SocGen

Futures Lethargic With Overnight Ramp As Half The World Takes Day Off

It is May Day, which means half the world - the half where welfare contributions to one's standard of living are off the charts - celebrate labor, or rather the lack thereof, by taking a day off. Which means virtually all of Europe is closed, as are Eurex and Euronext futures, and most European markets expect the UK. In light of the non-existent volume, futures are relatively unchanged despite the latest Chinese Mfg PMI disappointment (50.4, below the 50.5, expected but just above the prior print of 50.3), and of course yesterday's US GDP debacle which helped push the DJIA to a record high. The good news is that with volume even more miserable than usual, the few momentum ignition algos that are operating will have a field day with the now standard low-volume levitation that happens like clockwork if the news is bad, and also happens just in case if the news is bad.

Stock Ramp Algos Confused On "Lack Of Tuesday", Cautious On Upcoming Fed Announcement

Since it's not Tuesday (the only day that matters for stocks, of course), call it opposite, or rather stop hunt take out, day. First, it was the BOJ which, as we warned previously, would disappoint and not boost QE (sorry SocGen which had expected an increase in monetization today, and now expects nothing more from the BOJ until year end), which sent the USDJPY sliding, only to see the pair make up all the BOJ announcement losses and then some; and then it was Europe, where first German retail sales cratered, printing at -1.9%, down from 2.0% and on expectations of a 1.7% print, and then Eurozone inflation once again missed estimates, and while rising from the abysmal 0.5% in March printed at only 0.7% - hardly the runaway inflation stuff Draghi is praying for. What happened then: EURUSD tumbled then promptly rebounded a la the flash crash, and at last check was trading near the high of the day.

In Latest European "Stress Test" Farce, ECB Assumes No Deflation Even Under Severe Systemic Shock

Earlier today the EBA published its common methodology and scenario for the 2014 EUwide bank stress test. The adverse scenario covers the period 2014 to 2016 and at least on the surface is generally tougher than the adverse scenarios in previous similar exercises, resulting in a severe negative deviation of EU GDP growth of 7% from its baseline level by 2016. So far so good. But where the whole thing disintegrates into yet another sham spectacle confirming just how insolvent European banking truly is, is one simple observation: not even under the adverse scenario does the ECB contemplate the possibility of deflation!

Gold Slammed To Fresh 10-Week Lows Below Key Technical Level

What else should you do as Russian and Ukraine forces begin a serious un-de-escalation... sell precious metals with both hands and feet of course. The strength in stocks (whether channel-stuffed or not) is enough to make investors believe that we don't need no stinking Fed and that economy must be doing great all on its own. Gold is back below $1275, which SocGen warns could lead to $1233.

Russia Tells Ukrainians: 'Referendum' Or We Can't Protect You As Ukraine Proposes State Of Emegency

The relative calm of the last two weeks as US talking-heads proclaim Ukraine 'fixed', Russia 'under control', and Europe 'recovering' is being obliterated this morning. The storming of various non-Crimean Ukrainian city government buildings suggest round two of the push is beginning and Russia is wasting no time explaining how this will go down. Russian Senator Viktor Ozerov stated that "Russia has no right to [send peacekeepers] unilaterally" to Eastern and Southern Ukraine (unless the UN agrees)... but... "Russia is interested in stability in Ukraine. At the same time, the will of the people must be documented. A referendum is the most democratic way of expressing one's will." In other words, "we can't help you unless you hold a referendum to annex." Stage 2 is beginning... and it seems Ukraine is getting it as they are preparing to issue a state of emergency.

Mapping Europe's Mutually Assured Economic Destruction As EU Plans More Sanctions

With senior German officials expecting discussions among leaders at the EU Summit to solely focused on a second round of sanctions against Russia (and warnings that they "must avoid a spiral of sanctions"), we thought it worth drilling down on just how mutually-dependent the two regions are. As Acting-Man's Pater Tenebrarum notes, the following infographics suggest tit-for-tat sanctions could be a really big problem for Europe and why the EU's leaders are probably quietly praying for the crisis to simply go away.

Dollar Surges, Chinese Yuan Plunges In FOMC Aftermath

In the aftermath of yesterday's key market event, the FOMC's $10 billion tapering and elimination of QE with "QualG", not to mention the "dots" and the "6 month" comment, the USD has been on fire against all key pairs, with the EURUSD sliding below 1.38, a 150 pip move in one day which should at least give Mario Draghi some comfort, but more importantly sending the USDJPY soaring to 102.500 even as US equity futures continue to slide, and not to mention the Nikkei which tumbled -1.7% to just above 14,000 overnight. Perhaps the biggest take home message for traders from yesterday is that the Yen carry trade correlation to the Emini is now dead if only for the time being until DE Shaw and Virtu recalibrate their all-important correlation signal algos. The other big news overnight was the plunge in the Yuan, tumbling 0.5%, 6.2286, up 343 pips and crushing countless speculators now that the "max vega" point has been passed. Expect under the radar news about insolvent trading desks over the next few days, as numerous mega levered FX traders, who had bet on continued CNY appreciation are quietly carted out the back door. Elsewhere, gold and other commodities continue to be hit on rising fear the plunging CNY will accelerate the unwind of Chinese Commodity Funding Deals.

The 16 "Dots" That Sent Stocks Reeling

Much has been said about Yellen's Freudian slip involving the "6 month" considerable period language, which as we pointed out earlier, is said to have been the catalyst that sent stocks sharply lower just after 3 pm when it was uttered. However, in reality all this statement suggests is a rate hike some time in mid-2015, half a year after when QE is said to have ended, which if one listens to the market experts, is what is supposed to be priced in (of course, what the experts won't tell you is that the market wants its cake and endless liquidity injections by the Fed too). However, one thing that was far more unexpected and certainly remained unexplained by Yellen, is the curious case of the Fed dots, or the estimations by the individual committee members, of where they see rates at the end of 2016. What was surprising here was the sharp upward jump from 1.75% as of December to 2.25% currently.What is even more inexplicable, is that the Fed hiked its rate forecast even as it lowered its GDP projections for the next two years. Why? Not even Janet Yellen could answer that.

