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Overnight Sentiment: Politics And Apples

Tyler Durden's picture




 

At a time in the year when the market should be at a standstill, and when all trading should be over, the tension in the S&P is unprecedented, driven by two main factors: the ongoing Fiscall Cliff confrontation, which now appears set to not be resolved by Christmas, and very likely to persist into the new year, and what happens with hotel AAPLfornia, as suddenly it has become a liability to show LPs any holdings of the fruit in the year end statement. The two events combined will likely see furious market volatility persist well through the year end, and since volumes will further die down, we may well see massive stock moves on odd lots. And while AAPL is trading under $500 for the first time since February following last night's Citi downgrade, the confusion over the Fiscal Cliff persists, with The Hill first reporting that Boehner is willing to cave on the debt ceiling extension,  even as Boehner himself subsequently tweeted that "Any increase in the debt limit will require a greater amount in spending cuts and reforms." So back to square one, with a red herring proposal that Boehner can say we offered to the president and the president turned down.

Europe, traditionally a hotbed of even more confusion, has been quiet over the weekend, ecstatic that for once the world's attention is focused on the US and Japan. The only actionable news came from Corriere, which reported that Monti after all will not run, contrary to the desires of his statist Eurozone friends, and instead would endorse a list. Perhaps this is due to the very low popularity of the candidate who while portrayed as a messiah outside of Italy, is anything but in it.

Japan continues to attract a lot of attention with the ADHD market desperate to hope that the coming of Abe 2.0 will be much better than that of 1.0, when in one year he achieved nothing and then resigned due to diarrhea. Judging by the action in the USDJPY, we may be a few short hours away from closing the gap that sent the pair to 84.30 first thing, and proceeding to unwind the near record JPY commitment of traders short position as the JPY realizes this time will not be different.

Quiet calendar in the US, with the Empire State Manufacturing Index expected to print at -0.5 at 8:30 am Eastern, TIC data to show China's ongoing TSY boycott at 9 am, and a hawkish Jeff "Mutiny on the Eccles" Lacker speech at 1 pm.

More from DB's Jim Reid

Its all about politics today and for the week ahead as we digest the weekend's Japanese election results, the tense fiscal cliff stand-off and the likely imminent passing of the Italian budget and further news on who will be standing and in what capacity in the elections early in 2013. First Japan. Sunday’s elections delivered a landslide victory for the Liberal Democratic Party who took 294 seats out of 480 seats in the Diet’s lower house. The DPJ are left with just 57 seats, a record low held by a no. 2 party under Japan’s current election system, or only about a quarter of the seats that the DPJ held before the election. In terms of the voter participation, this election had one of the lowest turnouts ever at approximately 59%. While the LDP’s victory was widely predicted by preelection polls, the margin of victory gives the new LDP-Komeito coalition sufficient seats to surpass the two-thirds supermajority threshold that allows the lower house to pass bills voted down in the upper house (FT). Importantly however, DB’s Japanese economists point out that the nomination of the BoJ governor and two deputies scheduled for March and April 2013 cannot be reinstated by a two-third majority of the lower house if the appointment is rejected by the upper house. In terms of foreign policy, Shinzo Abe has openly proposed revising Japan’s pacifist constitution, which may raise the risk of geopolitical tension with its North Asian neighbours.

With the new government campaigning on a platform of revitalising the economy and fighting deflation via increased government spending and pursuing aggressive BoJ easing, it’s not surprising to see the yen sell off 0.65% against the USD overnight. The USDJPY cross is consolidating gains around the 84.00 mark after breaking through the level in early overnight trading taking the USDJPY to its highest level since April 2011. Japanese equities have also been buoyed by the election result with the Nikkei up 1.3% to an 8 month high as we type. Stocks in Japanese electric utilities are up 15% as the LDP are viewed as having relatively pro-nuclear energy policies. In the fixed income space,10yr and 30yr JBG yields have rallied 2bp and 10bp respectively; and the benchmark Japan IG index is 5bp tighter at 159bp. The IG index has rallied a total of 64bp since mid-September.

Shifting to the political debate in the US, the Washington Post reported over the weekend that Boehner has put forward a new proposal to Obama which raises tax revenues by $1 trillion over ten years, in return for cuts to entitlement spending of a similar amount. The tax revenues will include an increase in tax rates for those with greater than $1m in annual income. According to the article, the proposal, which was made in a phone call between Boehner and Obama on Friday afternoon, was viewed by the Democrats as “progress”. However the White House has rejected the offer, arguing that an income tax threshold of $375k to $500k would be more appropriate. In addition, Democrats disagree with the magnitude of cuts to entitlement spending proposed by Boehner.

