UPDATE: USDJPY retraced the POMO spike... So VIX takes over...
The S&P 500 is screaching back towards its record all-time highs with a little help from a USDJPY-sparked momentum ignition and a $4-5 Billion POMO... behold the efficient markets...
Day two of the bounce from the biggest market drop in months is here, driven once again by weak carry currencies, with the USDJPY creeping up as high as 104.50 overnight before retracing some of the gains, and of course, the virtually non-existant volume. Whatever the reason don't look now but market all time highs are just around the corner, and the Nasdaq is back to 14 year highs. Stocks traded higher since the get-go in Europe, with financials leading the move higher following reports that European banks will not be required in upcoming stress tests to adjust their sovereign debt holdings to maturity to reflect current values. As a result, peripheral bond yield spreads tightened, also benefiting from good demand for 5y EFSF syndication, where price guidance tightened to MS+7bps from initial MS+9bps. Also of note, Burberry shares in London gained over 6% and advanced to its highest level since July, after the company posted better than expected sales data. Nevertheless, the FTSE-100 index underperformed its peers, with several large cap stocks trading ex-dividend today. Going forward, market participants will get to digest the release of the latest Empire Manufacturing report, PPI and DoE data, as well as earnings by Bank of America.
- House Unveils $1.01 Trillion Measure to Fund Government (BBG)
- Credit Suisse Tells Junior Bankers to Take Saturdays Off (BBG)
- Spot the odd word out: ECB Sees Bad-Debt Rules as Threat to Credible Bank Review (BBG)
- Insert laugh track here: Spain GDP grows at fastest pace in almost six years (FT)
- Scandinavian Debt Crisis Waiting to Happen Puzzles Krugman (BBG)
- Fed Said to Release Plan to Limit Banks’ Commodities Activities (BBG)
- Thai Protesters Extend Blockade After Rejecting Poll Talks (BBG)
- China provinces set lower growth goals for 2014 (BBG)
Following yesterday's major market drubbing, in which the sliding market was propped up by the skin of Nomura's (and BOJ, and Fed's) teeth at 103.00 on the USDJPY, it was inevitable that with Japan returning from holiday there would be a dead cat bounce in the Yen carry pair, and sure enough there was, as the USDJPY rose all the way back up to 103.70, and nearly closed the Friday gap, before starting to let off some air. However, now that US traders are coming back online, Japan's attempts to keep markets in the green may falter, especially since it only has a couple of ES ticks to show for its efforts, as for the Nikkei which dropped 3% overnight, it has now lost all US "Taper" gains.
SHLD is making the cut for one of my top 3 picks of 2014.
The Nikkei 225 is at its 'cheapest' relative to the Dow Industrials in the last two months as the behcmark Japanese stock index has now lost all of its gains post the US Taper decision in mid-December. With USDJPY breaking back below 103 and the correlation between it and stocks as high as it has ever been, if BAML is right with its sub-100 target for the FX pair, then the Nikkei could be looking at 14,500 (or an 11% tumble from the highs).
US Treasury yields broke down sharply Friday, confirming a near-term, potentially medium-term, turn in trend; and, as BofAML's Macneil Curry notes, this Treasury turn should prove to be a headwind for select USD pairs, (although BofAML remains bigger picture USD bulls); particularly USDJPY. However, the weakness in the Canadian USD - which was the only currency not to rally against the greenback on Friday - suggests the downtrend in the Loonie has significant legs. Precious metals - most notably silver - could also benefit from the Treasury trend change.
Rising U.S. inflation expectations ... suggesting inflation is around the corner. But we're not buying it just yet.
Is it all about expectations about tapering, again?
Technical outlook for the several of the most actively traded currencies.
While BofAML's Macneil Curry remains a longer-term Treasury bear, in the near-term (and potentially medium-term) the evidence for a pause and corrective yield pull-back is too much to ignore. Given the momentum conditions, he notes, these levels are not going to give way without a fight - Treasur bears beware. He also fears a correction lower in EURUSD and USDJPY (JPY strength) but worries that gold has further to fall.
- From the guy who said the market is not overvalued: Q&A with Fed’s Williams on Upbeat 2014 Outlook and What Keeps Him up at Night (Hilsenrath)
- Obama Readies Revamp of NSA (WSJ)
- Indian envoy leaves U.S. in deal to calm diplomatic row (Reuters)
- China overtakes US as largest goods trader (FT)
- Wall Street Predicts $50 Billion Bill to Settle U.S. Mortgage Suits (NYT)
- Low-End Retailers Had a Rough Holiday: Family Dollar, Sears Struggle as Lower-Income Customers Remain Under Pressure (WSJ)
- ECB charts familiar course as Japan, US and UK begin to diverge (FT)
- Housing experts warn of hiccups as new U.S. mortgage rules go live (Reuters)
- It's a HFT eat HFT world: Infinium ex-employees sue over $4.1m loss (FT)
- Slowing China crude imports to challenge exporters (FT)
- Carney Guidance Threshold Strained as BOE Holds Policy (BBG)
- Does one laugh or cry: China Tells Banks to Improve Disclosures in Shadow-Lending Fight (BBG)
- Big Business Doubles Down on GOP Civil War With Tea Party (BBG)
- CIA sued for records on possible role in Nelson Mandela arrest (RT)
- Bridge Scandal Destroys Christie's 'Nice Jerk' Image (BBG)
- Borrowers Hit Social-Media Hurdles (WSJ)
- U.S. Leverage in Iraq Tested As Fears of Civil War Mount (WSJ)
- Austerity drive cuts into Chinese inflation (FT)
- Dish Pulling Its Bid for LightSquared (WSJ)
- BlackRock agrees to end analyst surveys (Reuters)
- Germany defends economic policies after US criticism (FT)
- Bank of Korea Holds Rate Even as Yen Clouds Export Outlook (BBG)
The overnight session began on a dour mood, with both the Shanghai Composite and Nikkei sliding (the former once again just barely above 2,000, latter once again dropping below 16,000), even though Chinese CPI came below expectations suggesting the PBOC has some more room to ease and not rush into liquidity extraction (which just happens to blow out repo rates like clockwork), while in Japan BOJ board member Shirai implied the Japanese QE can be extended and expanded as needed. Europe had a weak start although shortly after 3 am Eastern staged a dramatic turnaround supported by a bounce in the EUR (and ES driving EURJPY) leading to broadly higher stocks, supported by solid demand for Portuguese 5y bond syndication, as well as oversubscribed debt auctions by the Spanish Treasury which sold above the targeted amount and consequently saw SP/GE 10y spread fall to its tightest level since April 2011. At the same time, having been propped up by touted redemption flows ahead of Spanish and French bond auctions, absorption of supply shortly after 1000GMT resulted in an immediate selling pressure on Bunds. Helping lift spirits was a rumored $1 billion trade order in September S&P futures, as well as chatter by the Greek PM that the country was like Portugal and Ireland, prepared to get back into the bond markets.
The “Ig Nobel Prize” is parody of the Noble Prize that is awarded every year for the most trivial scientific achievement. For example, the 2007 recipient for the ‘Ig Nobel Peace Prize’ went to the United States Air Force Wright Lab in Ohio, for proposing the development of a ‘gay bomb’ that could be dropped in hostile territory and make enemy troops sexually attracted to each other. Make love, not war? So when we opened my email yesterday and saw the subject line: “Central Bank Governor of the Year”, we immediately presumed it was a similar satire. It wasn’t...