Well that escalated quickly. While Nasdaq had already given up its gains, this morning's economic weakness, Yen strength, and unimpressed oil market has driven the S&P and Dow back into the red from pre-Doha levels...
The latest shocking example of just how intertwined central banks have become in all capital markets, comes courtesy of the Bank of Japan which days ahead of a move which may see it double its ETF purchases from the current run rate of JPY3.3 trillion to JPY7 trillion or more (if Goldman is correct), is revealed to be a top 10 holder in about 90% of all Japanese stocks. Crazier still, if as Goldman predicts the BOJ doubles its purchases of ETFs, the central bank could become the No. 1 shareholder in about 40 of the Nikkei 225’s companies by the end of 2017,
Just 24 hours after Goldman Sachs suggests a looming collapse in the Yen (USDJPY to 130), the Japanese currency is rallying by the most in 3 weeks against the USDollar. Having been hammered on Friday, Yen has rallied back over 100 pips this morning (pushing USDJPY back to a 110 handle) as a potential short-USDollar squeeze begins (with hedge funds net short the greenback for the first time since July 2014).
Futures are currently unchanged, but the E-mini was down as much as 12 points less than two hours earlier after the European open when this time it was up to the PBOC to intervene in global markets by pushing the Yuan higher (selling USDCNY via intermediary banks) sending global stocks sharply higher off session lows and leaving the S&P futures virtually unchanged. As Bloomberg reported, there has been increasing USD/CNY selling in afternoon session as Dollar Index edged lower. This is the PBOC entering the building and levitating stocks.
"We expect $/JPY to move higher again in the near term and continue to forecast $/JPY at 130 a year from now.... by making the fiscal expansion permanent and funded through money creation (a politically correct phrase for a form of 'helicopter money'), expectations of future inflation should increase and real rates fall"
The fact is, Simple Janet has already proven the end game. Money printing central bankers can’t stop. Were they to allow financial prices to normalize and trillions of bad credit to be liquidated, the whole financial house of cards they have built around the planet would blow sky high. The "soft landing" case is a null set.
The greatest tragedy of the 2008–2009 financial meltdown was not that it happened. The collapse of asset prices was the necessary result of near zero interest rates. No, the most devastating aspect of the financial meltdown is that central planning alchemy lost no credibility. Policymakers around the world are still turning to Keynesian and socialist interventionism to address problems caused by Keynesians and socialists. The twin sledgehammers of central banking and almost unlimited state power have so distorted global markets (again) that some economies are now terminal. The latest victim of the interventionists and micromanagers is the nation of Japan. A once genuinely productive and innovative nation has, over the years, slowly succumbed to the cancerous rot of interventionism.
"The US stock market seems egregiously overvalued versus other stock markets... you are going to see declines in the US stock market and since the correlations are so high this means that probably the junk bond market will go back down, too. Negative interest rates are the dumbest idea ever. It’s horrible.... Gold is doing fine. It’s preserving capital in the US, it’s been making money over the last couple of years for European investors. That’s why I own gold.... Trump is going to win. I think Clinton and Sanders are both very poor candidates."
A rumor of The BoJ doing something moar (helping banks with NIRP loans) was the apparent catalyst for today's epic USDJPY spike, but the kindling was a record position among speculative futures traders that USDJPY would continue to fall. Today's 250 pips plunge in Yen relative the dollar is the largest since Oct/Nov 2014 when The Fed ended QE3 and BoJ stepped in with QQE2 (or 22). For now, however, the machines have failed to get inspiration for stock buying euphoria from this usually positive carry pump...
"In the context of today’s paralyzed political-fiscal landscape how silly is it to suggest the Fed purchase a significantly large quantity of gold bullion at a substantially greater price than today’s free-market level, perhaps $5,000 an ounce? Admittedly, this suggestion is almost too outrageous to post under the PIMCO logo, but NIRP surely would have elicited a similar reaction a decade ago. But upon reflection, it could be an elegant solution since it flips the boxes on a foreign currency “prisoner’s dilemma”. Most critically, a massive gold purchase has the potential to significantly boost inflationary expectations, both domestic and foreign."
Mind the terminal growth assumption. The warning signs are everywhere that what lies on the other side is not a world of 24.3X valuations.
In a surprise move, earlier today Sweden's Riksbank announced that it would expand the country's QE program by another 45 billion kroner - consensus was for no increase - while keeping its rate at the already record negative -0.50%. "With continued expansionary monetary policy abroad, there is a risk that the krona will appreciate earlier and faster than in the forecast," the Riksbank said. Even more surprising was the currency reaction: instead of weakening the SEK, the currency strengthened.
One day after stocks were this close from hitting new all time highs on what have been either ok earnings, if looking at non-GAAP data, or atrocious earnings, based on GAAP, and where any oil headline is now immediately translated as bullish by the oil algos, so far futures are relatively flat, while European stocks were at their moments ago in anticipation of the latest ECB announcement due out in just one hour. However, unlike last month's "quad-bazooka", this time the market expects far less from Draghi. “Having pulled put the monetary bazooka in March, the market is sensibly expecting no further policy measures from the ECB,”
Why Stocks Rebounded Overnight: Goldman Expects BOJ To Double Its Equity Purchases As Soon As Next WeekSubmitted by Tyler Durden on 04/20/2016 09:54 -0400
"We think the BOJ is most likely to ease mainly via the qualitative measure, with increasing ETF purchasing the central pillar, with a view to improving business confidence. We think the market is already factoring in an increase in annual purchasing from ¥3.3 tn to ¥5-6 tn, and we thus think the BOJ may look to slightly more than double its current figure to around ¥7 tn." - Goldman
We've been struggling with the impact some very esoteric funds might be having in the market. We've also been struggling with the concept that some esoteric funds are attracting more capital than some basic mutual fund strategies. We're not sure what it means and maybe after 5 weeks of grinding higher on little volume with minimal volatility we're just angry - especially as that now seems to be the forecast going forward. But we cannot shake our fixation that some complex funds are impacting markets in ways we haven't thought about - and that tends not to end well.