Overnight Sentiment: Attempting A Rebound

Tyler Durden's picture

Following yesterday's most recent Europe-led rout, the market is attempting a modest rebound, driven by the usual carry funding currency pair (EURUSD and USDJPY) levitation, although so far succeeding only modestly with not nearly enough overnight ramp to offset the bulk of yesterday's losses. In a centrally-planned, currency war-waging world, it is sad that only two key FX pairs matter in setting risk levels. But it is beyond hypocritical and highly ironic that according to a draft, the G-20 will affirm a commitment to "avoid weakening their currencies to gain an advantage for their exports." So the G-20 issues a statement saying nobody is doing it, when everyone is, thus making it ok to cheapen your exports into "competitiveness"? In other words, if everyone lies, nobody lies. Of course, also when everyone eases, nobody eases, and the world is back to square one. But that will only become clear eventually.

Nikkei's drop of 1.22% overnight, a market which has become as bad as penny stocks in its daily volatility, driven by a rise in the USDJPY has not helped (especially in the aftermath of the record foreign capital surge into Japanese stocks), and the modest 0.17% rise in the Shanghai Composite is actually far better than expected considering China reported new home prices rising in 68 out of 70 cities in March (compared to "only" 66 in February), meaning the country will continue to focus on eliminating hot, speculative money from its economy.

In Europe, Germany officially approved the Cyprus "bailout", and the associated plunder of its gold. Now the decision is back in the hands of the Cypriot parliament. In Italy, the Bersani and Berlusconi parties are said to be close to backing Senate speaker Franco Marini as a presidential candidate but we will believe a compromise when we see it.  More importantly, the Italian financial police, after allegedly confiscating €1.8 billion worth of Nomura assets several days ago, has now searched through the offices of JPM in Milan in its ongoing Monte Paschi probe. In Spain, the country sold €4.71 billion in 2016 and 2023 bonds, more than the target, with local banks (who reported an amusing drop in the bad loan ratio from 10.78% to 10.39% - must be all those loans handed over to the bad banks) and the pension funds, as well as Japanese banks, likely buying. Ironically hours prior, Bloomberg's economist David Powell said the Spanish sovereign debt is close to unsustainable.

Also speaking of Europe, Citi's Jurgen Michels said it is likely that the ECB will lower rates in May and again later this year, with euro area in recession and poor funding conditions in periphery countries. He added that he expects generalized dollar strength in the coming months.

Back in the US earnings season so far is off to a rather miserable start: today we will get Morgan Stanley, IBM, Microsoft and Google. Initial jobless claims will be closely watched as they cover the survey period for April’s payrolls. We also have the Philly Fed survey, where the market is looking for an improvement to 3.0 (vs 2.0 previous month).

A quick recap of European markets, which have so far proven less prone to flash crashing than yesterday:


  • Spanish 10Y yield down 6bps to 4.62%
  • Italian 10Y yield down 5bps to 4.2%
  • U.K. 10Y yield up 2bps to 1.7%
  • German 10Y yield up 2bps to 1.25%
  • Bund future down 0.13% to 146.05
  • BTP future up 0.37% to 113.12
  • EUR/USD up 0.24% to $1.3063
  • Dollar Index down 0.2% to 82.52
  • Sterling spot up 0.02% to $1.5241
  • 1Y euro cross currency basis swap up 1bp to -21bps
  • Stoxx 600 up 0.61% to 285.47

SocGen provides the key macro catalysts for the day:

Risk appetite has considerably diminished this week as volatility has returned to two-month highs and the correction in commodities is causing ripples across fx, equities and rates: mixed US and Chinese indicators triggering a downward revision to inflation expectations and ongoing ultra-accommodative monetary policies within the G10 make it difficult for investors to get a handle on the medium-term outlook. With gold and the yen visibly having lost their safe haven status, where can investors turn? Bond markets appear to be the asset of choice at the moment, with the ECB's Weidmann yesterday in uncharacteristic fashion beating the ‘easy policy' drum: since the beginning of the week, Portugal, Sweden, the Netherlands, Spain and Italy bond markets have outperformed in Europe. Treasuries and Gilts are also in demand. So much for fears of a bond bubble.

