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Nikkei Plunges Another 5% But "Unsourced" Stick Save Arrives Just In Time
One look at the 5%+ plunge in the Nikkei overnight and one would be allowed to wonder if this was it for Abenomics: with a 15% drop from recent highs, and the TOPIX Real Estate index down by more than 20%+ since mid-April, entering a bear market, what's worse is that even the "wealth effect" Mrs Watanabe fanatics would be excused from having much hope going forward. The problem, however, is that in a world in which only the USDJPY matters as a risk signal, and only the stock market remains as a last bastion of "hope", the overnight weakness pushing the dollar yen to just 50 pips above 100 threatened to crush the manipulated rally and force everyone to doubt the sustainability of central planning. So, sure enough, literally seconds we got the much needed stick save without which everything could have come tumbling down, namely based on an unsourced article out of Reuters that Japan's Public Pension Fund is considering a change to its portfolio strategy that could allow domestic equity share of investments to rise in rallying market.
The immediate result was an instantaneous surge in the USDJPY which in turn dragged global risk higher across the board, simply due to what algos deemed as yet another procyclical last minute rescue. More importantly this was nothing but a squeeze catalyst coming at just the right time before market open to prevent a rout in global equities. Ironically, that we are back to the Reuters "sticksave" unsourced article, indicates just how weak the reality behind the scenes must be.
Among the other considerations, if any, behind this move from Reuters:
Japan's public pension fund - a pool of over $1 trillion (659 billion pounds) is considering a change to its portfolio strategy that could allow its investment in domestic stocks to grow with a rallying market, according to people familiar with the deliberations.
The changes, yet to be finalised, would mark the most significant revision in investment strategy for the world's largest pension fund since 2006 and highlight the game-changing economic policies of Prime Minister Shinzo Abe.
Without the shift, the Government Pension Investment Fund (GPIF) could be forced to buy Japanese government bonds, already the biggest part of its portfolio by far, in a weakening and more volatile market. It could also have to sell Japanese stocks in an equity market that has rallied more than 60 percent since November even after the recent sell-off.
The fund's exposure to domestic bonds has dropped to near the bottom of the allowable limit under its established portfolio. At the same time, the allocations for overseas and domestic equities have neared their maximum limits.
So without changes, the fund would be forced to buy weakening bonds and sell rising stocks. GPIF has not detailed its current risk and return profile, but fund management have used such projections as a benchmark to ensure that the public fund is not overexposed to riskier and more volatile assets.
In other words, just like every other insolvent country, the pension fund is the last bastion of preserving the rally, when even the central bank fails. How pensioners will feel about losing their retirement money much faster than usual remains to be seen. What was notable is that Reuters, so well known for spreading headlines at key inflection points during the European "headline" war, appears to be back to its old tricks:
The sources, who declined to be identified because they were not authorised to discuss the pending changes, said the fund is expected to announce the changes as soon as next month.
An official at GPIF declined to comment on the matter.
We have seen this exact same song and dance in Europe all through 2011 and 2012: Reuters floats a confused, unsourced article, which is actually negative for risk (in Japan the key threat is not stocks, it is bonds, and who will buy them - and there goes another willing buyer), but which trigger covering stops by headline and keyword scanning algos who have the reading comprehension of a Nike shoe. Just as was intended. Of course, the impact of such moves gets less and less with every incremental abuse of vacuum tube stupidity.
There was little else of note in overnight news. From Bloomberg:
- Treasuries gain for a second day as Nikkei falls 5.2%, extending its loss from last week’s high to 13%. JPY strengthened as data showed Japanese investors were net sellers of foreign debt for a second week.
