen rather notably. But what is the reason? Why are Asian 'people' and central bankers - most notably China - buying gold now? We suspect the following chart from SocGen provides considerably color when answering that question historically (and more importantly - going forward).
The most notable event in this traditionally quiet post-payrolls week is Janet Yellen's Humphrey Hawkins testimony before Congress set for mid-week. In terms of economic data releases, the US retail sales (Exp. 0.05%) is on Thursday and consumer sentiment survey is on Friday (consensus 80.5). We also have IP numbers from Euro Area countries and the US. Most recent external account statistics are released from Japan, China, India and Turkey. It is also interesting to track CPI data in Germany, Spain and India, given the ECB and RBI currently face diverging inflation challenges and may be forced into further action. Finally, we have Q4 GDP data from the Euro Area economies (Friday).
The key events this week are have non-farm payrolls (consensus 181K) and unemployment rate (consensus 6.7%). There is also going to be a number of speeches given by Fed policymakers. Production surveys from the US (ISM) and other parts of the world are due Monday. We also get trade balance updates from the English-speaking economies - US, UK, Australia and Canada. Finally, keep track on inflation data from Italy and Turkey: the latter is important to track given current high correlation among 'fragile' EM currencies.
Over the past week we took our fair share of jabs at SocGen EM FX analyst Benoit Anne (the one who said "Governor Basci, You Have Avoided A Domino Crisis In EM"... er, oops?) . They were all in good humor - after all when it comes to sheer contrarian cluelessness nobody, and we mean nobody in the known world, can even reach Tom Stolper's toe nail, whose fades have resulted in over +12,000 pips on these pages alone over the past 5 years. Which is why we follow up the comedy with something more serious: now that the honeymoon is over, Anne has put together a solid compendium on how to trade the EM meltdown, with an emphasis on defensive strategies. Considering the tapering will continue for a long time, and as GaveKal explained yesterday, someone will have to lose (big) before EM normalcy returns, we urge anyone with EM exposure to read this.
"We take profit on our TRY/ZAR trade recommendation which we entered last night at a level of 4.92. At the time of writing, the level is 4.968 resulting in a gain of 1.0% before carry. The short-lived relief rally in the TRY was swiftly interrupted by a shift in market sentiment, with the updated policy implementation failing to deliver the intended improvements in clarity. On the other hand, an unimpressive 50bp hike from SARB on the heels of CBRT’s punchier response fell short of expectations. Overall, the market continues to trade in a panic mode, notwithstanding the monetary policy responses spreading fast across EM, as real policy rates come increasingly under scrutiny." - SocGen
Yesterday, the moment when the Turkish Central Bank intervention was jinxed was clearly marked by SocGen's fawning Benoit Anne, who said "In any case, I definitely feel much better about the TRY, at least on a tactical basis. Hence we just entered a long TRY/ZAR targeting a tactical move to 5.10. The TRY crisis is over." To which we responded: "As for the "TRY crisis being over" let's wait to see what the "popular" response is to this epic rate hike first thing tomorrow when Turkey awakes, shall we, and let's revisit the TRY crisis in 2-3 weeks when the country's housing market crumbles, when the economy grinds to a halt and the political crisis goes from worse to worse-est." We didn't have to wait more than 12 hours. As of this moment, the entire Central Bank move has been faded.
Judging by the reaction from SocGen and JPY crosses (and thus global equity markets), the Turkish Central Bank's decision - to tighten aka ubertaper -has solved all the tapering, tantruming, turmoiling problems in markets. TRY obviously dumped on the news (now at 2.18 -2100 from highs). JPY crosses instantly exploded higher, automatically lifting US (Dow +60) and Japanese (NKY +110) stock futures markets before they closed. Gold fell very modestly ($1). JPY continued to weaken and when markets re-opened, gold dropped a little more but no sustained pressure; Dow is now +110 from pre-Turkey, NKY +175pts; S&P futures are up 10points on the news as stops are run to 1800 but the EEM ETF rallied around 1% (only).
SocGen's Exuberant Response To The Turkish Action: "Governor Basci, You Have Avoided A Domino Crisis In EM"Submitted by Tyler Durden on 01/28/2014 18:49 -0400
"Governor Basci, you have avoided a domino crisis in EM.... I definitely feel much better about the TRY, at least on a tactical basis. The TRY crisis is over." - SocGen
"US profits are growing, companies have underinvested and have no choice but to spend more on CapEx, and corporations have much less debt than they did during the crisis thanks to a massive cash build up."
These are the generic go to explanations by soundbity talking heads for why the US recovery is gaining traction with US corporations, if not so much Joe Sixpack, and why companies are still cheap. There is one problem: they are all wrong. As SocGen's Andrew Lapthorne shows conclusively, "US profits are not growing, companies are over not underinvesting (they may in fact have overinvested), and corporates are carrying more (not less) net debt than they were in 2009. It would appear that many believe the opposite to be true, yet corporate report and accounts data seems to say otherwise.""