The Bank of Japan's governor Kuroda proudly told the world "long-term yields are bound to rise at some point, but we can curb it when it happens," and on a grand scale - that is what they have done (for now). But market participants are growing increasingly concerned. As we have warned numerous times, the suppression of 'normal' volatility in teh short-term can only lead to larger uncontrollable moves in the future. As The FT reports, some worry, too, that the BoJ has pushed up JGB prices to the point where interest rates no longer bear any relation to the government’s creditworthiness - "effectively we have removed the light from the lighthouse." Some say the transition has been unsettling as many analysts talk more openly of the risks inherent in what the BoJ is trying to pull off. For one thing, liquidity has evaporated... "volatility looks low now, but if some investors start selling, the impact on the market could be much bigger than expected. That is a big risk."
There are times when things are jinxed from the very moment they have been drafted into blueprints and right up until the moment they are conceived. There are just times when it would be probably better to cut your losses while the chips are down before it all goes downhill and drags you with it.
The overnight fireworks out of China's interbank market, which saw a surge in repo and Shibor rates (O/N +78 to 5.23%, 1 Week +64.6 to 5.59%) once more following the lack of a follow through reverse repo as described previously, and once again exposed the rogue gallery of sellside "analysts" as clueless penguins all of whom predicted a quick resumption of Chinese interbank normalcy, did absolutely nothing to make the San Diego's weatherman's forecast of the overnight Fed-driven futures any more difficult: "stocks will be... up. back to you." And so they were, despite as DB puts it, "yesterday saw another round of slightly softer US data that helped drive the S&P 500 and Dow Jones to fresh highs" and "the release of weaker than expected Japanese IP numbers hasn’t dampened sentiment in Japanese equities" or for that matter megacorp Japan Tobacco firing 20% of its workforce - thanks Abenomics. Ah, remember when data mattered? Nevermind - long live and prosper in the New Normal. Heading into US trading, today the markets will be transfixed by the FOMC announcement at 2 pm, which will likely say nothing at all (although there is a chance for a surprise - more shortly), and to a lesser extent the ADP Private Payrolls number, which as many have suggested, that if it prints at 0 or goes negative, 1800 on the S&P is assured as early as today.
Usually what goes up normally ends up coming back down to Earth with a damn great thud. Well, that was long ago with good old Isaac Newton and the apple story.
In the upcoming week, the key event is the US FOMC, though we and the consensus do not expect any key decisions to be taken. Though a strengthening of forward guidance is still possible, virtually nobody expects anything of import to be announced until the Dec meeting. In the upcoming week we also have five more central bank meetings in addition to the FOMC: Japan, New Zealand, India, Hungary and Israel. In Hungary we, in line with consensus, expect a 20bps cut to 3.40% in the policy rate. In India consensus expects a 25bps hike in the repo rate to 7.75%. On the data front, US IP, retail sales and pending home sales are worth a look, but the key release will be the ISM survey at the end of the week, together with manufacturing PMIs around the world. US consumer confidence is worth a look, given the potential impact from the recent fiscal tensions.
There are people in the world that go to work every day to end up stating the damn obvious.
Jansen notes that this is a new record for exports for the small country with a yearly estimate of 2,912 tons for exports. It is surmised that 1,100 tons of the gold bullion is set to flow East to China or Hong Kong.
In addition to the already noted repeat spike in Chinese overnight repo rates as the PBOC refuses to inject liquidity for nearly a week offsetting the "news" of a better than expected HSBC PMI, the other kay datapoints to hit in the overnight session were various European PMIs which were broadly lower across the board. Of note being the French, which missed both the Manufacturing Index (49.4 vs 50.1 expected, down from 49.8) and the Services (50.2 vs 51.0 expected, down from 51.0) and Germany, which missed in Services (52.3 vs 53.7 expected, same as September), while modestly beating Manufacturing at 51.5 vs 51.4 expected, up from 51.1 last. On a blended basis, the Composite Flash PMI fell from 52.2 to 51.5, against the consensus expectation of a modest rise (Cons: 52.4). Today's correction brings to a halt a series of six consecutive monthly rises in the Euro area composite PMI.
The rest of the world has had enough of the monopoly of the credit-rating agencies that are largely biased towards the US economy and it’s about time that it all came to an end.
Faber, whose advice has protected millions of investors in recent years, warned of a global systemic crisis possibly due to the massive size of the global derivatives market which is now worth over an incredible $700 trillion.
He warned “when the system goes down,” and only plastic credit cards are left, “maybe then people will realize and go back to some gold-based system.” He wisely said that, “I advise everyone to have some gold.”
It’s all for play isn’t it when the French Minister of the Interior Manuel Valls summons the US Ambassador?
Dreams usually come to an end when we get to the good part. The juiciest part of the American dream has ended too
As we sit in our comfortable living rooms, loafing back into our sofas, munching on a bar of chocolate and slurping down the coffee whilst checking the smartphone for message most of us have little idea that the chocolate, the coffee and the smartphone were made by resorting to indirect slavery quite probably.
But I never thought it wise to sell it, because for central banks this is a reserve of safety, it’s viewed by the country as such. In the case of non-dollar countries it gives you a value-protection against fluctuations against the dollar, so there are several reasons, risk diversification and so on.
We already highlighted the return of gold lease rates to subzero yesterday, during the dramatic spike in gold following Gartman's latest sell recommendation. Now, it is time for the banks to also begin admitting that, as SocGen has just pointed out, the gold "physical squeeze returns."