The article also suggests that Boehner has offered a debt-ceiling increase that would push the debate on the debt limit until the end of next year in return for negotiations on a “bigger deal” in 2013 involving deeper reforms. Either way, newswires report that lawmakers from both sides are still far from reaching a deal as we start this final full week before the Christmas break.

Over in Europe, the political focus remains on Monti’s plans for the upcoming elections following the 2013 budget which is expected to be passed by the Italian senate this week. Berlusconi said over the weekend that he will not run if Monti leads a team of moderates and centre-right candidates while Reuters is reporting that the centre-left would prefer if Monti did not run, but stayed on in some role after the election. Monti himself remained non-committal over the weekend following a meeting on Sunday with President Napolitano to discuss his political future (Reuters).

Turning to overnight markets, Asian equities are mixed with gains led by the Nikkei (+1.3%), while other indices including the Hang Seng (-0.3%), ASX200 (-0.2%) and KOSPI (-0.5%) are marginally weaker. The Shanghai Composite is up another 0.5% overnight following Friday’s 4.3% gain, perhaps helped by the headlines from China’s Central Economic Work Conference in Beijing over the weekend which was attended by the country’s newly chosen leaders. Official Chinese media are reporting that the government will continue to place economic reforms at the top of the agenda and will introduce reforms that promote domestic consumption and urbanisation, with a focus on improving the quality of growth.

Turning to the week ahead, fiscal cliff headlines are expected to continue to drive market sentiment as we reach crunch time with only 2 weeks left in the year. In the US, macroeconomic releases include the NAHB housing market index (Tuesday), existing home sales (Wednesday), personal income and consumer sentiment (Friday).

Key economic releases in Europe include the Euro zone trade balance on Monday, Germany's IFO on Wednesday and the consumer confidence indices on Friday. In the UK, the minutes of the last BOE monetary policy committee meeting will be released on Wednesday. Draghi is due to address the Economic and Monetary Affairs Committee at the European Parliament today In Asia, the BOJ will announce its target rate on Thursday. With Abe yet to be formally inaugurated as PM, markets expect no changes to either the current 0.10% target rate or the central bank’s asset purchase program. It will be a relatively quiet week in China on the data front with November property prices being the main print.

 

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Mon, 12/17/2012 - 08:28 | 3070695 Colonel
Colonel's picture

"resigned due to diarrhea! Maybe it's from that sushi that glows in the dark? No worries the Bernank has printed up lots of butt wipe.

 

 

 

 

Mon, 12/17/2012 - 08:28 | 3070696 GetZeeGold
GetZeeGold's picture

 

 

 

I see the power changin' hands
Risin' from the streets
A self-made businessman
Knows how the system can be beat

Oh, we're the lost generation
Have no place to go
The road to destruction
Is all we need to know

'Cuz it's a rip-off
We're stepped on and cheated
We're flat stone cold lied to
We're not defeated, no

It's ah, easy money
It's a way out
Join the family
No middleman, no IRS
Your ticket out of poverty

Oh, we're the lost generation
I hold fate from a string
Lookin' for a direction
Reachin' out for anything

 

Then again....maybe not.....you really can't take Van Halen all that serious.

Mon, 12/17/2012 - 08:26 | 3070705 cnmcdee
cnmcdee's picture

This is going to be the EASIEST PLAY of early 2013 that Communist/Socialist/Islamicist Obama could ever give a guy.

Shorting the DOW is such a no brainer right now.  Who's gonna buy stock and make money long when the tax code just went socialist/communist in the United States, and the earnings reports for the next two to three months are going to be GARBAGE!

The current rally is like a dying man expelling his last bit of air, as all the companies binge dividend their shareholders right ahead of the structural tax changes to come in.

My short position on the DOW is in, thank you! Obama the Destroyer!

A Change I Can Believe In!

 

Mon, 12/17/2012 - 08:33 | 3070727 LikeClockwork
LikeClockwork's picture

Or most obvious bear trap.

Mon, 12/17/2012 - 08:39 | 3070742 GetZeeGold
GetZeeGold's picture

 

 

Dammit......I knew it had to be a trick.

 

I'd better stick to gold and let the experts handle this.

Mon, 12/17/2012 - 08:40 | 3070744 cnmcdee
cnmcdee's picture

Let it come. I've ridden lots of short hunting out before.

Mon, 12/17/2012 - 08:44 | 3070757 GetZeeGold
GetZeeGold's picture

 

 

Would you like it in small amounts.......or all at once?

Mon, 12/17/2012 - 09:45 | 3070861 GMadScientist
GMadScientist's picture

"This is going to be the EASIEST PLAY of early 2013..."

