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S&P Going For 6 Ouf Of 6

Tyler Durden's picture




 

When Bloomberg blasts headlines like this: S&P FUTURES UP 1PT, AT SESSION HIGH, ERASE EARLIER 3.4PT DROP,  you know Bernanke hasn't spoken in over 24 hours if a 4 point swing is headline worthy. That said, the exhausted S&P ramp is now going for the 6th consecutive session as all the losses since the June FOMC meeting have now been erased, the S&P is making constant all time highs, and seemingly the Fed's message on tapering and communication has been clarified. The message being that the Fed is tapering its monthly purchases but short-term rates aren't being lifted. Sadly, the market's first reaction was the right one but the herd of cats has once again been herded by the trading desk at Liberty 33.

And if the never-never land of US stocks continue merrily chugging along without a care in a centrally-planned world, China, after surging impressively in the past week on hopes, promises and rumors of speculation of a PBOC intervention, slumped after Finance Minister Lou Jiwei said overnight that the country’s expected GDP growth rate in the first half of this year will be slightly lower than 7.7%. He said that there is no doubt that China can achieve its growth targets, though the seven-percent goal should not be considered as the bottom line. In fact, he specifically mentioned that 6.5% would be tolerable.

Things were not so rosy in Europe either where as RanSquawk reports, the Iberian Peninsula was at the forefront of investors' minds today, with the I8EX-35 index over in Spain nursing losses of over 1% following reports that the Spanish government is to cut the regulated price of power distribution 20%, while the Portuigal-Germany spread widened further after the Portuguese government noted that the Troika has delayed their quarterly evaluation to late August. In fact, the spread just hit overnight wides following comments from the opposition that the country needs to renegotiate the terms of its bailout. As a result, utilities and basic materials under performed on the sector breakdown, with Spanish utility names such as Acciona, Enagas and Red Electrica trading down by over 6%. The contagion effect also meant that Italian stocks also underperformed their core counterparts, albeit to a smaller extent. Still, the ongoing dovish rhetoric by central bankers on both sides of the pond ensured that in spite of political tensions which also saw Builds 2000MA line cross the 50DMA line to the upside, stocks continued to march higher.

Luckily, in the New Abnormal silly things like news or fundamentals no longer have to priced in: remember - there is multiple expansion!

In terms of data, the University of Michigan consumer survey and Euroarea IP are the notable economic reports. The Philly Fed’s Plosser and St Louis Fed's Bullard speak on a panel discussion at Jackson Hole today. Note that this is not the marquee annual Fed economic summit organised by the Kansas City Fed (which is due to be held in August). Finally JPMorgan and Wells Fargo report earnings momentarily launching the financial part of Q2 earnings (except of course for the previously reported horrendous Jefferies May-quarter earnings).

Bulletin of headline news, via Bloomberg:

  • Treasuries gain for a fifth day amid expectations Fed accomodation to continue; Chinese Finance Minister Lou Jiwei signaled China may expand less than the govt’s target, growth as low as 6.5% may be tolerable.
  • USD is headed for a weekly drop against most major peers as comments from Fed policy makers pushed out investor expectations for when the central bank will reduce stimulus
  • For strategist/economist views on QE tapering after FOMC minutes, Bernanke speech click here
  • ECB interest rates will stay low as long as inflation pressures remain subdued, Executive Board member Peter Praet tells Handelsblatt
  • Russia kepy its refinancing rate unchanged at 8.25% for a     10th month
  • China will almost double a program for foreign funds to invest in its financial markets and expand a program for inward investment of yuan raised overseas, as the country loosens rules on capital flows
  • Portuguese Prime Minister Coelho said an understanding among his Social Democratic Party, the CDS conservative party and  the opposition Socialist Party is possible; yesterday President Cavaco Silva urged parties to broker a deal with opposition
  • Egypt's Muslim Brotherhood plans new protests today against the army’s ouster of Islamist Mohamed Mursi as president and the military-backed interim administration that’s seeking to arrest its leaders
  • Sovereign yields lower with the exception of Portugal and Australia. Asian stocks mixed, Shanghai -1.62%, Nikkei +0.2%. European stocks, U.S. index futures gain. WTI crude, gold and copper fall

Market snapshot:

  • Irish 10Y yield down 15bps to 3.818%, after S&P changes sovereign outlook to positive from stable
  • Spanish 10Y yield down 2bps to 4.8%
  • Italian 10Y yield steady at 4.46%
  • U.K. 10Y yield down 7bps to 2.31%
  • German 10Y yield down 5bps to 1.57%
  • Bund future up 0.37% to 143.46
  • BTP future up 0.26% to 110.4
  • EUR/USD down 0.33% to $1.3054
  • Dollar Index up 0.26% to 82.96
  • Sterling spot down 0.39% to $1.5125
  • 1Y euro cross currency basis swap steady at -18bps
  • Stoxx 600 up 0.44% to 297.84

SocGen's FX team looks at the only considerations left in a central bank controlled world: macro

The market was allegedly confused about the message issued by Fed Chairman Bernanke but ended up trading quite solidly through all the commotion yesterday as equities and bonds rallied. The Eursostoxx index is up four days in a row and the S&P 500 even managed to go one better, trading up for a fifth straight session. It is now within a hair's breadth of the all-time intra-day high of 1,687.2 hit on May 22. All the losses since the June FOMC meeting have now been erased and if this means that the Fed's message on tapering and communication has been clarified, all the better as markets can look forward to a stress-free summer. As we were reminded yesterday, tapering will not stop the Fed's balance sheet from expanding and the selling of agency MBS is not part of a normalisation of policy. The knee-jerk reaction in USTs and Fannie Mae was less dramatic compared to the currency markets where the accumulation of long USD positions had been exaggerated and needed correcting. UST yields will not keep going up at the breakneck pace we observed in June and Bernanke will make sure this point comes across at his semi-annual testimony to Congress next week. This will make other asset classes breathe a bit more freely and will take pressure off the ECB governing council after the frenetic pace of the last two weeks.