Right now, investors are still hunting for yield by moving further down the curve and picking up lower credit quality, supported by the flood of liquidity and the stimulative central bank policies in the West. However, it is still difficult to determine whether bullish trends in most asset classes will prove sustainable as signs of a macro slowdown emerge. In particular, we note that European stress has not disappeared, even though the ECB's OMT is still suppressing underlying budget and credit anxieties as discussions over banking supervision are ongoing. Italy will welcome a new president mid-May as the selection process gets underway today. However, the country still has no government, though optimists would argue that day-to-day affairs are run by PM Monti and government funding has proceeded without difficulty.

The G20 may address some of these topics this weekend, not to mention the threat of competitive devaluation in Japan (a source of friction at the G7 in Moscow earlier this year). Against this backdrop, short-term investment strategies will have to factor in uncertainty and remain prudent: this continues to be a favourable backdrop for global bonds, US and Japanese equities in particular, and positive overall for the dollar.

* * *

And a full summary of the past 24 hours from DB's Jim Reid

Markets were also fairly depressed yesterday and it continues to be a year where risk perhaps feels healthier than all the actual hard numbers suggest. With yesterday's sell-off, where the DAX and CAC were down -2.34%, and -2.35% respectively, these two markets are now in negative price territory YTD. Indeed within the G20, although the Nikkei (+28% YTD), the S&P 500 (+8.8%), the ASX200 (+7.2%) and the FTSE (+5.9%) are among the stand-out performers, only 9 of the bourses in the G20 countries are higher for 2013 (all in local currency terms). There also is a sizeable dispersion within the EM side of the G20 as evidenced by the strong performance of Indonesia’s Jakarta Composite (+16%) and Mexico’s IPC (+20%) against the YTD losses for Brazil’s BOVESPA (-13%).

Commodities are also lower across the board, while fixed income and credit remain strong relative performers. Overall it does seem to be turning into a year of weaker correlations between asset classes.

Back to yesterday, Germany’s DAX set the tone early on with chatter that the country’s credit ratings could be downgraded. Investors feared a downgrade from S&P and Moodys but it was the lesser-known Egan-Jones who eventually came out with the downgrade towards the end of the US session (from A+ to A). The news had little effect on US equities which were well and truly trading in the red at the time. Even a relatively upbeat Fed Beige Book failed to buoy the S&P500 which closed near the lows of -1.43% as technology stocks led the declines.

Amongst the notable moves, Apple dropped 5.5% after one of its audio chip suppliers, Cirrus Logic, reported an inventory glut that investors interpreted as suggesting a shortfall in iPhone sales. In other asset classes, credit again showed some resistance to the rest of the market with the CDX IG and European iTraxx indices trading unchanged for much of the day before closing a touch weaker. 10yr UST yields firmed a 1bp to 1.68% while core bond yields elsewhere rallied around 3-4bp. In the commodities space, gold (+0.67%) traded firmer while Brent (-2.75%) fell for the sixth straight day. Copper was also down 4%.

Earnings were on the disappointing side yesterday, with nine out of 14 S&P500 companies missing revenue expectations and one-third missing EPS expectations. Amongst the highlights was Bank of America who missed earnings estimates after recording a 20% yoy drop in FICC trading revenues which DB’s equity analysts point out is softer than peers which have seen revenue declines of 5-10%.

Turning to the overnight news, the G20 is expected affirm its commitment to avoid competitive currency devaluations in a draft communiqué being prepared for this week’s IMF/G20 meetings (Bloomberg). The USDJPY initially traded lower following the headline, but it has since rallied back up towards 98.2 to be unchanged on the day, probably because the language essentially maintains the G20’s pledge made in February to “.move towards more market-determined exchange rates”. Staying in Japan, local newswires are reporting that the BoJ will raise its forecasts for consumer price growth and may say it expects to achieve 2% inflation as early as spring 2015 at its policy board meeting on April 26th (Nikkei).

