This page has been archived and commenting is disabled.
Red Dawn
This morning market participants turn on their trading terminals to see an unfamiliar shade of green: red.
Following yesterday's blow out in US bond yields, which have continued to leak wider and are now at 2.20% after touching 2.23%, the overnight Japanese trading session was relatively tame, with the 10Y JGB closing just modestly wider at 0.93%, following the market stabilization due to a substantial JPY1 trillion JOMO operation which also meant barely any change to the NKY225, while the USDJPY slipped in overnight trading below the 102 support line and was trading in the mid 101s as of this moment, pulling all risk classes lower with it. There was no immediate catalyst for the sharp slide around 3am Eastern, although there was the usual plethora of weak economic data.
The IMF cut its China 2013 and 2014 growth forecasts to 7.75%, from 8% and 8.2%, validated by news that nearly half of China's 80 major steel producers reported losses in April and that Chinese import iron ore prices fell below $120/tonne for the first time this year. In Japan, as we expected, following the BOJ's meeting with bond market participants, it found they wanted more frequent bond operations, a la the US daily POMO, and asked the BOJ to buy more 1-5Y notes, with the suggestion of smaller overall POMO operations, also as expected would happen now that the BOJ is merely a surrogate copycat of all the Fed does.
In Europe, German May unemployment rose 21K on expectations of a 5K rise, Spanish April retail sales posted yet another negative print at -4.9% if a little better than expected, even though Eurozone M3 rose by 3.2% on expectations of a 2.9% increase. In the UK, May retail sales fell the most in 16 months CBI said; with the gauge of annual sales growth -11 vs -1 in April, est. +3
The biggest news of the night was a report by German Welt saying that Mario Draghi has lost the support of the ECB executive board on the issue of ABS purchases as a pathway to stimulate credit growth, with Mersch, Asmussen and Weidmann all voting against an ABS-purchase program. There also is more discord on the issue of negative deposit rates, an idea which may now be scrapped following Merkel's announcement yesterday that her reelection campaign would run on the message of a strong Euro: all EUR bullish developments, and thus Eurozone economy negative.
Key overnight highlights bulletized via Bloomberg:
- Treasuries lower, 10Y yield at 2.195%, highest since April 2012, JPY strengthens; Treasury sells $35b 5Y debt, WI yield 1.08%, 5Y yield crossed 1% yesterday.
- BoJ met with 56 bond market participants, said participants wanted more frequent bond operations and asked central bank to buy more 1Y-5Y notes; suggested smaller amounts of purchases at every operation
- BoJ to release bond operation plan from June for tomorrow
- OECD expects global growth to accelerate in 2014, with both the U.S. and Japan to outpace euro area growth
- U.S. GDP +1.9% in 2013, +2.8% in 2014; Japan +1.6% in 2013, +1.4% in 2014; euro area -0.6% in 2013, +1.1% in 2014
- SNB may have to raise rates to cool housing market: OECD
- Euro area private sector loans in April fell 0.9% from a year ago after a decline of 0.7% in March, ECB said, contracting for 12th straight month
- German unemployment rose 21k to 2.96m, for 4th monthly rise; est. +5k
- U.K. May retail sales fell the most in 16 mos., CBI said; with gauge of annual sales growth -11 vs -1 in April, est. +3
- IMF cuts its growth outlook for China to around 7.75% this year and next from its April forecast of 8% this year and 8.2% next year; urged government to undertake “decisive” policy changes to put economy on more sustainable path
- Sovereign yields higher across the board, tracking U.S. yields. Asian stocks mixed, Nikkei +0.10%, European stocks lower across the board. U.S. stock index futures lower. WTI crude, metals lower; gold higher
Main catalysts via SocGen:
The 2.23% print on US 10y cash and 2.41% on 10y swaps overnight have capped a 60bp move this month alone and are enough to send a shiver down the spine of any seasoned bond market veteran. A much bigger than anticipated increase in consumer confidence in May and an improvement in the employment sub-component to a six-month high nailed the case for yields to extend their winning streak to a fifth successive week. It is likely to be an uncomfortable ride between now and the next FOMC meeting at the end of June, and hopes of a reprieve on 7 June (payrolls day) may prove in vain. With US yield differentials setting the tone in FX, the drop in USD/JPY risk reversals (bid for USD puts) is an anomaly waiting to be corrected. UST/JGB 2y spreads widened overnigght to 16bp, the highest since early April.