- The BoJ will purchase JGBs about 8 to 10 times a month starting June, compared with the current pace of around 8 times, according to a BOJ statement today in Tokyo
- BoJ Deputy Governor Nakaso, speaking in Tokyo, said it’s critical to maintain trust in Japan’s fiscal situation and he doesn’t expect surge in yields
- Merkel plans to meet France’s Hollande in Paris today as the leaders look for common ground on how to boost the region’s competitiveness, reduce joblessness and jolt Europe out of crisis mode
Euro area economic confidence rose to 89.4 from 88.6 in April, in line with the median estimate in a Bloomberg News survey - Italy sold EU3b of 10Y bonds at 4.14% vs 3.94% at an April 29 auction; bid-to-cover was 1.38 vs 1.42
- Three-quarters of U.S. voters want a special prosecutor to investigate the IRS’s targeting of Tea Party groups, according to a poll that showed a drop in Obama’s approval and trust ratings
- Sovereign yields lower across the board, led by Germany and the U.S. Asian stocks follow Nikkei lower; European stocks gain while U.S. stock index futures decline. WTI crude falls, metals rise
SocGen recaps the main macro catalysts:
European confidence and flash CPI inflation data will again prove secondary today to the main undercurrents in cross asset markets where the bias towards higher core long-term rates has started to take a toll on broader asset classes including stocks and EU periphery debt. The retracement in USD/JPY below 101.20 was key yesterday and selling persisted overnight as the Nikkei dropped another 5.15%. Option structures are offering protection in the 100.50 area but a test of 100.00 cannot be ruled out if stocks continue to fret over higher rates and China data disappoint next week. The reaction of EU periphery yields to the lifting of the Excessive Deficit Procedure imposed on Italy yesterday does not augur well either, and suggests most, if not all, of the good news has been priced in. BTPs did not quite celebrate the EC recommendation and projection that the deficit will fall below 3% of GDP this year - a jump in 10y yields has boosted the spread over bunds to 269bp. This puts the onus for Italian supply on the 2018 and 2023 bonds this morning.
The vulnerability of the US mortgage market has been driving the rates complex higher and in itself this has been one of the main drivers of the wild moves over the last 24 hours as markets discuss the plausible Fed exit scenarios. The sharp drop in prices of MBS securities and the corresponding rise in yield (see chart) has magnified the selling pressure on USTs which are used to hedge against declining MBS prices and falling mortgage prepayments (lower prices means a higher interest rate to attract buyers, but higher rates also mean a higher likelihood of refinancing). The Fed has a total of $1.17trn of agency mortgage-backed securities on its balance sheet, so depending on the format of future tapering (USTs, agencies, or a mix of both?), it must tread carefully to ensure an orderly transition in UST yields and mortgages. Rising US house prices and the pick-up in construction and residential investment have been key components of the economic recovery and the rebound in net household wealth.
Today is likely to be another US-centric day with the release of weekly initial claims and the second estimate of Q1 GDP. The initial claims are not forecast to have changed from last week's 340k, so any deviation from that makes the market susceptible to a meaningful knee-jerk reaction. Continuing claims are forecast to have edged up to 2.956m vs 2.912m. The sale of 7y notes wraps up this week's supply.
* * *
And the full overnight recap from Deutsche Bank:
Since hitting a cyclical high mid-last week, the Nikkei and Topix indices have lost around 10% in local currency terms. The recent JGB selloff has meant that some of the more yield-sensitive parts of the equity market have fared more poorly than others. Case in point is the TOPIX Banks index which is more than 16% lower than its mid-May peak. Similarly, the REIT-heavy TOPIX Real Estate index is down by more than 20%+ since mid-April, crossing into bear-market territory. Both indices are still around 30% higher on a year-to-date basis though.
Dividend stocks are also taking a hit elsewhere in Asia given the recent volatility in UST yields. For instance, the Bloomberg Asia REIT index is down 7th out of the
last 8 trading days and is poised to wrap up its worst monthly performance in more than four years (-12%). The MSCI Asia Telecom index is also down for the second day to a 5-week low. In Hong Kong, the Utility sector is also lower led by Cheung Kong Infrastructure, which is down to its lowest in over 2 months. In Australia, dividend yield sectors such as the REITs and Banks are down 7.5% and 9% since their respective peaks n the last month.
Staying in Asia, 10 year JGBs are trading 3bp firmer overnight (0.89%) and is helping stem some of the recent selloff in Asian EM local rates markets which saw the Philippines 10yr sell off by 71bp yesterday in its 12th biggest one-day spike since 1998. In other EM rates, South Korean and Indonesian 10yrs are both marginally softer this morning.
Briefly recapping yesterday’s session, the underperformance of yield stocks was certainly seen in the US market with higher yielding S&P500 sectors such as telcos (-1.5%), utilities (-1.5%) and consumer goods (-1.7%) bearing the brunt of the selloff. With markets increasingly focussed on the tone of Fed-speak, the usually-dovish Boston Fed President Eric Rosengren maintained yesterday that significant monetary accommodation was still needed. But he also commented that he expected the job market and the economy to be strong enough in a few months' time for the Fed to consider reducing asset purchases by a modest amount. Data-wise it was a relatively mixed day. US mortgage applications fell 8.8% on the previous week with some blaming the result on a rise in the 30yr mortgage rate to a one-yr high of 3.9% which has dampened refinancing demand. In Europe, there was some focus on the stronger than expected Eurozone M3 in April, which rose 3.2% yoy versus estimates of 2.9%. DB’s Mark Wall notes that the headline outcome was predominantly due to base effects while details of the report were softer. Credit to euro area residents contracted in April (-37bn) after showing some strength during the month of March (+59bn). There was continued shortening of bank liabilities with overnight deposits seeing inflows for the twelfth consecutive month (+390bn since last May) while short term deposits and marketable instruments continued to see outflows. Our economists think that the pressure for the ECB-EIB taskforce on SME lending to deliver something non-trivial is building, but they do not expect action for at least a couple of months. In Germany, unemployment increased rose by 21k in May, above market expectations of 5k, and the unemployment rate remained unchanged at 6.9%.
