While the trading world, or at least the kneejerk reaction algos, is focused on today's US nonfarm payrolls due out in just 2 hours (consensus expects 240K, with unemployment declining from 5.8% to 5.7%) the key event overnight came out of China, (where inflation printed at just 1.5% while PPI has imploded from -1.8% in September to -2.2% in October to -2.7% in November to a whopping -3.3% in December because as per BofA "soft domestic demand over-capacity issue have kept inflation pressures low") and Europe, after a Bloomberg report that as recently as Wednesday, ECB staff "presented policy makers with models for buying as much as 500 billion euros ($591 billion) of investment-grade assets... options included buying only AAA-rated debt or bonds rated at least BBB-, the euro-area central bank official said. Governors took no decision on the design or implementation of any package after the presentation." In other words less than two weeks before the fateful ECB meeting and Mario Draghi not only still hasn't decided on which of three public QE version he will adopt, but the ECB has reverted back to a private QE plan. Not surprisingly the EURUSD jumped back over 1.18 on the news (and USDJPY and stock markets dropped) on the news that Europe still is completely unsure how to proceed with QE despite the endless jawboning.
Now that China is on the same boat as the rest of the world, and its stock market is a direct reflection of hopes for constant liquidity injections by the central banks, nothing could be better for stocks than bad news, which is precisely what it got. After the biggest crash in the Shanghai Composite in 5 years, what China got just the bad economic update it needed, when it reported a PPI of PPI (-2.7%, Exp. -2.4%), the 33rd consecutive decline and a CPI (1.4%, Exp. 1.6%), lowest since November 2009, when the big banks’ RRR rate stood at 15.5% vs. current 20%. And so hope of yet more PBOC interventions to halt China's deflation promptly reversed SHCOMP losses of over 4% on the session (at which point it was just shy of correction territory from recent highs hit just this week), and stocks surged to close up almost 3%, erasing half of yesterday's losses. This spike came despite reports Chinese regulators may limit brokerages' interbank borrowing.
It wasn't just China's long overdue crash last night. In addition to the Shanghai Composite suffering its biggest plunge since August 2009, there has been a sharp slide in the USDJPY which has broken its uptrend to +∞ (and hyperinflation), and around the time Chinese gamblers were panicking, the FX pair tumbled under 120, although since then the 120 tractor beam has been activated. Elsewhere, the Athens stock exchange is also crashing by over 10% this morning on the heels of news that the Greek government has accelerated the process to elect the next president and possibly, a rerun of the drama from the summer of 2012 when the Eurozone was hanging by a thread when Tsipras almost won the presidential vote and killed the world's most artificial and insolvent monetary union. And finally, the crude plunge appears to have finally caught up with ground zero, with ADX General Index in Abu Dhabi plunging 3.5%, also poised for the biggest drop since 2009. In fact the only thing that isn't crashing (at least not this moment), is Brent, which did drop to new 5 year lows earlier under $66, but has since staged a feeble rebound.
Without doubt, the most memorable line from the latest quarterly report by the BIS, one which shows how shocked even the central banks' central bank is with how perverted and broken the "market" has become is the following: "The highly abnormal is becoming uncomfortably normal.... There is something vaguely troubling when the unthinkable becomes routine." Overnight, "markets" did all in their (central banks') power to justify the BIS' amazement, when first the Nikkei closed green following another shocker of Japanese econ data, when it was revealed that the quadruple-dip recession was even worse than expected, and then the Shanghai composite soaring over 3000 or up 2.8% for the session, following news of the worst trade data - whether completely fabricated or not - out of China in over half a year.
The relentless regurgitation of the only two rumors that have moved markets this week, namely the Japanese sales tax delay and the "surprise" cabinet snap elections, was once again all over the newswires last night in yet another iteration, and as a result the headline scanning algos took the Nikkei another 1.1% higher to nearly 17,400 which means at this rate the Nikkei will surpass the Dow Jones by the end of the week helped by further reports that Japan will reveal more stimulus measures on November 19, although with US equity futures rising another 7 points overnight and now just shy of 2050 which happens to be Goldman's revised year-end target, the US will hardly complain. And speaking of stimulus, the reason European equities are drifting higher following the latest ECB professional forecast release which saw the panel slash their GDP and inflation forecasts for the entire period from 2014 to 2016. In other words bad news most certainly continues to be good news for stocks, which in the US are about to hit another record high (with the bulk of the upside action once again concentrated between 11:00 and 11:30am).
Wholesales Inventories and Sales beat expectations (+0.3% and +0.2% respectively) but, thanks to significant downward revisions in August, hope for a Q3 GDP boost are dashed. Sales growth remains near 2014 lows and inventory growth hovers near 14 month lows. Inventories-to-Sales ratios were flat in September at 1.19 months. Petroleum inventories plunged 5.3% MoM and down 13.2% YoY - the largest since Jul 2009.
With the USDJPY repeatedly hitting 116.00 as a result of the same pair of headlines hitting either Reuters, the Nikkei or Sankei every 6 or so hours for the past 3 days, namely that Japan will delay its sales tax hike by almost two years, and that Abe is preparing early elections, perhaps the algos realized they were pricing in the same event about 4 times in one day, and unable to break the 7-year-high resistance level, slid dropping nearly 100 pips to just over 115 at least check, which may well be today's "tractor" level, which in turn has also dragged down both European stocks and US futures. But the thing that made the vacuum tubes really spark is that at a press conference yesterday in Beijing, Abe was quoted as saying that he "has never made any reference to the dissolution of parliament", this came after the chief cabinet secretary Suga saying that the decision on whether or not to go to the polls would be Abe’s only.