Swedish Q1 GDP and the Bank of Canada rate decision will bring some distraction from the US today. German unemployment and CPI data should keep additional ECB stimulus on ice. Inflation is forecast to have edged up to 1.3% vs 1.2%, marking only the first rise since December. EU M3 data are also due and though a rise in the annual rate is forecast, lending figures to households and NFCs in particular are expected to reaffirm the weak underlying demand for credit as indicated by the ECB’s own quarterly lending survey. A number of ECB council members took to the speakers’ circuit yesterday and the conclusion we make is that there is no consensus about negative deposit rates. No speakers are scheduled today. The EU will make its annual formal recommendation on budget policy. The FT reports this morning that budget deficit deadlines will be extended for France, Spain and the Netherlands and that it will lift the ‘intensive fiscal monitoring’ of Italy. The postponement of the deficit deadline has been coming since the early spring and the last G7 meeting stepped up calls to concentrate less on austerity and more on growth.
The Bank of Canada introduced the language of supporting considerable monetary policy stimulus in place for a ‘period of time’ two meetings ago and will not be making plans to change tactics today at what is governor Carney’s last meeting in charge as governor before he departs for the BoE. USD/CAD traded at a 1.0421 high in Asia and short-term prospects are intact for a first weekly close above 1.04 since June last year. Bulls now target 1.0447/50. USD/SEK firmed back over 6.71 and a successful break of 6.7168, the 14 December high, would open the door to 6.80. A 0.3% increase in qoq GDP would mark a return to positive growth after a flat Q4 12, but disappointing confidence surveys last week suggest a return to the top of the G10 currency table is not imminent for the SEK.
And a full overnight recap via DB's Jim Reid as usual:
Yesterday’s sharp selloff in US treasuries has been extended overnight with the 10yr benchmark up 4bp at 2.2% in Asian trading, coming after Tuesday’s +16bp move to 2.17%. Meanwhile in Japan, 10yr JGB yields are up 4bp as they edge closer to the 1% mark (0.93% as we type). Kuroda’s speech at a BoJ conference this morning had little effect on markets with the Governor’s key message being that no financial system is perfect in the face of global uncertainty. In other BoJ-related headlines, there were some interesting comments PM Abe’s economic adviser, Koichi Hamada, who was quoted as saying that Korea “shouldn’t blame” the Japanese central bank if Korean growth slows due a weaker yen, but instead “they should demand the Korean central bank have a proper monetary policy”. Hamada also urged Kuroda to ease monetary policy further should it be needed.
The news comes as PM Abe unveiled a 5yr plan that details a number of structural reforms to achieve growth, but the issue of corporate tax rate cuts is reportedly undecided at this stage. Attention now shifts to the BoJ’s meeting with JGB-market participants later today (8am London time) which may provide more detail on the central bank’s upcoming market operations. As we type, USDJPY is down to 101.56 while the Nikkei is barely higher.
Elsewhere in Asia, equity markets are trading with a positive tone led by gains on the KOSPI (+0.9%), ASX200 (++0.16%) and Shanghai Composite (+0.4%). The Hang Seng (-0.7%) is underperforming the broader region weighed by property developers amid concern that home sales are slowing in Hong Kong. Asian credit markets opened 2-3bp weaker as the rise in rates dampens demand for longer duration EM credit. In China, DB and the IMF have both revised the country’s growth forecasts downwards in the last 24 hours. The IMF cut its 2013 and 2014 growth forecasts to 7.75%, versus previous estimates of 8% and 8.2% in 2013 and 2014 respectively. DB's economist Jun Ma revised down his Q2 GDP forecast to 7.7% yoy from 7.9%, the 2013's full-year GDP growth forecast to 7.9% from 8.2% and his 2014 GDP growth forecast to 8.8% from 8.9%. Jun writes that the changes reflect a delay in growth recovery due to slower-than-expected transmission of total social financing into real economic growth and the short-term impact of anti-corruption measures. Overnight, the head of China’s Iron and Steel Association said that the price of steel and iron ore may below the 2012 lows. Indeed, Chinese import iron ore prices fell below $120/tonne for the first time this year on Tuesday, which is weighing on the Australian dollar (0.5% lower this morning at a fresh YTD low of 0.956).
More on yesterday’s UST selloff which saw the 10yr yield close at its highest level since April 2012. The 16bp rise in yields was the highest one day rise in 19 months. This brings the cumulative rise in yields to 50bp since the beginning of this month - spurring the return of “Great Rotation” talk. The majority of yesterdays move came after the release of the Conference Board’s US consumer confidence data which printed at a post-GFC high of 76.2 (vs 71.2 expected). There were also reports of technical selling after stops were triggered around the 2.08% to 2.10% level.