Elsewhere in Asia, equities are trading lower taking the lead from yesterday’s risk sentiment in the US and Europe, although most Asian bourses are off the early lows. Losses are being paced by the Hang Seng (-0.1%), Nikkei (-0.3%) and KOSPI (-0.7%). The AUD is unchanged against the greenback at around 1.03 while most commodities continue to edge lower overnight. In China, the focus is on the latest property price data which showed that prices in 70 cities rose 1.5% month-onmonth in March, including sharp gains in some major cities. There is talk of distortion in the data as a number of property buyers purchased in March ahead of new government austerity measures which were implemented at the start of April Later today, the Italian parliament will convene to elect a successor to President Napolitano. Yesterday, the center-left’s Bersani proposed former Senate speaker Franco Marini as candidate for Italy's president. Marini, a former unionist, also got the support of the caretaker PM Mario Monti and center-right leader Berlusconi.

Nevertheless, Marini’s election still has an element of uncertainty. Marini faces opposition from within Bersani's own coalition, with Bersani’s main party rival, Matteo Renzi, immediately saying he would not back the candidacy. Renzi described Marini as "a candidate from the last century" (Reuters).

Moving on to the day ahead, Morgan Stanley, IBM, Microsoft and Google will highlight a busy day on the earnings calendar. Initial jobless claims will be closely watched as they cover the survey period for April’s payrolls. We also have the Philly Fed survey, where the market is looking for an improvement to 3.0 (vs 2.0 previous month).

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firstdivision's picture

Someone is trying to push this shit up through Crude.  Gotta love that crash last night in gold and silver, with a prompt overnight rebound and then some.  Lumber is odd man out the past month, still waiting for a pullback in that.

GetZeeGold's picture



Are we having fun yet?


the G-20 will affirm a commitment to "avoid weakening their currencies to gain an advantage for their exports."



GetZeeGold's picture



That usually happens when you print a lot of money out of hot air.

youngman's picture

I would hate to be a historian in 100 years trying to figure out what happened now......as the written word is a lie....but the actions speak differently.....the new Bernanke of the next century will not be as informed...

Beam Me Up Scotty's picture

When everyone is dirt poor, no one will be dirt poor.

Bearwagon's picture

But everyone will be dirty ...

fonzannoon's picture

4% (and change) for spanish and Italian 10yr bonds. That is surreal.

Smegley Wanxalot's picture

If the sheep believe it, is it really a lie?

Ghordius's picture

"... Germany officially approved the Cyprus "bailout", and the associated plunder of its gold"

They approved spending, yes. The Cyprus gold question is not yet clear, and it's not the Germans's call

razorthin's picture

Always fade a gap up in a new down-trend.

fomcy's picture

Whatever, then won't let the GOLD rise above $1400 under any circumstances today.

Unemployment Claims

and Philly Fed Manufacturing Index

Enough "reason" to tank Gold again ether way, numbers are good or bad.

If numbers Good "Fed will tamper QE" :)

If Bad "Economic slowdown hit commodities prices". There is no Market.

Couple Big Ass Manipulators that's all it takes.

Rip van Wrinkle's picture

Meanwhile, the US Treasury 'borrows' over $1 trillion a year to keep things ticking over.......


Tick, tock, tick, tock........

Sudden Debt's picture

I was born in a age when a trillion dollars was a lot of money.

GetZeeGold's picture



I was born in a age when anything over tems of billions was incomprehensible.

Sudden Debt's picture

Every penny saved.... pennies....

Beam Me Up Scotty's picture

"I was born in a age when a trillion dollars was a lot of money."

In the next Austin Powers movie, they will laugh when Dr. Evil holds the world ransom for One BIIIILION DOLLAAARSS!!

Bearwagon's picture

So today that would be more like 100 quadrillion?  :)

edit: Dr. Evil had the same problem: http://www.youtube.com/watch?v=jTmXHvGZiSY

Sudden Debt's picture



and than... we rather spend that... every year... on wars against guys with boxcutters...



The ability to feed their kids.

Don't kill their kids.

Fresh Water.


The west is paralized when 2 people die at a marathon bombing.


The west doesn't understand why those people hate us...

While we:

Kill their kids...

Destroy their infrastructure...

Starve them...




Bearwagon's picture

Right. People killed by suicide-bombers just in Iraq on last monday (as far as I know): 42

Mentioned in the MSM exactly zero times. Say's it all ....

fomcy's picture

Crimex got the Order from Goldman Sucks,

$1400 Cement Top must not be breached.

Deusche Bank Today said some stupid comment like:

"Gold might need to fall to $1,047" Whatever f*ck that means.

