European Open Ramp Returns
Now that the 3:30 pm pump has been exposed to the world, and having been priced in and frontran (such as yesterday) it changed to the 3:30 dump, algos are desperately searching for another daily calendar trading opportunity. It appears the opening of Europe and Japan for trading are just these two much needed "fundamental" catalysts. As the charts below show, it appears there is nothing more bullish for the two key carry pairs, the USDJPY and the EURUSD, than Japan opening at 8pm Eastern, and then Europe opening next, at 3:30 am Eastern.
The Yen slides (and sends US futures higher) when Japan opens, and then again when Europe opens:
While the Euro ramps (and sends futures even higher) when Europe opens:
Add to thise the obligatory pre-US open market ramp in either USDJPY or EURUSD or both, and you have a full set of "fundamentals" with which to trade the market.
Speaking of fundamentals, there were some, like China's completely made up exports number finally missing, printing at 10% in March vs Estimates of 11.7%, while imports beating expectations of 6% and rising 14.1%, resulting in a trade deficit of $880 million vs an estimated $15.2 billion trade surplus. We will shortly update our analysis on the laughable difference between China reported exports to the US and US reported imports from China. We expect the result to be just as laughable as it was last time.
Oh, and speaking of laughable things, tonight the Japanese bond market was halted for the third night of the last four, after the 10 Year yield soared and priced dropped rapidly following the above mentioned surge in the USDJPY at 3 am. At just after 3:40 am the Tokyo Stock Exchange issued a circuit breaker due to rapid price moves. The BOJ's plan to make a mockery out of the JPY1 quadrillion bond market is going along as planned.
Key overnight events, or lack thereof, is bulletin form via BBG:
- China’s exports rose 10% in March, less than forecast for the first time in four months, fueling concerns about the outlook for trade as the government said it’s investigating reports of inflated figures
- 10Y notes to be sold today yield 1.775% in WI trading, drew 2.029% in March; 3Y notes sold yesterday drew 0.324%, tailing 1pm WI level; primary dealers awarded biggest share since Jan. 2009
- ISDA hired consulting firm Oliver Wyman to make recommendations on how to modify an interest-rate swap pricing process that is under investigation by a U.S. regulator
- U.S. and South Korean intelligence shows that the possibility of a North Korean missile launch is “very high,” South Korean Foreign Minister Yun Byung Se said before the National Assembly’s defense committee in Seoul
- Obama sends a $3.77t spending plan to Congress today that calls for reductions in Social Security and other entitlement spending in a political gamble intended to revive deficit-reduction talks
- Global sovereign yields mostly higher, led by Belgium, Austria and Japan. Nikkei +0.7%, while Hang Seng +0.8%, Shanghai Composite little changed. European markets, U.S. index futures gain. Energy, precious metals lower
For those requesting a more conventional view of overnight events, here is DB's Jim Reid:
Developments in North Asia have been the main source of headlines overnight. Starting in China, the country reported its first trade deficit in more than a year (-$0.88bn vs +$15.2bn expected) in the month of March, driven by a surge in imports (+14.1%yoy vs 6% expected) while exports came in below expectations (+10% vs 11.7%). We would point out though, that the seemingly disappointing export number follows two very strong months when exports grew by an average of 23%yoy, which were double market estimates at the time. Similarly, the higher-than-expected imports in March follow last month’s number of -15.2% that was also affected by Lunar New Year holidays in February. So one could argue that today’s trade numbers reflect somewhat of a normalisation in both export and import trends. Looking at the geographical detail reveals a mixed picture for global growth. The government said first quarter trade with the US rose by 10.8%yoy to $118.2bn. At the same time trade between China and the EU in the first quarter fell 1.9% to $124.4bn. The market reaction overnight has been fairly muted, with regional equity markets weakening marginally following the report though still in positive territory for the day, while the Australian dollar firmed 0.3% against the greenback buoyed by the stronger-than-expected import print.
In Korea, tensions remain high on the peninsula after reports that a missile test could be conducted by the North as early as today. Pyongyang is believed to have finished preparations for a mid-range missile launch, after it moved two Musudan missiles to its east coast last week by rail. As we mentioned earlier this week, officials in Seoul believe that North Korea could fire off a missile in the lead-up to April 15th to mark the birthday of late founding leader Kim Ilsung, the current ruler Kim Jong-un's grandfather. For the moment however, Korean assets are better bid with the stocks trading 0.8% higher, while the Won is 0.2% firmer against the USD as markets look towards tomorrow’s BOK decision. Korean sovereign CDS is broadly unchanged at around 84bp. Elsewhere in Asia, the Nikkei continues its outperformance, up 0.8% as we type.
Outside of Asia, overnight the WSJ reported that European leaders are considering whether to include short-term interbank loans as part of liabilities which may be bailed-in in the event of a bank restructuring, under new EU bank resolution laws. According to the WSJ who cite a document dated April 5th and discussed Tuesday by member-state officials meeting in Brussels, interbank liabilities of less than one month have “been removed from the list of liabilities which can be excluded from bail-in on a discretionary basis”. The article mentions that there was considerable debate about whether to shield interbank loans with maturities of up to six months from bail-in provisions, but the one month threshold was decided to prevent banks becoming “excessively dependent on short-term interbank loans” despite push-back from several member states.
Staying in Europe and ahead of this week’s Eurogroup/ECOFIN meetings, Reuters is reporting that EU policymakers are considering approving an extension to the Irish and Portuguese programmes. The extension will see the average maturity of EU loans by increased by seven years, which will smooth the two countries’ debt refinancing profiles well into the 2020s. Shorter maturity extensions of between 2-5 years were judged to be not beneficial enough for the two countries according to Reuters who cite a draft discussion document prepared by the troika and to be presented to finance ministers at this week’s Eurogroup/ECOFIN.
In Italy, Bersani met with Berlusconi to discuss the election for the next President of Italy. The deputy leader of Bersani's Democratic Party Enrico Letta said the meeting had focused only on the issue of the next president, not on any possible deal to form a government. Letta added there would be further meetings in the next few days with Berlusconi's People of Freedom (PDL) and other parties but said no names were discussed at Tuesday's meeting, intended to prepare the way for the start of the presidential election process on April 18th. President Napolitano’s term ends in May 15th.
Back to yesterday and markets continued their post-payroll rally helped by a benign inflation print from China and Bernanke’s relatively dovish comments on Monday evening. In equities, the Dow (+0.41%) briefly reached a new all-time intraday high of 14,716.46 before settling for a record close of 14673.46. The S&P 500 (+0.35%) managed to string together its second consecutive daily gain for the first time in almost a month, as it closes in on its record high of 1570.25 from last week. Major credit indices in Europe and the US continued to tighten despite an active day for new supply. Commodity markets had a strong session (Brent +1.5%, Copper 0.6%) after the relatively benign Chinese CPI reading for March of 2.1% (vs 3.2% in February and 2.5% expected) allayed fears of near-term policy tightening in China.
Turning to the day ahead, tonight’s FOMC minutes will be closely watched for clues around the Fed’s plans for QE later this year. In Europe, industrial production numbers for France, Spain, Italy are the main highlights on an otherwise light data docket.
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