Yesterday’s 2yr tnote auction didn’t help either after it recorded its lowest bid-to-cover ratio (3.04x) since February 2011. The weakness wasn’t confined to US rates with 10yr yields in the UK (+5bp), Germany (+4bp) and French (+4bp) rising yesterday, while Spanish (-4bp) and Italian (-2bp) yields firmed. Outside of rates, equities had a solid day with the Stoxx600 (+1.3%) having its best day in more than a month. The index has climbed for 12 consecutive months, its longest winning streak since 1997 – and its YTD gain of 10% is its best start to a year since 1998 (Bloomberg). Across the Atlantic, the S&P500 initially traded as high as +1.4% but pared gains later in the session to close up 0.7% after some late-session concerns about Fed tapering. The Dow Jones had another strong Tuesday (+0.7%) which CNBC notes is the 20th consecutive positive Tuesday close, extending the longest Tuesday streak in Dow Jones history. The second longest streak was in 1927 when the Dow recorded 15 consecutive positive Tuesdays. Among the only risk assets to underperform were gold (-1%), silver (-1.5%) and US credit (CDX IG +0.5bp) – unsurprising given the talk about Fed tapering yesterday.
Turning to the day ahead, we have German inflation and unemployment data, Eurozone monetary data and the latest Italian business confidence reading. The European Commission will be releasing its economic policy recommendations for all 27 EU members today. Newswires are suggesting that the Commission may ease budget targets for France, Spain and the Netherlands. The Bank of Canada makes their policy announcement later today. In terms of the US, the focus will be on today’s 5yr treasury auction and the Boston Fed’s Rosengren (FOMC voter) will be speaking towards the end of the US session.
»
- 11014 reads
- Printer-friendly version
- Send to friend
- advertisements -
".. market participants turn on their trading terminals to see an unfamiliar shade of green: red."
very dry, chuckle :)
but seriously, what's red, i mean green, in shades of gray for those ZH'ers who are colour/color blind please?
Dove clap...to go along with your very dry chuckle.
WOLVERINES!!!
Oh great....here comes the DOJ, DHS, and IRS.
I'm going to miss an entire day of Feldschiessen und Feldschlossen this weekend because of the Feldscheissen the financial sector has become...
Don't worry guys, in China, red means the instrument is up, green means down.
It's alright.
If we get lucky, hopefully the whole thing explodes today and goes to shit...if one is so lucky...
Its all color bullish man.. get into it!
this is bullish right? this bond market you speak of...it means nothing right? i mean the Dow moving to 17k is more important than this anyway. CNBC told me so
Copper is signaling the all clear and that construction is picking up........
Equities falling, USD falling, USGB's rising. Sounds like a fun day is about to ensue.
Did BOE announce they are moving from QE to contraction?
Sai Lor is a chinese analyst at Red Sky?
treasuries now rallying and someone even allowed gold out of solitary confinement for a quick walk.
Bonds and stocks moving together! Cats and dogs living in harmoney! It's the end of the world, man!
The horror....the horror.
Someone go save that damn dog fer the love of Pete!
http://www.youtube.com/watch?v=-b-VQI5smMI
Does this mean I'm not going to be punished for shorting the S&P500 yesterday; even tho I know I've been a bad boy?
Until is 15:30
Merkel's going to run on a platform of a strong Euro. That's hilarious. They'll have to ressurect Goebbels to sell that one to the German People.
Wolverines!! No shit, that foreclosed dump I just bought is infested with wolverines! RUN!!
Treasuries are down, Gold is down, JPY is down, AUD is down, ZAR is down, INR is down, GBP is down, Venezuelan currency is down. Thai baht and Korean Won have also started 'weakening'. Apple lost 17% YTD. Sugar is down 14% YTD, Silver is down 26% YTD. Baltic Dry Freight Index is down 29% from its 12 month peak.
I believe that in QE, Fed was buying garbage from banks and giving the banks free money. Then ECB, BOE and BOJ did the same. With free money, the banks made investments worldwide and generated a return which was bascially 'free' and hence stocks have inched upwards, with cost cutting of employees and 'free' profits to boot. The rise of 52% in 5 year yield from 0.67 to 1.02 and 29% rise in the US 10 year yield from 1.67 to 2.16 currently, within 1 month, means something changed this weekend.
With these big moves over the last few weeks in all asset classes except equities, I believe that someone has to pay in the future, if not the Fed, to have the game running.
I hear a tsunami coming, as soon as QE gets stopped whether verbally confirmed or not, and the bond holders and stock holders will have to replace and pay for the Fed not buying any more garbage and hence bond prices and equity prices will come down significantly and compensate for the no more free money and yields will come to some sort of historical average. Poor and retired won't be hurt because they are not part of the equity and bond game and hence they will be relatively 'happy', although the unemployment may or may not remain the same (which is an unknown). The losers will be mostly speculators or so called 'investors'. I hope the Fed does not think like this, but what other options do they have, even stealthily?
