Biggest Weekly Stock Rally Since 2012 Continues Driven By Tumbling Dollar, Dovish Fed; Commodities SurgeSubmitted by Tyler Durden on 10/09/2015 06:53 -0400
The global risk on mood (which is really anything but, and is merely an unprecedented short covering squeeze as we will report momentarily) launched by an abysmal jobs report one week ago and "validated" yesterday by the surprisingly dovish FOMC minutes, which said nothing new but merely confirmed what most knew, namely that a rate hike is almost certain to not occur until mid-2016 if ever, and accelerated by a Fed-driven collapse in the dollar which overnight has led to a historic 3.4% move in the Indonesian Rupiah the most since 2008, has pushed global stocks even higher in their biggest weekly rally since 2012, despite the start of an earnings season where virtually every single company reporting so far has stumbled on earnings reports that were far worse than even gloomy consensus had expected.
"They're Converging To Dire Levels!": SocGen's Edwards Delivers Critical Warning On Inflation ExpectationsSubmitted by Tyler Durden on 10/07/2015 18:00 -0400
"The collapse in inflation expectations tells us that the market believes the central banks, despite their monetary profligacy, are failing to prevent the western economies from turning Japanese, and thus at risk of repeating their devastating slide into outright deflation in the 1990s."
News That Matters
Having government control over the levers of the economy can have advantages. For example, by taking prompt action, the Chinese government was able to pull the economy out of the recession remarkably fast, basically by fire-housing the stimulus package that was equivalent to 12% GDP. That’s the advantage. The only problem is that these kinds of short-term advantages come with long-term, painful consequences.
- How Iranian general plotted out Syrian assault in Moscow (Reuters)
- China FX reserves post record quarterly fall as cenbank steps up yuan support (Reuters)
- MSF calls for independent inquiry into U.S. attack on Afghan hospital (Reuters)
- Yen Advances as Bank of Japan Refrains From Adding to Stimulus (Reuters)
- Abu Dhabi Said to Explore Asset Sales After Slump in Oil Price (BBG)
- U.S. Oil Approaching $50 Boosts Stocks as Emerging Markets Surge (BBG)
The big overnight story was certainly the BOJ's announcement at 11pm Eastern whether or not the Japanese central bank would boost QE. This is how we previewed it: "now all eyes to the BOJ when tonight around 11pm Eastern, Japan's central bank is expected do and say precisely... nothing." Sure enough, nothing is precisely what the BOJ delivered, leading to a big, if brief tumble in the USDJPY suggesting many were expecting at least a little tip from the BOJ.
News That Matters
As we head into another earnings season, the bulls better pray to whatever pagan gods they worship that company after company magically defy the downturn that the economy is quite obviously entering.
"The data are positive for the probability of the yuan getting into the SDR basket. It shows that the so-called devaluation in August, which wasn’t massive in value, hasn’t driven people away from using the yuan."
- Asian shares rise on fading Fed rate views (Reuters)
- U.S. Equity Futures Fall, Risking S&P 500 Rally as Copper Slides (BBG)
- More biotech pain, this time from the WSJ: For Prescription Drug Makers, Price Increases Drive Revenue (WSJ)
- VW Will Delay or Cancel Non-Essential Investments Due to Scandal (BBG)
- Russia Rejects No-Fly Zone Over Syria as Clerics Urge Reprisals (BBG)
- Historic Pacific trade deal faces skeptics in U.S. Congress (Reuters)
- German Factory Orders Unexpectedly Fall Amid Economic Risks (BBG)
The best headline to summarize what happened in the early part of the overnight session was the following from Bloomberg: "Asian stocks extend global rally on stimulus bets." And following the abysmal data releases from the past three days confirming that the latest centrally-planned attempt to kickstart the global economy has failed, overnight we got even more bad data, first in the form of Australia's trade deficit, and then Germany's factory orders which bombed, and which as Goldman said "seems to reflect genuine weakness in China and emerging markets in general and this will weigh on the German manufacturing sector."
If you don’t think financial markets have been utterly destroyed by central bank intrusion then how can you explain Friday’s 460 Dow point reversal higher after the post-NFP low? It was pure machine rage triggered by another implied “lower for longer” Fed policy signal. In short, we are now in an exceedingly dangerous phase of the central bank end game. They continue to pour gasoline on the first of financial speculation, yet smugly insist all is clear.
When stocks absolutely and completely have to go up, there is only one thing for it: the spurious headline from Nikkei (aka the new owner of the Financial Times). It is 2am in Japan but still, after Thursday's headline that: BOJ IS SAID TO SEE LITTLE IMMEDIATE NEED FOR ADDING STIMULUS... It is now time for the diametrically opposite: BOJ MAY NEED TO EASE AGAIN WITH FED DELAY, NIKKEI SAYS. And sure enough, USDJPY jerks higher and US equities hit the day's highs.
But what’s different this time?
Never have markets carried so much risk. And never have markets been as vulnerable to an abrupt change in perceptions with regard to central banker competence, effectiveness and capabilities. At the minimum, global markets will function poorly, but risk is now high for a disorderly – Party Crashing - "run" on financial markets, as faith in central banking begins to wane.