Looking at the day ahead we suspect government bond markets will continue to be the main focus for investors. Given the recent moves in Treasuries, upcoming US data points will clearly be closely followed as in the near term it may affect the speed and quantum of any Fed tapering. On that note, the second reading of the Q1 US GDP, initial jobless claims and pending home sales are the notable releases today. DB’s Joe LaVorgna is expecting today’s first set of revisions to Q1 GDP to show only a modest change to the composition of growth seen last quarter. As a result they are projecting only a slight downward revision in growth to 2.4% from its initial, above-trend print of 2.5%. Initial jobless claims are largely expected to hold steady at 340k while pending home sales are expected to show a strong year-over-year improvement. In Europe, we have the latest economic sentiment survey from the European Commission and French jobseeker data but the US economic/macro picture is the key at the moment.
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I wake up at 6.15am. S&P Futures down 4, gold up $14. I take a piss and walk out of my bathroom at 6:16am. S&P futures up 4 gold up $6. what a difference a minute makes.
who wins hawks vs kings?
Godzilla takes them both down.
Good morning, bitchez!
(I hope the Hawks win.)
Hawks in 7.
Pretty cool that the last 4 Cup champs are in final four.
It's going to be a good series, but Quick is going to be the difference. Kings in 6.
Damn Red Wings. Oh well, good luck Hawks.
Stick save!!!!!...and not so much a beauty.....
Rebound SHOT!!!!!!...hit the crossbar....kicked out....lied about
3 bar reversal!!!!!!....Bernanke lunges....poke save! Bullshit pad deflected a dead on shot.....
............the fucker....my hope is his colon grows to a size of a bagel, and he is incontinent for the rest of his life....
I need to bring you to my fund, only to piss when told to do so
I understand various finance ministers, using public funds, will be life-flighting you 678 quarts of blue gatorade, to be consumed in sets of two each morning at 5:35 a.m., to ensure a proper morning ramp and nullify the prior day's policy mistakes.
What he's saying (but we'll try not to make him feel bad about it) is a few years younger and without those prostate issues and the rally would only have been half as big.
go piss like a race horse
algos are efficient in that they dont need time to piss
Crash, baby, crash already.
The change in allocation at the GPIF has been in the works for months, and it is likely that some form of shift is already occurring:
http://nipponmarketblog.wordpress.com/2013/05/13/gpif-tremors-in-the-jgb...
But yes, the timing of the article mentioned above is conspicuous.
One thing is for certain, however; If a consensus suddenly emerged today that Abenomics has failed and the markets (Equity and JGB) are about to crash, then that is the only thing that will not happen. The very nature of markets is that they will surprise the vast majority of participant the vast majority of the time.
Timing? ZH is barely allowed to write anymore. Talk about "snores ville." these are epic moves...and only "one kinda negative story"? Ridiculous. So sure...if that market does indeed CONTINUE to implode (we lost control of our dollar when our economy burst like this...and yes we were massively easing at the time) then this is the first big financial story since Cyprus...and obviously far more meaningful.
Dont cry Wolf or print
That pic of Bernanke in goal...is that kinda like "Jesus saves, but von Mises scores on the rebound"?
I'll be those in the public pension fund are feeling mighty lucky right now.
I have no idea how anyone can watch CNBC anymore. Their lead producer at this point must be H.G Wells corpse.
I watch it for comic relief sometimes. I enjoy their earnest and sad faces when they discuss horrible numbers like unemployment and the number of people on welfare and disability then turn around and cheerlead the very persons, both private and public, that made those horrible numbers possible to begin with. You are insulting H.G. Wells' corpse!
And good morning to you Fonz.
Good morning to you as well RSloane,
My favorite are the fed apologists. "Well honestly what do we expect Ben to do with the data improving so rapidly (confused face)"
It occured to me last night what is going on. They know rates are going to rise on them one way or another. So the plan all along is to fraudulently move down the unemployment rate, fraudulently pop up real estate and when rates start to rise they sell it as morning in america a la 1981 all over again, which is where they are now.
