Overnight Sentiment Pulled Lower By Drop In Carry Funding Currency Pairs

Tyler Durden's picture

Following yet another quiet overnight session, futures have surprised many walking into work today as the traditional overnight levitation is strangely missing. The reason for that may be the lack of the traditional for 2013 lift in various funding currency pairs, with both the USDJPY and the EURUSD lower. While there was no major macro news, the former may have been dragged lower by various comments from the German BDI industry federation chief who said he is worried about the devaluation race stemming from Japan's central bank policy echoing Merkel's comparable sentiment and revealing that the EURUSD may have topped out, while the latter was pushed lower following today's 7 day ECB MRO, which saw some €124.1 billion allotted at a 0.75% yield. This was largely in line with expectations, with Barclays seeing some €135.4 billion maturing, while BNP had expected modestly more, or some €150 billion. The MRO is the first such operation, with tomorrow's 3 month refinancing operation likely to give a better glimpse of the bank's post-LTRO repayment funding needs. Whether it is this, or the market finally demanding some action out of central banks which, except for the Fed, have been in constant promise mode, or just a random walk, is unknown, but for now the carry funded nominal devaluation of risk may have topped out.

The notable datapoints about Europe were the German GfK Consumer Confidence which was in line with all other such forward looking metrics, and naturally rose from 5.6 to 5.8, above expectations of 5.7, there merely to attempt to return confidence in the German economy, which is literally on the cusp of a recession unless people believe it is doing ok, as well as the Spanish 2012 GDP which according to Montoro would fall "at least" 1.3% in 2013. We all know what that means.

Japan's Ministry of Finance released a curious datapoint in the form of a national balance sheet, revealing that while it had some 629 trillion in assets, it had 1088 trillion in liabilities, meaning some 459 trillion in excess liabilities in 2011, an increase of 41.5 trillion from the prior year.

Finally, keep an eye on brent, crude, and gasoline, all of which have been quietly creeping higher to multi-month lows, in the process adding a double whammy to consumption, in addition to the now well-known expiration of the payroll-tax cut extension. This is especially true with the two day FOMC meeting starting today, even if the final outcome is not expected to lead to any change in Fed policy.

Some more thoughts on the overnight action from Deutsche

So the longest winning streak for the S&P 500 since November 2004 officially took a breather last night as the index (-0.18%) finished lower for the first time in 9 trading days. The S&P 500 still closed marginally above the 1,500 mark though after having traded sideways throughout the day and we are still only around 1.7% away from revisiting the all-time high print. The market weakness yesterday was weighed by the relative underperformance of the Materials (-0.99%) sector. The disappointing pending home sales data (4.9% yoy v 11.5% yoy expected) was also said to have played a part in reversing sentiment after the better-thanexpected durable goods orders (4.6% v 2.0%) and the Dallas Fed print (5.5 v 4.0)
but in reality the market was probably ripe for some consolidation after the strong start to the year and the 8-day winning streak.

The soft-ish tone in risky assets didn’t help stop the further rise in US Treasury yields though with the 10-year briefly touching 2% at one point yesterday. The last time the 10-year traded above 2% was in April last year. The benchmark managed to recover and close only 1bp higher at 1.961%. Indeed the steady rise of core rates in Developed Markets has been one of the main themes this year as 10-year Gilts, Bunds and Treasuries are now 28bps, 38bps and 22bps higher since the end of last year, respectively. The impact is also being felt at the front-end with Germany’s 1-year bill sale yesterday witnessing its first positive yield since June last year. In fact looking through the 2-year bucket in Europe, Switzerland is the only country currently with a negative nominal yield now (-0.056%). The list has shrunk rapidly as there were six of them (Switzerland, Denmark, Germany, Finland, Austria, and the Netherlands) in negative territory around the middle of last month.

Moving on to overnight markets most Asian bourses are maintaining their positive biases with the Nikkei (+0.7%), China CSI (+0.4%), and the KOSPI (+0.8%) trading higher as we type. Optimism around the cyclical recovery of the Chinese economy and the policy focus around the urbanisation have helped the Shanghai Composite reach virtually bull market territory with a recent trough to peak gain of around 20%. Asian markets are probably also being supported by Yahoo’s strong after market results as the company’s shares rallied over 3% in extended hours trading.

Staying on earnings Caterpillar’s report was a major focus yesterday as the company offered a relatively upbeat assessment on the second half outlook. The company expects sales and earnings growth in 2013 will come in the second half on the back of improvements in the US and China. The company expects 2013 earnings to range between $7-9/share and revenue to range between $60-68bn. These compare with average Bloomberg poll estimates of an EPS of $8.54/share and revenue of $65.2bn. Continuing on earnings, 5 out of the 8 US companies reporting yesterday beat analysts’ EPS and revenue estimates.

In other news, ECB policy makers have rejected an Irish government plan designed to fund the rescue of the former Anglo Irish Bank Corp for at least the next 15 years (Bloomberg news). Under the proposal, the Irish central bank would have signed a contract guaranteeing to hold for at least a decade and a half a long-term bond issue to replace about EU30bn of the promissory notes issued in 2010. Policymakers are said to be in favour of the government taking another loan from the ESM or raising funds in the financial markets. Separately, the EU is mulling a one-year delay (to 1 Jan 2016) of the Basel III requirement which asks banks to disclose whether they will be in compliance of a leverage ratio requirement.