Following Friday's sticksave, where the usual 3:30 pm ramp brigade pushed futures just barely green into the close despite a miss in the payrolls report which the spin brigade did everything in its power to make it seem that the hiring a few hundred thousand young female waitresses was bullish for the economy, overnight we have seen a listless session, dominated by more USD-profit taking as increasingly more wonder if the relentless surge higher in the Greenback is massively overdone, especially considering that stocks are screaming "worldwide recession" excluding the US, if only for now, because as Goldman explained soaring USD means plunging Oil, means tumbling E&P capex, means lower GDP, means less growth, means lower corporate profits, and so on. That said, we expect the now trivial Virtu JPY momentum-ignition algos to activate shortly, pushing the USDJPY and its derivative, the S&P500, higher in the coming minutes, and certainly before the US market opens in under 3 hours.
- 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
While the biggest micro news of the weekend is certainly the report that Hewlett-Packard has finally thrown in the towel on organic growth (all those thousands laid off over the past ten years can finally breathe easily - they were not fired in vain), and has proceeded to do what so many said was its only real option: splitting into two separate companies, a personal-computer and printer business, and corporate hardware and services operations (which will certainly lead to even more stock buybacks only not at one but two companies) which in turn has sent its stock and futures higher, perhaps the most notable development in the macro world is Japan's realization finally that the weaker Yen is crushing domestic businesses, which has resulted in the USDJPY sliding to lows last seen at Friday's jobs report print, and also generally leading to across the board wekness for the dollar, whose relentless surge in the past 3 months is strongly reminiscent of the euphoria following the Plaza Accord, only in the other direction (and making some wonder if the Plaza Hotel caterer are about to see a rerun of September 22, 1985 in the coming weeks).
With GDP now basically an exercise in inventory expansion and contraction (Q2 inventory estimate amounted to 40% of GDP), this 'miss' in July Wholesale Inventories provides a worrying glimpse into Q3 GDP. Against expectations on a 0.5% rise MoM, inventories rose only 0.1% (and June was revised lower) to the weakest inventory build since May 2013. This is the 3rd miss in a row.
Markets Digest Wristwatch, NIRP Monetization, Catalan Independence News; Push Yields, USDJPY Even HigherSubmitted by Tyler Durden on 09/10/2014 06:08 -0500
Overnight the most notable move has been the ongoing weakness in rates, with USTs reversing earlier Tokyo gains after BoJ Deputy Governor Iwata, in addition to commenting on a lot of things that didn't make much sense, said he didn’t see any difficulties in money market operations even if BoJ bought bought government debt with negative yields, as InTouch Capital Markets notes. As a reminder, yesterday we noted that in a historic first the "Bank Of Japan Monetizes Debt At Negative Rates." As Bloomberg notes, this may be interpreted that BoJ may target negative yields to penalize savers, which "all boosts the appeal of yen-funded carry trades." In other words, first Europe goes NIRP, now it's Japan's turn! So while this certainly lit the fire under the USDJPY some more, which overnight broke about 106.50 and hit as high as 106.75 on Iwata's comments, it does not explain why the 10Y is currently trading 2.52% - after all the fungible BOJ money will eventually make its way into US bonds and merely add to what JPM has calculated is a total $5 trillion in excess liquidity sloshing in the global market.
One of the more amusing comments overnight came from Bank of America, which now predicts that China's export growth will be boosted by iPhone 6 by 1% per month through year-end. Whether or not this is accurate is irrelevant, but we are happy that unlike before, BofA has finally figured out that iPhone sales are positive for Chinese GDP, not US, which was the case with the release of the iPhone 4 and 5, when clueless strategists all came out boosting their US (!) GDP forecasts on the iPhone release. We note this because the long-awaited release of Apple's new iPhone will certainly grab some attention tomorrow. According to a BofA poll last week and of the 124 respondents surveyed, 66% of those have noted that they are going to buy the new iPhone and of those planning to buy 75% of those will be replacing their iPhone 5/5s.
After being solidly ignored for weeks, suddenly the Scottish independence referendum is all anyone can talk about, manifesting itself in a plunge in the GBPUSD which ha slide over 100 pips in the past 24 hours, adding to the slide over the past week, and is now just above 1.61, the lowest since November 2013. In fact, the collapse of the unionist momentum has managed to push back overnight news from Ukraine, major Russian sanction escalations, Japan GDP as well as global trade data on the back burner. Speaking of global trade, with both China and Germany reporting a record trade surplus overnight, with the US trade deficit declining recently, and with not a single country in the past several month reporting of an increase in imports, one wonders just which planet in the solar system (or beyond) the world, which once again finds itself in a magical global trade surplus position, is exporting to?
Against expectations of a further rise in inventory build of 0.7%, wholesale inventories rose only 0.3% in June (the same pace as in May) missing by the most since February 2013. With GDP now basically an exercise in inventory expansion and contraction (Q2 inventory estimate amounte to 40% of GDP), this 'miss' offers little hope for the initial Q2 rebound to hold its exuberance. In addition, wholesale sales also missed (up only 0.2% against expectations of a 0.7% rise) with growth slowing for the 3rd month in a row.