Futures Euphoria Deflated By Latest Batch Of Ugly European News: Germany Can't Exclude "Technical Recession"Submitted by Tyler Durden on 10/14/2014 06:47 -0400
So far the overnight session has been a mirror image of Monday's, when futures languished at the lows only to ramp higher as soon as Europe started BTFD. Today, on the other hand, we had a rather amusing surge in the AUDJPY as several central banks were getting "liquidity rebates" from the CME to push the global carry-fueled risk complex higher, only to see their efforts crash and burn as Europe's key economic events hit. First, it was the Eurozone Industrial Production, which confirmed that the triple dip is well and here, when it printed -1.8%, below the expected -1.6%, and far below last month's 1.0%. This comes in the month when German IP plunged most since 2009, confirming that this time it's different, and it is Germany that is leading Europe's collapse into the Keynesian abyss not the periphery. And speaking of Germany, at the same time Europe's former growth dynamo released an October ZEW survey of -3.6%, the 10th consecutive decline and well below the 0.0% expected: first negative print since late 2012!
Today US activity will be very light given the Columbus Day holiday. As DB summarizes, we have a relatively quiet day for data watchers today but the calendar will pick up tomorrow and beyond with a big focus on inflation numbers amongst other things. Indeed tomorrow will see the release of Germany’s ZEW survey alongside CPI prints from the UK, France and Spain. Wednesday’s data highlights will include the US retail sales for September, the Fed’s Beige Book, CPI readings from China and Germany, US PPI, and the NY Fed Empire State survey. Draghi will speak twice on Wednesday which could also be a source for headlines. On Thursday, we will get Industrial Production stats and the Philly Fed Survey from the US on top of the usual weekly jobless claims. European CPI will also be released on Wednesday. We have the first reading of October’s UofM Consumer Sentiment on Friday along with US building permits/housing starts. Yellen’s speech at the Boston Fed Conference on Friday (entitled “Inequality of Economic Opportunity”) will also be closely followed.
With futures slamming the lows at their open yesterday evening, touching levels not seen since May, and with the EuroStoxx 50 officialy entering correction just hours ago, down 10% from the June highs, many were wondering if the NY Fed's Chicago Trading Desk, aka Overnight Ramp Capital LLC, would be put in damage control duty and send futures right back to unchanged (because with new Ebola patient alerts springing up everywhere from Boston to Los Angeles, the pandemic is clearly contained). The answer, with a whopping 20 point levitation on no volume, and futures which are pointing now well into the green (not to mention the Eurostoxx rebounding off the lows and now green too), is a resounding yes (thank the AUDJPY, which is over 100 pips off the overnight lows and back over 94).
What if there was some degrees of freedom in the centrally planned capital markets that rational, non-emotional and non-ideologically-laden thinking could shed light on ? Here is such an attempt
Despite the reassuring narrative from The West that Russia faces "costs" and is increasingly "isolated" due to sanctions for its actions in Ukraine, the most recent data suggests reality is quite different. First, capital outflows slowed dramatically in Q3 (from $23.7 billion in Q2 to $13 billion in Q3) with September seeing capital inflows for the first time since Sept 2013. Second, Russia's current account surplus was significantly stronger than expected ($11.4 billion vs $8.8 billion expected) driven by increased trade. Third, and perhaps most crucially, Russia paid down a massive $52.8 billion in foreign debt as Putin "de-dollarizes" at near record pace, reducing external debt to the lowest since 2012.