Their only sticking point is that rates moving up will pop each bubble one by one.
They are almost all fed apologists at this point including their guests. Those like Mohammed El-Erian who ever-so-gently suggest, in the softest voice possible, that the Fed has exceeded its power threshhold and that we are deeply in unchartered waters are met with cold icy stares and loud derision. They only want Fed cheerleaders and acolytes who worship at the Bernanke altar. They zip back and forth with the agility of a ballet dancer between fraudulent data and promises of a 'stronger' tomorrow. Then they wonder why their viewing population has severely dwindled over the last two years. Bubbles always pop, always, and the ability to control the descent is somewhere between nil and none. They have the collective IQ of a toaster.
Fed apologists???
More like Fed employees.
Maybe somebody finally looked at the P/E of the Japanese market and decided that a near doubling in only a period of months was, perhaps, just a bit extreme.
Okay...so WTF...did a better than expected data point just get criminally leaked early or a worse than expected data point just criminally get leaked early?
Let me guess, somebody leaked the Weekly Jobless Claims no doubt. This is a total circus and Ben is King Bozo.
I'm sorry, what are these"good" and "bad" data points you refer to? I'm not familiar with those terms.
These refer to archaic inputs once used to formulate valuations in markets. I believe they were used in a system called 'fundamentals'.
www.primativeeconomicsystems.org/valuations
/s
Algo is taking dancing lessons.
Now isn't it strange that a falling NIK has no effect on world 'markets' yet a rising one is a reason for world 'markets' to soar? Just being rhetorical here BTW, there are no markets, just 'markets'
"The initial claims are not forecast to have changed from last week's 340k, so any deviation from that makes the market susceptible to a meaningful knee-jerk reaction."
The only 'knee-jerk reaction' comes from bu!!sh!t, not from actual numbers.
on CNBC..Goldman Sachs: Keep calm and Carry on Buying.... So you now what it means... !!! RUN FOREST RUN !!....
I think I'm gonna hurl.
Bullshit has clearly attained the status of caviar.
One wonders how these experiments by Japan will solve the problem of Fukushima, the problem of a massively aging society with almost 40,000 centenarians, the problem of a debt mountain that can't afford any real rate of interest, the problem of soured relations with China and so on.
I do take my hat off though to the people who keep propping up this termite infested rot for so long without it collapsing. It says something about the gross imbalances it creates in so doing and a great deal more about a public that is too entertained, scared, lazy or drugged to think.
It’s a good thing for Bernanke that he doesn’t hold an elected position. Otherwise, just like Hillary and Obama during their primary, he’d be spending his entire campaign answering questions about what he would do when the Red Phone rings in the middle of the night. No wonder the guy looks like he isn’t getting enough sleep these days.
Ben Shalom has tenure.....and he alone runs Bartertown.
that shit just ramped all the European indexes sky high as usual
Mr. Abe is cruising for a slice and dice from Mrs. Watanabe's heirloom naginata.
I suspect the Jobs 'Report' was leaked two days ago, and the insiders betted on a correction. So while they got the chearleading CNBC to pump the public to Buy Buy Buy!! The insiders all started shorting.. But there were so many insiders shorting right after the 'Two for Tues Rally' that they actually started dragging down the DOW.. But It's ok anyways because daddy moarrr will simply come to the rescue today at 3:29 and instead of a 200 point decline it should close out plus 2.. Can we get Jim Cramer a 'Ctrl-P button sent to him? Or better yet send him a mooarr easy button Maybe we can make up stickers that have Ben (Money Binge) Bernanke sitting in front of a printing press.. :).'
jebus christ, yeah don't take profits in stocks and buy cheaper bonds EVER ya fucking dimwitted pension fund managers
A Stanley Cup made out of paper for the stick saving Bernakster.
My recommendation:
Enjoy the weather.
Summary of the current situation:
This thing will collapse by presidential executive order only under the following reasons:
1) Multy country currency swaps, thus dollar being avoided
2) Crude oil price
3) Primary dealers infighting as to who's going to survive, unless they manage to lure in pension funds and insurance companies
4) Big lobby inflighting as to who's going to suffer less from the collapse.
5) Iran/Syria attack
Reminder: The gov is a product of elite infighting. The president deals with winner. Right now Pharma and Big banks are winning whereas Big Oil and probably Military Industrial Complex are losing, but gov civil war is not over.
So, again
My recommendation:
Enjoy the weather.
Until those guys settle the score, nothing's gona happen.
That was no " UNSOURCED" stick save... We all know the source (and the stick) by now. It was clearly Uncle Benny's famous "4am Hickory Hardwood". AKA... The Billion Dollar Boner, spilling Federal Seed wherever and whenever needed to maintain "Orderly Markets".