As far as data flow is concerned today we have German and French consumer confidence readings as well as Spanish retail sales in Europe. Merkel will speak at a CEO event in Berlin later this evening. In the US, the Conference Board Consumer Confidence and the Case-Shiller Home Prices are the notable releases as the FOMC begins the first of its two-day policy meeting today.

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GetZeeGold's picture



Keep suppressing PMs or support crappy fiat.......what to do?

achmachat's picture

as long as only the little retail PM investors cry foul that there's physical shortage for their 1-ounce rounds and coins, nothing much will happen...

But just wait when big industrial manufacturers have to openly admit that they can't get their hands on enough silver to keep your iGadgets coming. All bullish hell will break loose!


GetZeeGold's picture



Just wait until sovereign countries try to get their gold back.....and can't.


Oh wait....I guess that did just happen.

Ghordius's picture

for national banks gold is the ammunition you spend after you have spent all your FX reserves to hold up your free-fall currency

we aren't there, the glorious pilots - particularly those of the BoJ, the BoE and of course the FED, are still pushing down, down, down for fear of stalling

GetZeeGold's picture



Just shut up and give us back our damn gold.....or please find out who has it and tell them to give it back.

Ghordius's picture

"your" gold? ;-) do I get a whiff of furor teutonicus?

we all know who has or had it - the faboulous NY FED, backed by the "we show our strenght" US Treasury

and you do remember how it got accumulated: by endless exports to the US. or should I say "tributes from the conquered provinces"?

anyway, keep real: if the purpose of gold is to buy back fiat (at least this is the standard CB playbook) then it does not make sense to keep it out of a gold exchange center, doesn't it?

except if you don't trust those centers, that is...

GetZeeGold's picture



Well it used to be ours.......but that was a long time ago now.

disabledvet's picture

We like Hyundai's now. Send more of those...

LongSoupLine's picture

Fed...building a house of cards

ECB...building a house of cards, on jello.

JCB...building a house of cards, on jello, during a typhoon.

Fuck you central banks. Fuckers.

gjp's picture

Actually, the ECB and JCB are building their houses of cards on the Fed's house of cards. There's really only one house of cards that matters, one of the last few things made in America.

Agree with the FU central banker sentiment regardless.

firstdivision's picture

The overnight mood in ITA10 and SPA10 seems to be elated as yields are plunging to new lows. 

Ghordius's picture

"In other news, ECB policy makers have rejected an Irish government plan designed to fund the rescue of the former Anglo Irish Bank Corp for at least the next 15 years (Bloomberg news). Under the proposal, the Irish central bank would have signed a contract guaranteeing to hold for at least a decade and a half a long-term bond issue to replace about EU30bn of the promissory notes issued in 2010. Policymakers are said to be in favour of the government taking another loan from the ESM or raising funds in the financial markets."

How I still get mad at this sorry episode of Irish history. Ireland doubled their Debt to GDP from 60% to 120% just to save this bloody AngloIrish Bank. And still nobody writes about how much pressure was coming from the City.

It's so much easier to blame the ECB, eh? Blame the continentals, who cares what they think about it


Just look at it as today: the Irish central bank is part of the ECB, but their proposal is just too "rich" for the other 16 members. Ding ding?

GetZeeGold's picture



Codependency is a real bitch.


Ghordius's picture

well, so is having a girlfriend or, even more, a wife

but seriously, look at the snippet, you'd get the impression it's the ECB vs the Irish CB, not 16 cbs vs 1

GetZeeGold's picture



Take my alcoholic blank check writing wife.....please!

Ghordius's picture

eh, I'm already swimming in members of the truly dominant sex that see me as their personal ATM, sorry...

Sudden Debt's picture

so... they stick their card in your slot?!



Ghordius's picture

SD, I definitely remember how you explained that you need your wife's permission just for going out with "the boys"

my various girls don't stick their card anywhere, they just send me an sms with a request for a bank transfer

If I was American I could at least say something like "the check is in the mail", but no, I'm a european (continental)

btw, I'm just writing from Malaga, Spain. Go and check what kind of weather I am enjoying, if you want to spoil your day

Sudden Debt's picture

I just make her THINK that I'm asking for permission!

if she refuses... no sex for... for AT LEAST ONE HOUR!!!


Sudden Debt's picture

when you're young... al you want do to is get woman drunk...

when you're married to one... you want her to be sober... no wait! Drunk!.... no wait! Sober!....

Alcohol... only works if you drank it yourself....

orangegeek's picture

Euro is the last of the four currencies that is holding the US Dollar down. Pound, Yen and Canadian Dollar are tanking.

As Europe continues to fall into the abyss, investors will be buying up something more secure - the US Dollar.

Euro is completing wave two up.


bdc63's picture

huh ... so all those times that Paulson and Geitner have said they "support a strong dollar policy" they were telling the truth.

who knew ...

Ghordius's picture

yeah, sure, the EUR holding the USD down. while we are there why don't you say that gold is holding the USD down?

Sudden Debt's picture

like 2 paragliders discussing about who's losing altitude....

Sudden Debt's picture



GetZeeGold's picture



We only use it for skeet shooting and fending off tyranny.


Statistics show if you're sitting alone at home.....you're pretty safe. Unless your home is marked as a gun free zone that is.

Sudden Debt's picture

You'd better make a sticker saying: