With American Markets Shut For Second Day, China And Japan Come To Its Rescue
With the stock markets of the "developed world" in limbo for the second straight day and leaderless as New York is paralyzed, and the US was set to be closed for a second straight day, and with futures tumbling to their lowest level in over 2 months overnight, it was time for the East to step up. And step up it did! First, it was China's turn, which while still refusing to ease outright, conducted a massive 395 billion yuan reverse repo - this operation is the biggest on record, according to Bloomberg data going back to 2004, which in turn sent China's seven-day Repo rate plunging the most since January. And because this whopping injection would prove to be promptly internalized, a few short hours later Japan followed with nothing less than QE9! Just around 2 am eastern, the BOJ announced the 9th installment in its neverending monetary farce, when it said it would proceed to monetize an additional Y11 trillion in assets. From BusinessWeek: "The BOJ expanded its asset-purchase program by 11 trillion yen ($138 billion) to 66 trillion yen, the central bank said after a policy meeting today. The range of forecasts in a Bloomberg survey was from 10 trillion yen to 20 trillion yen." Of course, in this bizarro world in which intervention is the only thing left, the latest Japanese QE had an immediate and opposite effect of that planned, sending the USDJPY lower the second it was announced, as the amount announced was disappointing to most who had expected even more easing, and the halflife was for the first time in recorded monetary intervention history, absolute zero! But at least this failed intervention for Japan, helped America, sending ES from 1393, a full 13 ticks higher, where they are now. And so the epic defense of 1400 (and 1.2900 in EURUSD) continues for a 5th straight day!
Behold a central planner's worst nightmare, where you strenghten your currency by printing more of it!
Elsewhere European news were as usual bad. Some of the key headlines out of the lost continent:
- Schaeuble Says Germany Cornered in ‘Absurd’ No-Bail Out Debate
- Cannata Says Ban on Naked Short Sales Already Affecting CDS
- Some Debt Mutualization Tool Needed in Euro Area: Moscovici
- German Oct. Unemployment Rose Twice as Much as Forecast (Source)
- Spain Contracts for Fifth Quarter as Taxes Spur Inflation (Source)
Quick market recap via BBG:
- Spanish 10-yr yield down 1bps to 5.65%
- Italian 10-yr yield down 3bps to 4.98%
- U.K. 10-yr yield up 2bps to 1.81%
- German 10-yr yield up 2bps to 1.47%
- Bund future down 0.1% to 141.56
- BTP future up 0.23% to 107.31
- EUR/USD up 0.37% to $1.2952
- Dollar Index down 0.32% to 79.97
- Sterling spot up 0.19% to $1.6064
- 1-yr euro cross currency basis swap little changed at -26bps
- Stoxx 600 up 0.55% to 270.95
And while the market will hardly sustain its eastern-driven support in light of yesterday's AAPL shocker which is what everyone is aggressively trying to mask and forget, we have at least one more day until stock trading returns and gross wholesale manipulation via the ES finally ends. Until then we have the following events, via SocGen:
The eurozone debt saga continues. Spanish PM Rajoy said that he will seek a bailout when he thinks it's best for Spain and that the most important thing is that mechanism is there. Nevertheless, we are not sure this will be enough. Spain will have to make it known whether or not it will need a bailout. On a positive note, Spain has pretty much met its 2012 borrowing needs; however, on a less positive one, it is likely to miss its 2013 budget deficit targets, resulting in higher-than-expected financing needs next year.
Financing is also at risk in Greece. Although not yet explicit, the consensus seems to be that Greece will need further cash and that a 2-year extension for its current budget deficit targets will not be enough. Whether we are moving towards a third bailout or an OSI is still not clear. Again, the decision may be a political one, and, in particular, the most acceptable one to Germany. Further, Greece probably won't be able to address its financing gap on its own.
Against this backdrop, we will be listening closely to the talks between IMF chief Lagarde and German chancellor Merkel today, as the IMF has tended to take the lead over Germany over the past weeks. However, we do not expect a decision today. Nor do we expect an improvement from the Eurogroup conference call planned on Wednesday. The EU's Juncker has already said that no decisions are likely until the 12 November Eurogroup meeting. Tomorrow's call and the 8 November meeting should thus be brief.
All in all, investors are likely to keep a cautious stance in the very short-term. Friday's NFP is the only event likely to wake up market calls.
Once again, it is all about the 1400 line. If taken out, the Fed, and centrally-planned markets, lose, which in turn a week ahead of the election is simply not allowed.