Today's Pre-Ramp Preview
"Equity prices in the US and Europe have been hovering at multi-year highs. To the extent that this reflects powerful policy easing, equity markets may have lost some of its ability to reflect economic trends in exchange for an important role in the policy fight to support spending." This is a statement from a Bank of America report overnight in which the bailed out bank confirms what has been said here since the launch of QE1 - there is no "market", there is no economic growth discounting mechanism, there is merely a monetary policy vehicle. To those, therefore, who can "forecast" what this vehicle does based on the whims of a few good central planners, we congratulate them. Because, explicitly, there is no actual forecasting involved. The only question is how long does the "career trade", in which everyone must be herded into the same trades or else risk loss of a bonus or job, go on for before mean reversion finally strikes. One thing that is clear is that since news is market positive, irrelevant of whether it is good or bad, virtually everything that has happened overnight, or will happen today, does not matter, and all stock watchers have to look forward to is another low volume grind higher, as has been the case for the past two weeks.
Some of the overnight news, which no longer reflect in risk prices:
- Fed balance sheet assets rose $25.3 billion to a record $3.21 trillion
- Italian government debt rose to a record €2.02 trillion, in January.
- Spanish Public sector debt rose to a record €884.4 billion, debt to GDP rises tom 84.1% in Q4 from 69.3% a year earlier
- Italy carried out €2.85 billion bond buyback in reverse auction
- Schauble said markets must be kept stable and risks mitigated - as we said: markets are nothing but a policy vehicle now
- Spanish house prices fell 12.8 percent in the fourth quarter from a year ago, after sliding 15.2 percent in the third quarter. Labor costs declined 3.2 percent
from a year ago, after slipping 0.1 percent in the third quarter.
- Swiss producer and import prices advanced for a sixth month in February, rising 0.1 percent from a year earlier after climbing an annual 0.8 percent in January. Economists forecast a gain of 0.3 percent.
- Dutch industrial production declined 3 percent in January from a year ago. The median estimate of economists surveyed was for a 2 percent gain.
Those curious what will be the "catalysts" goalseeked by algos to provide today's ramp launch points, we have plenty: CPI and Empire Manufacturing at 8:30 am, Industrial production and Capacity Utilization at 9:15 am, UMich Consumer Confidence at 9:55 am - recall any news in these, good or bad, will be sufficient to push the DJIA to new record highs, and continue the ramp into its 11th day.
The most interesting, non-market moving event today, will be Senate hearing over the London Whale, scheduled to start at 9:30 am.
The only relevant "market-moving" event will be the $4.75 - $5.75 billion POMO starting at 10:15 am and concluding at 11 am. And don't forget to buy the 3:30 pm algo rip at approximately 3:29:59:999999 pm.
More bulletin highlights from Bloomberg:
- Treasuries steady, with 5Y-30Y yields near high end of 11-month ranges; yen little changed vs. dollar, erasing overnight losses.
- Kuroda was confirmed as BoJ governor today along with two deputies; former MoF official Sakakibara said Abe’s plan to beat deflation with money printing is bound to fail as the root causes are more structural
- Goldman and JPMorgan, the world’s biggest trading firms, must submit new capital plans to regulators to address weaknesses the Fed found in their planning processes
- Bank of America, Wells Fargo, American Express, JPM, Citi and Capital One were among lender that said they’ll boost dividends or stock buybacks after Fed’s stress tests
- EU leaders endorsed “structural” budgetary assessments, using code for granting countries such as France, Spain and Portugal extra time to bring down deficits
- Finance ministers will seek to agree on a rescue for Cyprus today as the euro area seeks progress toward a bailout that’s been batted about for nine months
- A resurgence of the debt crisis that scarred the euro- area over the past 3 1/2 years is the biggest threat facing Germany in an election year, policy makers and leading economists said.
- Jamie Dimon misled investors and dodged regulators as losses escalated on a “monstrous” derivatives bet and JPMorgan “mischaracterized high-risk trading as hedging,” according to a 301-page report by the Senate Permanent Subcommittee on Investigations
- Obama said Iran is still “over a year or so” away from building a nuclear weapon and indicated the U.S. is ready to take military action if sanctions don’t force the regime to abandon its pursuit
- BofAML Corporate Master Index OAS narrows to 144bps from 145bps as at least $5.5b priced yesterday. Markit IG narrows to new YTD low 78bps. High Yield Master II OAS narrows to 471bps, tighest since April 2011, from 476bps; $1b priced yesterday. CDX High Yield closed at 104.66, highest since Feb. 2011
- EUR/USD gains, trading at 1.3062 after yesterday touching 1.2911, lowest since Dec. 10. Nikkei gains 1.5%, Shanghai Composite 0.4%. European equity markets, U.S. index futures lower. Global sovereign yields mostly lower. Energy, precious metals higher
A more complete recap from Deutsche's Jim Reid
For US equities at least, it’s been a case of another day, another grind higher. Indeed yesterday the S&P 500 (+0.56%) inched another 8.7pts nearer to its record close of 1565.15 – finishing the day just 1.9pts away from the milestone. The Dow Jones, meanwhile, extended its streak to 11 straight days of gains. We should note however, that although the major US indices are above or close to the record highs, daily trading volumes have been steadily trending lower. Indeed the moving 15-day average volume for the S&P500 and the Dow are now the lowest since mid-January.
US jobless claims were identified as the catalyst for gains in equities yesterday. Claims continued to trend lower in early March, falling 10k to 332k (vs 350k expected). DB’s Joe LaVornga points out that the 4-week average has made a new, post-recession low (347k vs. 350k previously). If this level is held through the month, it would be consistent with further acceleration in the pace of nonfarm payroll gains, which have currently averaged 191k over the past three months. In other US data, the producer price index showed a headline increase in February (+0.7%) due to a sharp run-up in gas prices. The core PPI measure rose +0.2%, the same as in January.
Returning to markets, 10yr UST yields edged 1bp higher to 2.03% with earlier weakness seen after a lackluster 30yr treasury auction. According to Reuters, direct bidders accounted for only 4.9% of the purchases, the smallest share since Sept 2009. In other interesting market moves, US 10yr breakevens continued to edge higher and are now up 9 days out of the last twelve. Iron ore (China Import Fines 62%) fell 4.4% overnight to US$133/tonne, bringing its total retracement to -17% since its February peak.
After the US market closed yesterday, the Fed announced that it had approved the capital plans of 14 banks in the US in its Comprehensive Capital Analysis. In addition to that, the Fed stated that it didn’t object to the capital plans for Goldman Sachs or JPMorgan, but required the two institutions to submit new capital plans by Q3 to address “weaknesses in their capital planning processes”. Little time was wasted with at least 11 banks announcing stock repurchases and/or dividend increases in the hour following the Fed’s announcement. The Fed’s announcement came just after the US market close, so it will be interesting to see how the US banks trade today.
With the EU leader’s summit continuing today in Brussels, the news flow has so far been focused on the around the growth vs austerity debate. A draft conclusion prepared for the EU leaders summit appeared to offer some flexibility on budgets, saying there should be "an appropriate mix of expenditure and revenue measures, including short-term targeted measures to boost growth"
The thoughts were echoed ahead of the meeting by Francois Hollande who commented that "We need flexibility if we want to ensure that growth is the priority," adding that while he was committed to gradual budget consolidation, that did not mean that there was no room for manoeuvre. Merkel commented ahead of the meeting that the the growth pact passed by EU leaders last year “has to be filled with life” and should be used to "get the money to the people so young people in Europe get jobs".
On a separate but related topic, Mervyn King had some interesting comments on the UK economy in an interview aired on ITV. The outgoing BoE governor said that “there is momentum behind the recovery that’s coming” and “during the course of 2013 we will see the recovery come into sight”. On the currency, King added that the BOE isn't actively seeking to drive down the value of sterling to aid exporters. The sterling gained 20pips on the headline, but has trended downwards in overnight trading.
Turning to Asian markets, it has been a firmly positive session for the region’s equities overnight with gains being led by Japanese equities. The Nikkei (+1.3%) has hit a fresh 4.5yr year high on news that Haruhiko Kuroda has been approved as the new BoJ governor by Japan’s parliament, raising hopes that he will push ahead with more aggressive easing when current governor Shirakawa steps down next Tuesday. Also making headlines, domestic Japanese media are reporting that PM Abe will announce today that Japan intends to participate in talks to join the Trans-Pacific Partnership (Kyodo News). According to the Nikkei, joining the Trans-Pacific Partnership will add 0.66ppt to Japan’s GDP. The yen is largely flat against the dollar in overnight price action. Chinese equities have bounced from two-month lows (Shanghai Comp +1.5%), with strong gains seen in transportation and financials. Li Keqiang was officially confirmed as Premier following the confirmation of Xi Jin Ping as President yesterday.
In the context of the week so far, we have a relatively busier calendar today. The Italian parliament sits for its first session today after which formal consultations with President Napolitano on forming a new coalition government can begin. The Lower Chamber convenes at 10:30am (local time) with the Senate following suit half-anhour later. The EU leaders’ summit continues in Brussels. In terms of data, Eurozone CPI (February) and labour costs (Q4) are the main highlights in the European timezone. In the US, today’s US CPI report will be worth watching in light of the strength in recent macro data. The consensus is for a 0.5% and 0.2% print in the headline and core measures respectively. The Empire manufacturing and University of Michigan consumer confidence surveys area due today, as well as February industrial production.