Self-sufficiency is the deep rooted belief that you can take care of yourself and those around you.
Oil prices are set to hike in the next few days with the growing fear that fighting in the northern city of Mosul will spread southwards in Iraq.
Yesterday's market action was perfectly predictable, and as we forecast, it followed the move of the USDJPY almost to a tick, which with the help of a last minute VIX smash (just when will the CFTC finally look at the "banging the close" in the VIX by the NY Fed?) pushed the DJIA to a new record high, courtesy of the overnight USDJPY selling which in turn allowed all day buying of the key carry pair. Fast forward to today when once again we have a replica of the set up: a big overnight dump in USDJPY has sent the dollar-yen to just over 102.000. And since Nomura has a green light by the BOJ to lift every USDJPY offer south of 102.000 we expect the USDJPY to once again rebound and push what right now is a weak equity futures session (-8) well above current levels. Unless, of course, central banks finally are starting to shift their policy, realizing that they may have lost control to the upside since algos no longer care about warnings that "volatility is too low", knowing full well the same Fed will come and bail them out on even the tiniest downtick. Which begs the question: is a big Fed-mandated shakeout coming? Could the coming FOMC announcement be just the right time and place for the Fed to surprise the market out of its "complacency" and whip out an unexpected hawk out of its sleeve?
If predicting yesterday's EURUSD (and market) reaction to the ECB announcement was easy enough, today's reaction to the latest "most important ever" nonfarm payrolls number (because remember: with the Fed getting out of market manipulation, if only for now, it is imperative that the economy show it can self-sustain growth on its own even without $85 billion in flow per month, which is why just like the ISM data earlier this week, the degree of "seasonal adjustments" are about to blow everyone away) should be just as obvious: since both bad news and good news remain "risk-on catalysts", and since courtesy of Draghi's latest green light to abuse any and every carry trade all risk assets will the bought the second there is a dip, the "BTFATH mentality" will be alive in well. It certainly was overnight, when the S&P500 rose to new all time highs despite another 0.5% drop in the Shcomp (now barely holding on above 2000), and a slight decline in the Nikkei (holding on just over 15,000).
This week's busy calendar starts off with today’s global PMIs and ISMs. On Tuesday, President Obama begins a four day European trip ahead of the G7 meeting which starts on Wednesday. This G7 meeting is replacing the G8 meeting that was originally scheduled in Sochi but was cancelled after Russia’s annexation of Crimea. Tuesday’s data docket is important with Euroarea data releases including inflation and unemployment expected to further cement the ECB’s resolve in easing policy come Thursday. Wednesday features the global services ISMs and PMIs. Other data releases scheduled for that day includes the ADP employment report, which will provide an important preview to Friday’s NFP, and US trade. The Fed releases its Beige Book on Wednesday too and the second estimates of Euroarea GDP will be published on Wednesday as well. Apart from the ECB on Thursday, we also have the BoE policy meeting.
It took a precisely 0.1 beat in the Chinese Manufacturing PMI over the weekend (50.8 vs Exp. 50.7) for the USDJPY and the Nikkei to forget all about last week's abysmal Japanese economic data and to send the Nikkei soaring by 2.1% to its highest print in 5 months. Subsequent overnight weakness from Europe, where the Eurozone Final May Manufacturing PMI dropped again from 52.5 to 52.2, below the 52.5 expected, served simply to push bunds higher back over 147.00, if not do much to US equities which as usual continue their low volume "the music is still playing" melt-up completely dislocated from all newsflow and fundamentals (because just like over the past 5 years, "there is hope").
With tear-gas flying in the streets of Turkey, Ukraine's civil-war raging in the south and east, US drones based in Japan to oversee the South China Sea, and Europe's extremist parties gaining significant traction, today we get one more piece of considerably worrisome geopolitical news that global stock markets must ignore. The Sunday Times reports that Israel is to deploy three submarines equipped with nuclear cruise missiles in the Persian Gulf that are meant to act as a deterrent, gather intelligence and potentially to land Mossad agents. Iran is not happy, warning that "anyone who wishes to do an evil act in the Persian Gulf will receive a forceful response from us."
Unrestricted flow of capital is the most effective way to encourage reforms, and North Korea is no exception. History has proven time and again that regime change does not occur when conditions are at their worst, but when circumstances begin to improve and the people grow impatient for further progress.
The Fed claims inflation is too low. But in the US, inflation has become a political problem.
Following the only major overnight econ event, which was the May German IFO Business Climate Index which dropped from 111.2 to 110.4 missing expectations of 110.9, the USDJPY has been on a soaring rampage higher hoping to push equities along with it (because now that gold manipulation is a proven fact, it is only a matter of time before the link between manipulating the USDJPY on thin volume with massive leverage and rigging the equity market is uncovered too), and at last check was just shy of 102.000. For now equity futures have failed to be dragged along although with the S&P all time high just around the horizon, the psychological level of 1900 staring the rigged market in the face, and the weekend just around the corner, it is virtually assured that the S&P will close at an all time high today - after all the people need to be confident when they go shopping at malls with money they don't have (but delighted by paper profits they haven't booked) so they boost the US non-GAAP GDP (at least before like Italy, the BEA too changes the definition of GDP to include cocaine and hookers). Finally, assuring a (record?) low-volume levitation today is the early closure of the bond pit ahead of Memorial Day holiday which also means only a skeleton crew of algos will be frontrunning each other to push the S&P over 1,900.
The de-dollarization escalates. As Reuters reports, Chinese banks have halted dollar transactions with most Afghan commercial banks. Whether this is related to the terrorist operations in the muslim-dominated Uighur region is unclear... also unclear is whether the Chinese banks will accept transactions with Afghan banks in CNY?
The key news overnight were global manufacturing PMIs which can be summarized as follows: Japan contraction; China contraction, but less than expected (as reported before); and most recently, Europe which expanded but dropped and missed, at 52.5, down from 53.4 and below the consensus estimate of 53.2. The weakness was fully driven by France which has moved back into a contraction phase in both manufacturing and services, which were 49.3 and 49.2, down from 51.2 and 50.4, respectively (although with the recent surge in train station remodelling, the mfg aspect may soon be boosted). The market soaked up the Chinese numbers with fervor, sending the algo-controlled USDJPY into a buying frenzy which in turn pushed up US equity futures, only to see a gradual fade of the Chinese euphoria when the European data hit.
A specter is haunting Washington, an unnerving vision of a Sino-Russian alliance wedded to an expansive symbiosis of trade and commerce across much of the Eurasian land mass - at the expense of the United States.
Despite the plethora of talking heads proclaiming credit markets as awesomely supportive of stocks - High-Yield bond spreads are flashing red... But that's not stopping investors piling into the worst of the worst. As Liberty Blitzkrieg's Mike Krieger notes, in an all too reminiscent scene from 2007 (MBIA CDS traded 11bps at one point then remember), investors have been buying up bonds with a triple-C-rating en masse.
For those curious how much further into banana status the "developed" world may further drop, look no further than Turkey which is rapidly becoming the case study of banana governance par excellence.