Please comment whatever thoughts you may have.
maybe someone is sending a message to Bernanke. Stop QE...I double fking dare you.
Possible, but who is bigger than the BIG BEN? Lol. Isn't he the biggest of them all?
Nobody is bigger, but that does not mean someone can't send him a message. China maybe?
China possibly...because more money flows from US public's pockets to the pockets of Chinese if the yields run higher, but with China not buying Treauries in last few months, their investment values decline, which does not make a complete sense but certainly is a point. China cannot sell the Treasuries too much because their conundrum is what else do they buy in replacement, the volumes are just too big?
Dubia it does not matter. Treasuries have rallied 10bps already and now stocks are bid. Do yourself a favor and load up on U.S Stock etf's and go watch dancing with the stars. That is what I am going to do.
Hehehe. I am never in stocks for almost a decade now. So, dont care. Dancing with the stars..how did you guess...going to meet 2 hot chicks! You have telepathy? ;) Wanna join? :) I believe in sharing!
Inevitable, except for one solution:
The whole western world becomes a communist area, thus buying and owning all means of production...LEGALLY.
If everything is owned and bought by the same group of people, then don't we all become slaves and dependent on that group of people? I know it does not exist, but whatever happened to 'democracy'? Lol
And, why is then China and Russia and Cuba and Venezuela labelled as bad by the Govt and their spokesperson - the media?
We only become dependent if we actually depend on them. Otherwise the serfs are always free to rise up and hang the masters.
Democracy has been a word used by western socialists/communists for 100 years. A dictatorship of the proletariat would be a sort of democracy. You have to be a member of the party to vote but you get to vote and that is democracy. Sly devils.
We bash China, Russia, and the rest because even in communism bad guys compete for power and wealth. It could also be an attempt create the perception of rivalry while they work in concert to divide up the spoils.
I'm moving beyond cynicism and anger to humor. I giggle whenever I hear about qe ending. It's really funny. I mean, either we have rates to the moon or a currency collapse. Most likely continued currency devaluation but anything other than global qe ending.
Again "the devil gets his due." we'll see if Treasuries can finish the year in the green or not. As for all this "spread product"...is that Apple debt only a week old and losing massive amounts of value already? Hmmmm. Go figure. Right up there with "must buy Facebook" I guess.
so i live in los angeles, and probably 4-5 of my coworkers and a few friends have recently bought real estate for the first time. most of us are in the tech field and make decent money.
that said the resulting increase in mortgage rates from the increase in the 10Y can't be good for their "investments" since it could stop the bubble.
sleepy you had to know when you bought that higher rates will lower the resale value of the home. If you bought it to rent and locked in a low rate, don't worry so much about the value. If you bought it to own for the long term, who gives a shit.
If you bought it to flip.....
Honestly Fonzannoon, theres no way (m)any of these idiots knew that. I work in mortgage origination and I can tell you that none of the people that Ive been exposed to that 'evaluate the risk', manage all the way up the tree in mortgage orig, and none of the trainers understand this. In training my go-to question was to ask the industry experts (many of whom were VPs and MDs from elsewhere contracted to talk to us for the day) about interest rates. It was funny to me because noone else in the room noticed them bumbling through their answers. I once tried to explain bond yeild to a senor trainer who just looked at me with a blank stare until I gave up.
There is no competition in the industry. You simply figure out how to make your loan comply with HARP and push it on to Freddie or Fannie. Risk doesnt matter since noone ends up holding it.
That is scary.
Interest rates going up? Wake up, Fonz! You're having a bad dream about a normal market based in reality.
Now go make some coffee and get your day in bizarro world started.
China steel prices down? Sounds like a great time to prop up the economy with a world-class navy.
Just keep...shortin the fuckin Yen....hammer that bitch...
Yeah...beeen doing that...hoping for it to go to 110 and even 120.....
US Dollar continues to go up and down like a toilet seat in a unisex restroom.
http://bullandbearmash.com/chart/spot-dollar-daily-stalled-consolidation...
USD has been consolidating - indicates another move up.
USD has recently been moving in synch with US markets (opposite should be the case). Looks like a battle of the wills (bulls, bears and the US government) between currencies and indexes.
humpty has been dumptied
Well, it IS May... you'd have expected a bit of the red before now - but, oh yes, I forget: this is an eternal bull market that is just going to keep going up forever thanks to those wonderful and brave men running our central banks.
Things have never been better, i mean worse - or what are they?
Yes
good morning America.....buy 'em!
Same day, different shit.