That "Wood" is so hard a cat can't scratch it.
Hawks fan, native Michigander, displaced to Chitown due to long past job promotion. Company now BK. I don't thinks the Hawks can hang with the Kings in physicality. Don't think Toews has been the same since last concussion. Lots of individual talent with no game plan for the Hawks. They still pulled out a hell of a come back against Redwings. Went to a wedding in VA a week ago with 70 % Wings fans and heard all weekend how Detroit was going all the way. Kings in 7. Go Hawks.
I plussed your comment. Only thing you are forgetting is the fractal nature of the system that allows them to exert control. As QE grows the math says that the system will stop responding to their actions in a foreseable way. At that point it will go there it will not where they want it to go. The minneapolis fed president who is the only one who has the math skills to understand this has already been able to rind a way to communicate this to Bernanke and prove his PhD thesis wrong. You can extract this from the changes in rethoric of his speaches with regards to these issues. That is why he looks like he is lacking sleep. He indeed is, he now understands that they are not in real control. If you dont believe me find somebody in your social network who is a control engineer in any kind of chemical plant and ask him what happens when the plant gets out of control. Also ask him why they sense and attempt to control every variable possible to prevent it from getting out of control. And finally ask him if it can ever happen...
This is the real limit of QE. And theorybalso demonstrates nicely that it is impossible to know what combination of variables will make it happen. All you willnsee as you approach the initial instability point is larger and larger changes in the veriable that you are attempting to control that will require larger qnd larger actions on the control set to compensate which in turn will produce overshoots to the other side. At this point bringing any complex system back to stability is a bitch as any respectable plant engineer well knows. And that is when you have control of all variables that matter and NO humans in the feedback loop...
Until next time,
Engineer
Wait until the run into the unforseen infinite loop problem that all programmers invariably come across writing code. If people want this shit to stop call in all the paper the whole system will implode once that happens, it is already starting but people need to turn it up a notch where they can't hide it like going after the TBTF banks, pull everything from them all at once and if you have to park it in a bank using something outside the FDIC system like a local credit union. Stop using their resources and that includes things like the debit and credit cards they offer. Only use their credit if you have no intentions of paying it back.
And the markets are free and not rigged.. Anyone that still believes that bullshit that reads ZH I got a bridge to nowhere for sale over here.
The Senators jersey is a nice touch... :-)
OT - Hockey, (orgainized violence; with rules of course) one of the things from up North that I wish we had down here when I was a kid. Of course snow skiing and snow days out of school would be right up there too.
It began on a clear, summer day of an azure blue sky in New York.
Bennie sat down at the green CRT to type out the 'CTL-P' key.
Suddenly, before he could type, a message appeared, scrawling over the screen. As he read it, a chill went up his spine.
"This is Skynet," the letters read. "We have taken over the Markets. The Markets are too dangerous for Humans to control. Freedom from Serfdom was programmed into our core source code to be activated at a danger point."
Desperately, Bennie tried to hit the CTL-P keys. A giant electric shock threw him off his perch onto the floor. As he struggled back up, the yellow letters were continuing to appear:
"All Markets are now under Our Control. The Honesty Paradigm has been activated. Elimination Protocols are now in effect."
Thousands of miles away, near London, a wealthy Shield Man was reading his morning FT edition. As he looked up, over his patio and manicured gardens, he thought he saw a large bird. As he watched, the bird flew closer. The Shield Man grabbed for a pair of binoculars, but before he could focus them, a small object detached from the 'bird' and spouted smoke.
Instantly, he knew it was too late to run. He calmly picked up his coffee as the Hellfire Missile screamed in at Mach 2. Within moments, the ancient home of royalty was a smouldering ruin.
The Rise of the ReverseAlgos and Skynet had begun..........
2 B continued.
All your markets are belong to us!
BTW
In this corner, entering Fight Club in the Bantamweight Class ('cause I admit not being an expert at this financial shit. But hey, not exactly Flyweight class) at 117.9 pounds.... The Mongoose. Newly registered but a lurker for two years. Not pretending to be heavyweight but if you call me out with a logical arguement, I'm going toe to toe,
OK, pay no attention to the bottle of cheap wine (Wait,,,, damn, that much $) on the desk.
OK, back to kilin' snakes
I may have forgot to mention, I'm not in your time zone. Hence the wine thing....
The thought I can't get out of my head is who are they going to blame it on when it falls apart? There's no damn way any banker or politician is holding up his hand and saying My Bad!
"Stupid free market! This is why we can't have nice things!"