From Quantitative Easing To Qualitative Guidance: What To Expect From The Fed Today

The FOMC is now meeting for the first time with Janet Yellen as Chair. Goldman's US team expects the FOMC to deliver an accommodative message...alongside a continued tapering of asset purchases. However, they note, their market views here are likely to shift little in response, as much of that dovishness is arguably already priced, particularly in US rates. SocGen notes that "qualitative guidance" will probably consist of two components: the FOMC’s forecast for the fed funds rate (aka “the dots”) providing a baseline scenario, and a descriptive component signalling the elasticity of this rate path to the underlying economic outlook. SocGen also warns that this transition is worrisome for inflation in 2015. But BofA suggests this is not  problem as The Fed will indicate the US economy "lift-off" in late-2015 will save us all.

UBS Investigated For Gold Manipulation Suggesting Gold Inquiry Goes Beyond London Fix

The last time the FT penned an article on the topic of gold manipulation, titled "Gold price rigging fears put investors on alert" it was promptly taken down without much (any) of an explanation. Luckily, we recorded the article for posterity here. Earlier today, another article on the topic appears to have slipped through the cracks of the distinguished editors of the financial journal that enjoys the ad spend of the status quo, when it reported that "Gold pricing scrutiny widens", hardly an update that will take the world by storm, however it is notable that "even" the FT, where for years goldbugs claiming gold manipulation had been ridiculed, is finally start to admit the glaringly obvious.

Frontrunning: March 17

Putin Is No Mad Man to Russians as Power Play Trumps Economy (BBG)
Alibaba picks U.S. for IPO; in talks with six banks for lead roles (Reuters)
Russia hearts selling German energy: Billionaire Fridman’s L1 Buys RWE Unit for $7.1 Billion (Bloomberg)
Malaysia plane search straddles continent as police focus on crew (Reuters)
Saudi Crown Prince’s visit to China set to bolster investment (Al-Awsat)
Bugatti-Driving 26-Year-Old Tied to Penny-Stock Website (BBG)
Vodafone agrees $10 billion deal to buy Spain's Ono (Reuters)
The Hidden Rot in the Jobs Numbers (WSJ)
SocGen Ex-Trader Kerviel Walks to Forget Loss as Judgment Looms (BBG)
U.S. Banks’ $75 Billion Payout at Stake in Fed Tests (BBG)

Foreigners Sell A Record Amount Of Treasurys Held By The Fed In Past Week

A month ago we reported that according to much delayed TIC data, China had just dumped the second-largest amount of US Treasurys in history. The problem, of course, with this data is that it is stale and delayed. For a much better, and up to date, indicator of what foreigners are doing with US Treasurys in near real time, the bond watchers keep track of a far less known data series, called "Treasury Securities Held in Custody for Foreign Official and International Accounts" because it shows what foreigners are doing with their Treasury securities held, as the name suggest, in custody by the Fed. So here it goes: in the just reported latest data, for the week ended March 12, Treasurys held in custody by the Fed dropped to $2.855 trillion: a drop of $104.5 billion. This was the biggest drop of Treasurys held by the Fed on record, i.e., foreigners were really busy selling.

Futures Rise On Big Misses In Chinese Industrial Production, Retail Sales And Fixed Investment

It was another day of ugly overnight macro data, all of it ouf of China, with industrial production (8.6%, Exp. 9.5%, Last 9.7%), retail sales (11.8%, Exp. 13.5%, Last 13.1%) and fixed asset investment (17.9% YTD vs 19.4% expected) all missing badly and confirming that in a world of deleveraging, the Chinese economy will continue to sputter. Which is precisely what the "bad news is good news" algos needs and why futures levitated overnight: only this time instead of latching on to the USDJPY correlation pair, it was the AUDJPY which surged after Australia - that Chinese economic derivative - posted its third best monthly full-time jobs surge in history! One can be certain that won't last. But for now it has served its purpose and futures are once again green. How much longer will the disconnect between deteriorating global macro conditions and rising global markets continue, nobody knows, but sooner rather than later the central planner punch bowl will be pulled and the moment of price discovery truth will come. It will be a doozy.

China Loan Creation Tumbles, Lowest Credit Growth In 20 Months

One month ago, when we last looked at the incredible amount of Chinese new loan issuance, a topic which even the mainstream media is slowly starting to circle in on as the primary source of hot money flow creation in the world, we found the highest loan notional issued by the country's semi-sovereign banks since 2009, and the largest one-month ever monthly total in the largest aggregated, Total Social Financial, series, which rose by an unprecedented CNY2.6 trillion, or over $400 billion in one month! That was just before the tremors surrounding first the potential defaults of several Chinese shadow-banking Trusts, and certainly before the first official corporate bond default which took place last week. Overnight, the PBOC released its latest, February, loan data. As expected, it reveals something else entirely.

China Congress Post-Mortem Or Li's Mission Impossible

Premier Li Keqiang delivered his first government work report at the opening of the National People’s Congress (NPC) meeting last night. The new government promises to speed up reform, manage debt risks, fight pollution, and yet maintain 7.5% economic growth all at the same time but as SocGen'sWei Yao warns, this is going to be nothing if not challenging. Maybe mindful of a potential miss, Yao points out that policymakers seem to give themselves a small degree of flexibility by using new phrases like “a reasonable range for the growth rate” and “the growth target is
flexible”. Mission intractible or mission impossible?