...for anyone who recognizes that the market is not the economy and positively asshammers any bears dumb enough to attempt to fight the Fed.

Onward, Christian Soldiers (get off my lawn!).

 

Mon, 12/17/2012 - 08:31 | 3070720 lolmao500
lolmao500's picture

http://ransquawk.com/!#/headlines/iran-to-soon-stage-military-drills-in-the-strait-of-hormuz-according-to-press-tv-17-12-2012

Iran to soon stage military drills in the Strait of Hormuz, according to Press TV

- IRGC Navy Commander Rear Admiral Ali Fadavi told reporters on Monday that the drill would be held by the end of the current Iranian year (ending March 20, 2013).

Bullish!

Mon, 12/17/2012 - 08:38 | 3070737 cnmcdee
cnmcdee's picture

Long Oil! Long Oil! Long Oil!  Long Oil!

I've been waiting 4 years for this play!! 40% of the worlds oil goes through the Straight of Hormuz, and Iran says it will block that straight and seal in Saudi Arabian oil shipments! $180/barrel oil baby what a play!  Especially since Iran was given a pile of Yakhont Mach 2.5 Supersonic Missiles from Russia to go around smoking ships all over the place. 

Ever see one of these things go?  Liveleak had a good video on it.  That thing is BULLET fast.

http://www.liveleak.com/view?i=08f_1355604363

But seriously.  Wait for Syria to fall, and the CIA to install a puppet regime in that country, then you know that Iran is on the table.

Mon, 12/17/2012 - 08:41 | 3070748 Colonel
Colonel's picture

"That thing is BULLET fast."

Yeah it is the Ruskies build some damn good rockets.

Mon, 12/17/2012 - 08:44 | 3070758 GetZeeGold
GetZeeGold's picture

 

 

Hope so.....cause we have to use them.

Mon, 12/17/2012 - 11:29 | 3071099 Mark Carney
Mark Carney's picture

I find it interesting that video was added by Tyler Durden...1 day ago, things that make you go hhhmmmmmm.

Mon, 12/17/2012 - 09:46 | 3070866 GMadScientist
GMadScientist's picture

You need to time the delay for supplies in the pipe correctly, or you'll just look silly covering that shit like a one-legged cat.

 

Mon, 12/17/2012 - 08:32 | 3070725 cnmcdee
cnmcdee's picture

The other big factor is the Baltic Dry index - it's crazy low right now.  How can a DOW market rally into falling consumption/purchasing/earnings reports throughout the US?  Other than the federal reserve literally holding the market up single-handedly by paying somebody to hold their finger on the Ctrl-P button all day and literally pay fedex to hand deliver suitcases full of cash to every company in the DOW it has to come down, and continue down. 

A tax code change is a structural change,  The United States just went full on Socialist retard.  Equality in Poverty,  I'll take my profits from shorting the DOW.

But if your on welfare you can get an Obamaphone!

http://www.youtube.com/watch?v=tpAOwJvTOio

Mon, 12/17/2012 - 09:46 | 3070862 I am a Man I am...
I am a Man I am Forty's picture

"And while AAPL is trading under $500 for the first time since February following last night's Citi downgrade, "

Apple is green at 512 as I type, but way to get on Citi for their completely "shiti" call with apple selling 2M phones.  You got on them for flip flopping but not how horrible the sales predictions were.  I notice how you didn't post Apple selling 2M phones in 3 days under the frontrunning section.  Pathetic!!

NICE JOB TD, you are the greatest ever!!

Mon, 12/17/2012 - 10:05 | 3070890 taraxias
taraxias's picture

Great post......oh wait, wheren't you the guy who was telling us to buy at $700 because it was cheap.

Once a fanboi, always a fanboi. 

Mon, 12/17/2012 - 11:18 | 3071060 I am a Man I am...
I am a Man I am Forty's picture

No i wasn't you fucking idiot.  I was telling people to buy in the 200's, I most recently bought and told everyone on this site that I bougnt at 506.50 when it dipped hard a while back and loaded up on Friday DCA'd in at 510.  ZH is now on the same side as Melissa Lee and Jim Cramer and Shitigroup.  I sold recently at 586 and now am buying back in.

But take note, ZH and CNBS is not talking about 2M phones sold in 3 days in China.

I actually said Apple was due for a correction at 700.

Mon, 12/17/2012 - 12:24 | 3071223 adr
adr's picture

WOW 2 MILLION PHONES IN CHINA!!!!!!

Is that supposed to be impressive? A country with a billion people with a few hundred million that have gone full retard over tech toys. Meizu proably sold 20 million of thier iPhone copy with real iPhone guts over the same time period.

Do NOT follow this link or you will be banned from the site!