Perhaps the most important "news" of the day is that it is non-Tuesday. Yes, there was actual news news, like German factory orders dropping -2.8% on expectations of a 0.3% increase, French industrial production down -0.7% on expectations of a 0.3% increase (both misses driven by a soaring Euro which is now spitting distance away from the 1.40 ECB "redline"), the Nikkei tumbling 2.9% to just above 14000, the Shanghai Composite down 0.9%, SocGen Q1 profit plunging 13% and conveniently blaming it on Russia, speaking of Russia things continue to deteriorate even though Interfax reported that the country has received the first part, some $3.2 billion, of the promised IMF bailout - money which will be used to promptly pay Gazprom... and buy gold, a sudden conflict between China and Vietnam escalating over the placement of an offshore oil rig and so forth, but in the new normal, none of this matters.
Because we’ve reached a point in time at which $1 trillion no longer sounds like a lot of money, we thought we’d go through the exercise of assessing just what the Fed could have done with this money besides give it to Wall Street.
- Both sides bury dead as Ukraine slides towards war (Reuters)
- Dollar wilts to 6 1/2-month low; shares drift (Reuters)
- Draghi Grapples With Money Markets Signaling Recovery Too Early (BBG)
- Foreign wristslaps: Credit Suisse Nears Record Tax Plea: Credit Suisse Settlement Expected to Exceed $1 Billion (WSJ)
- OECD joins IMF in cutting global growth forecast, demanding moar QE from ECB (WSJ)
- Three Bankers Bolster Blankfein as Goldman Trading Sinks (BBG)
- Strong performance from eurozone services sector (FT)
- OECD Cuts Forecast for 2014 Global Growth; Urges ECB Action (WSJ)
- Elite Colleges Don't Buy Happiness for Graduates (WSJ)
- How Russia Inc. Moves Billions Offshore -- and a Handful of Tax Havens May Hold Key to Sanctions (BBG)
In this brave New Normal world, a Chinese contraction is somehow expected to be offset by a rebound in Europe's worst economies, because following China's latest PMI miss, overnight we were told of beats in the Service PMI in Spain (56.5, vs Exp. 54.0, a 7 year high sending the Spanish 10 Year to fresh sub 3% lows), Italy at 51.1, vs Exp. 50.5, also pushing Italian yields to record lows, and France 50.4 (Exp. 50.3). We would speculate that macro events such as these, as fabricated as they may be, are relevant or even market-moving, but they aren't - all that matters is what the JPY and VIX traders at the NY Fed do in a low volume tape, usually in the last 30 minutes of the trading day. And since the trading day today happens to be a Tuesday, and nothing ever goes down on a Tuesday, the outcome is pretty much clear, and not even the absolutely abysmal Barclays earnings report has any chance of denting the latest rigged and manufactured low-volume levitation.
When the business of truth-saying in a civil-war-strafed nation puts a price on your head... you know things are getting out of control...
This week, markets are likely to focus on US ISM Nonmanufacturing, services and composite PMIs in the Euro area (expect increases), ECB’s Monetary Policy Decision (expect no change in policy until further ahead), and Congressional testimony by Fed’s Yellen.
After months of ignoring events in Ukraine, HFT algos suddenly, if one for the time being, have re-discovered just where the former USSR country is on the map, and together with the latest economic disappointment out of China in the form of its official manufacturing PMI which missed expectations for the sixth month in a row, futures are oddly non-green at this moment now that talk of a Ukraine civil war is the new black (after two months of ignoring the elephant in the room... or rather bear in the room). Lighter volumes, courtesy of holidays in Japan and UK, have not helped the market breadth and stocks in Europe are broadly lower with the DAX (-1.33%) and CAC (-1.19%) weighed upon by risk off sentiment and market positioning for the eagerly anticipated ECB policy meeting especially after the EU cuts its Euro-Area 2014 inflation forecast from 1.0% to 0.8%. But what's bad for stocks continues to be good for equities, and moments ago the 10Y dropped to a paltry 2.57%, the lowest since February... and continuing to maul treasury shorts left and right.
The clip below explains that in response to Russia no longer following the globalist playbook, NATO has tripled its air policing mission assets guarding the skies over the Baltic region. In the video: Danish fighter jets land in Estonia, while Poland and the United Kingdom take over guarding the skies in Lithuania, tripling the NATO air policing mission strength in the Baltic region.
Only one thing is relied upon when words turn to deeds...UK warship HMS Edinburgh sails home via Arctic Ocean- 5 tons of Russian gold on board, part payment for war supplies
Some thoughts about the price action, or lack thereof, in the foreign exchange market.
Nigel Farage's UKIP has opened up a clear lead in the run up to next month’s elections for the European Parliament. According to ComRes, 38% of Britons certain to vote say that they would cast their ballot for the party, compared to 27% who would vote for Labour, 18% who would vote for the Conservatives and 8% who would vote Lib Dem. UKIP is damaging Conservative hopes as 67% of 2010 Tory voters are now saying they would vote for UKIP. However, it's not all rainbows and unicorns for the euro-skeptic party, as - somewhat expectedly - almost one third of Britons think that UKIP is a racist party; even as 48% believe UKIP has sensible policies.
- Ukraine attacks rebel city, helicopter shot down (Reuters)
- Euro Unemployment Holds Near Record Amid Factory Gains (BBG)
- Yellen’s Fed Resigned to Diminished Growth Expectations (BBG)
- Junket Figure's Disappearance Shakes Macau's Gambling Industry (WSJ)
- China tried to undermine economic report showing its ascendancy (WSJ)
- Liquidity Trap Hitting AAA Bonds Has ATP CEO Sounding Alarm (BBG)
- AstraZeneca Snubs Pfizer Approach That U.K. Won’t Block (BBG)
- Missing Jet Recordings May Have Been 'Edited' (NBC)
- RBS turns corner as first-quarter profit trebles (Reuters)
- Japan household spending hits four-decade high, wages key to outlook (RTRS) while Real Incomes Drop 3.3% in March, 6th straight decline
Another day where the taken for granted overnight futures levitation is missing (despite a rather rampy USDJPY), indicates that algos are likely waiting for guidance from today's NFP data (buy if beat, buy more if miss) before committing monopoly money. The consensus for today's NFP is 218K, (up from 192K), although as Goldman notes the whisper number is as high as 240K. As DB says, the honest truth is that markets are in one giant holding pattern at the moment with volatility and conviction low. One evidence of this is the AAII weekly sentiment indicator which shows the % bullish, bearish or neutral on the US stock market for the next six months. This week the neutral indicator (40.78) is at its highest level for 9 years. No wonder volumes and volatility are low if investors are lacking a directional bias. Yesterday’s reaction to the ISM manufacturing was interesting. Though the headline number came in firmer than expected (54.9 vs 54.3 expected) and more than 1pt higher than last month’s reading of 53.7, the UST and equity reaction suggested that the data had actually surprised to the downside.
While everyone is by now fully aware just how dependent Europe is on Russia's energy supplies (and most are aware of the "nonsense" that the US will fill any gap if Russia steps up its actions - which Barroso said wouldn't happen because "Russia has self-interest not to play the energy card") but few are truly aware of the scale of contagious debt-driven defaults that could occur if the US (and a reluctant Europe) decide to undertake more aggressive economic sanctions, which, as Germany's Europe minister stated today, "are on the table." As the following chart of Europe's domestic bank exposure to Russia show, Roth's warning that Russia's retaliation could mean "anything is possible," is a major problem for the Germans, Italians, and most of all - The French.
As we noted on the last day of March, April was supposed to be the best month for stocks, with an average return since 1950 of over 2%. It wasn't.