- IRELAND SELLS 10-YEAR BONDS AT RECORD-LOW YIELD OF 1.63%
- GERMAN 10-YEAR BUNDS RISE; YIELD FALLS 2 BASIS POINTS TO 0.88%
- DUTCH 10-YEAR GOVERNMENT BOND YIELD DROPS TO RECORD-LOW 1.021%
- PORTUGUESE 10-YEAR BOND YIELD DROPS TO RECORD-LOW 2.942%
- FRENCH 10-YEAR GOVERNMENT BOND YIELDS DROP TO RECORD-LOW 1.214%
- U.S. 10-YEAR NOTE YIELD DROPS TO 2.296%, LOWEST SINCE JUNE 2013
- SPANISH 10-YEAR BOND YIELD DROPS TO RECORD-LOW 2.038%
- FINNISH 10-YEAR YIELD DROPS TO 1% FOR FIRST TIME ON RECORD
- How you know it is all a lie: Pelosi Presses Obama to Talk Up Stronger U.S. Economy (BBG)
- Secret Goldman Sachs Tapes Put Pressure on New York Fed (NYT), Uh, no they don't
- Clashes Break Out at Hong Kong Protest Site (WSJ)
- N.Y. Fed Lawyer Says AIG Got Billions Without Paperwork (BBG)
- Ebola’s Disease Detectives Race to Track Others Exposed (BBG)
- UPS, FedEx Want Retailers to Get Real on Holiday Shipping (WSJ)
- No more mailman at the door under U.S. Postal Service plan (Reuters)
In is only fitting that a week that has been characterized by deteriorating macroeconomic data, and abysmal European data, would conclude with yet another macro disappointment in the form of Markit's sentiment surveys, for non-manufacturing/service (and composite) PMIs in Europe which missed almost entirely across the board, with Spain down from 58.1 to 55.8 (exp. 57.0), Italy down from 49.8 to 48.8 (exp. 49.8), France down from 49.4 to 48.4 (exp. 49.4), and in fact only Russia (!) and Germany rising, with the latter growing from 55.4 to 55.7, above the 55.4 expected, which however hardly compensates for the contractionary manufacturing PMI reported earlier this week. As a result, the Composite Eurozone PMI down from 52.3 to 52.0, missing expectations, as only Germany saw a service PMI increase. And yet, despite or rather thanks to this ongoing economic weakness, futures have ignored all the negative and at last check were higher by 9 points, or just over 0.4%, as the algos appear to have reconsidered Draghi's quite explicit words, and seem to be convinced that his lack of willingness to commit is merely "pent up" commitment for a future ECB meeting. That or, more likely just another short squeeze especially with the "all important" non-farm payrolls number due out in just over 2 hours, which for the past 24 hours has been hyped up as sure to bounce strongly from the very disappointing, sub-200K August print.
Straight forward discussion of the key events next week. Weak on bluster. Strong on analysis. You've been warned.
Can market forces prevail in the Eurozone? With another round of central bank intervention coming four plus years after the start of the Eurozone debt crisis, this is a question worth considering, at a time when the Southern Eurozone members - Italy, Spain, Greece and Portugal, which collectively account for over 30% of the GDP of the early adopters of the Euro as a whole – continue to struggle. This is a complex topic for sure, but a simple economic indicator can be used to help frame the situation.
With the snoozer of an FOMC meeting in the rearview mirror, as well as Scotland's predetermined independence referndum, last week's key events: the BABA IPO and the iPhone 6 release, are now history, which means the near-term catalysts are gone and the coming week will be far more relaxed, if hardly boring. Here is what to expect.
For the 41st month in a row, the Japanese Trade Balance is in deficit (around JPY1 trillion). Of course, the fact that exports fell 1.3% (but but devalued currency means competitive?) means nothing as all that really matters is the collapsing JPY (now at 108.60) at its weakest against the USD in 6 years. That can mean only one thing - a surging Japanese stock market - as the Nikkei breaks 16,000. What is odd - just as in the US - is the rising equity index (no doubt helped by Japanese pension funds buying JPY393billion in Q2) against a backdrop of plunging indivdidual stocks. Sony is limit down (as we explained earlier) with offers outnumbering bids 8-to-1. And that's Japan...
It has been a story of central banks, as overnight Asian stocks reversed nearly two weeks of consecutive declines - the longest stretch since 2001 - and closed higher as the same catalysts that drove US equities higher buoyed the global tide: a combination of Chinese liquidity injection (for the paltry amount of just under $90 billion; "paltry" considering Chinese banks create over $1 trillion in inside money/loans every quarter) and Hilsenrath leaking that despite all the "recovery" rhetoric, the Fed will not be turning hawkish and there will be no change in the Fed language today (perhaps not on the redline but Yellen's news conference at 2:30pm will certainly be interesting), pushed risk higher, if not benefiting US equities much which remains largely unchanged.
US Industrial Production and the NY Fed Empire State Manufacturing survey are the two main releases for the US. In Europe, the euro area trade balance will be the notable print. Beyond today, US PPI, German ZEW and UK CPI are the main economic reports tomorrow. Wednesday will see the release of BOE’s meeting minutes, the US CPI, and the Euro area inflation report. On Thursday, President Obama will host Poroshenko and on the data front we have Philly Fed, initial claims, and building permits to watch out for, but the biggest market moving event will surely be the Scottish independence referendum. German PPI will be the key release on what will otherwise be a relatively quiet Friday.
Something appears to have changed not only because the USDJPY is not some 100 pips higher overnight on, well, nothing but because the S&P, which is treading water, has yet to spike on no volume reasons unknown. That something may be algos which are too confused to buy ahead of this week's Fed announcement which may or may not have some notable changes in language or the Scottish referendum on the 18th. Or it could simply be that algos are no longer allowed to openly manipulate and rig the market on the CME as of today now that "disruptive market practices" are banned (why weren't they before)? In any case, keep a close eye on the market today: not all is at it has been for a while, unless of course it is still just a little early and the rigging algos (which haven't gotten the Rule 575 memo of course) haven't woken up just yet.