Might need to fall? Why? They have a briefcase with the red button?

WhiteNight123129's picture

The recent Gold move is 100% Japan related.

A 5 sigma move (JBGs halted limit down) on the same day a 7.5 sigma move on Gold?


Here is teh explanation below. Recalling the facts we know.



Japan has 20 times debt to GDP or war like Debt.

Japan consumes 20 % of budget interest even with very low rates.

Japan has now a trade deficit because of Fukushima and because they move some their logistics out of the country to hedge against earthquakes.

More people are now moving out of the workforce then entering so in aggregate they are di-savings, creating problem for demand for JGBs.

So the debt situation is the most serious.

There is a way to avert that, and taking down the Gold price.

Japan wants to inflate away in an orderly way (like Britain post world war II) However the currency had declined by 25% in a short period of time
At the same time the Gold price in Yen was breaching a 30 years all time high.

The backdrop of this breach was a QE announced which is 2 times larger in proportion than the US.
Normally an old all time high breached after 30 years with such a backdrop would mean Gold off the races in Yen.
That would have potentially created a panic since Gold  is purchased in panic.
Gold shapes inflation expectations and the secondary effect could be a disorderly JGBs.
Remember that the JGBs were showing great volatility BEFORE with 2 stops in JGBs market.
So who did the take down?
My answer is Global central banks who have debt problems and need to maintain negative interest rates on their Gov bonds. In other words they want an orderly inflate away.

Why? If the JGBs go disorderly, it would immediately trigger uneasiness with other sovereign bond markets.

Hence the Gold price in Yen, which could be the fuse for this event had to be squashed.

Who squashed it?

People who can do it. And they should do it in order to avoid a big problem for Japan and the rest of the world.

People from ECB (Draghi), to BoE, the US Fed.

How did they do it?

First a short recommendation by Goldman on Wednesday last week

Next Draghi says Cyprus has to sell its Gold.

However, how reliable is Goldman in warning its clients about an impending bubble?

Absolutely not reliable.

Remember Abigael Cohen in 1999 (Goldman was the biggest IPO promoter of internet bubble)

Fabrice Tourre was structuring crap to be sold to clients (while Goldman was short subprime with AIG)

Goldman made a call for 200 USD oil back in 2008.

So this is why Gold had to be squashed, the JGBs  were stopped because of daily limits while the Gold price in Yen was moving strongly above its 30 years all time high while Japan was announcing massive QE.

We had a 7 sigma move in Gold, even in 1970s you never saw a 7 sigma move, while at the same time the government with the highest risk of disorderly adjustment being halted for excessive move down? How often are the JGBs halted?? And on the same day that Gold has a 7 sigma move down.


Soros had figured it out that central banks would not let a panic start on the Gold in Yen terms, and he sold his Gold back in September and started to buy puts on the Yen.


fomcy's picture

That's very possible, I was watching many FX interventions especially on JPY front,

and they all accrue at the same time, like yesterday GOLD hammering 9 PM EST,

I'm pretty certain that's BOJ behind it. Maybe they knock the GOLD down to protect JGBs?

But it doesn't help and they halt trading of Bonds, after all.


P.S: Watch Claims and possible GOLD takedown again in 7 min.

Downtoolong's picture

if everyone lies....

This is what happens when it's really, really, really serious.


polo007's picture

According to Morgan Stanley:


Observing central banks’ recent actions and talk around the globe makes it increasingly likely that we are about to witness the third instalment of the ‘Great Monetary Easing’ that started to play out when the credit bubble burst five years ago. An even more expansionary global monetary policy stance, at a time when global growth has troughed and is starting to pick up, suggests that policy makers are becoming increasingly more tolerant of higher inflation outcomes in the future. Higher inflation – provided nominal interest rates can be kept low – would be an important contributor to alleviating the debt burden of the private and the public sector. Central bankers now seem to be more willing to embrace this argument and take action to ensure that interest rates in fact stay low, despite the cyclical recovery.

So what’s behind the recent change in tone amongst central bankers in the advanced economies which seems so at odds with accumulating signs of an upturn in the global economic cycle? We have two explanations: (i) worries about excessive currency appreciation and (ii) worries about higher bonds yields.