In contrast to the feel good in stocks, what was remarkable is that EU periphery debt did not capitalise in the relief offered by the Fed chairman. Italian and Spanish yields pushed higher yesterday with supply, domestic political distractions and liquidity being blamed. How the trends pan out over the next few days will be interesting in particular if US yields take a breather and stocks welcome US Q2 corporate results as a reason to push higher.

In FX, commodity currencies like the AUD and the NZD had a mesmerising day yesterday but the late reversal underscores that durable relief for both currencies is going to be difficult to achieve. Even the strong Australian employment data failed to turn the tide which says a lot about how participants are approaching the RBA meeting in early August. Next up are the Chinese Q2 GDP data on Monday. SG economics have revised down the yoy forecast to 7.4% from 7.6% previously.

* * *

Finally, Jim Reid's overnight recap explains it all:

A market used to making dramatic comebacks is the S&P 500 and in spite of everything thrown at it of late, it again hit record highs last night (+1.4% to 1675)  after a dovish interpretation of Bernanke's speech the night before. It also helped EM equities (+2.98%) have their best day since mid-September last year. The improvement in EM sentiment also saw a rally in Mexican (-11bp) and Brazilian (-16bp) rates. In a sign of better sentiment in EM funding markets, yesterday also saw PEMEX, a Mexican state-owned oil producer, price $3bn in bonds, and in the process becoming the first Latin American corporate borrower to issue a vanilla dollar bond since May according to LatinFinance.

The US fresh highs are impressive and have occurred against a backdrop of a slow drip of negative newsflow in the periphery in recent days and weeks. In Portugal President Silva has proposed a cross-party agreement between the coalition and opposing Socialists in an effort to guarantee wider support for austerity measures needed for Portugal to exit its bailout next year. The move surprised some who had thought the Prime Minister had overcome a cabinet crisis by reaching a deal with junior coalition partners. Elsewhere on the Iberian Peninsula, the Spanish remain focused on corruption allegations in government and there is also concern about its IG rating in the face of Italy's downgrade earlier in the week. In Italy specifically, the difficult relationship between the centre-right and centre-left continues to bubble away amidst the ongoing tax trials of ex-PM Berlusconi. There were also protests in Greece as parliament debated a bill bundling together a range of economic reforms. So nothing to cause a major panic but plenty to think about in Europe at the moment.

Back across the Atlantic the US earnings season rolls on today with the premarket results for JPMorgan and Wells Fargo. These will be the first of the major US banks to report, setting the tone for the rest of the sector which will be reporting next week. JPM and Wells Fargo have seen their stock up 16% and 13% since the start of Q2. For JPMorgan the expectations are running pretty high as usual having beaten analyst estimates in 12 out of the last 13 earnings reports. At the headline level our US bank analyst Matt O’Connor (and the market consensus) is expecting JPM to report EPS of $1.41 versus $1.61 in Q1 (ex CVA/DVA charges) but still well above the $1.15 reported the same time last year. Given the fixed income sell-off that started in May, the Q2 performance of the investment banking business is going to be interesting for this sector. For JPM, Matt expects trading revenues (ex CVA/DVA) to rise 5-10% yoy (but -20% qoq), which is moderately below management’s outlook for trading revenues given the deterioration in market conditions. Notably FICC revenues may be down 20-25% qoq even though this will be 5% yoy on easy comps. IB fees are also expected to be -16% qoq. So watch out as JPM’s numbers today as they may shape the expectations for all the other IB results next week. Dimon's comments will also be worth listening out for.

In China, the disappointing trade numbers earlier this week seems to have set off increasing market discussions of possible stimulus. That has spurred a strong rally in the Shanghai Composite (+5.5% over the last two days). A number of Chinese cyclical stocks in the cement, smelting and steel industries have bounced an impressive 5-15% in the last few days albeit off multi-year lows in many instances. China's Finance Minister Lou Jiwei said overnight that the country’s expected GDP growth rate in the first half of this year will be slightly lower than 7.7%. He said that there is no doubt that China can achieve its growth targets, though the seven-percent goal should not be considered as the bottom line. In fact, he specifically mentioned that 6.5% would be tolerable. Either way, an interesting few days are in store for the China macro story with Q2 GDP scheduled for Monday next week and money and credit data for the month of June due over the next few days.

Speaking of policy support, DB’s Jun Ma noted that after a few months of insistence that macro policies will not be eased despite economic deceleration, recent signals from top leadership noted that they are concerned about the downside risk and ‘stabilising growth’ is important. Jun thinks these messages remain very vague and unlikely to preclude any major monetary/fiscal relaxation in the near term but some low profile easing such as ‘expectation management’, stabilising the RMB, and accelerating infra/environmental project approvals are possible. Granting more quota for bond issuance and relaxing lending restrictions to SMEs and exporters are also possible. An interesting development overnight in China was a comment made by an official (via national radio) that the government will remove “unreasonable fees” and introduce supportive policies (may include tax relief) for shipping companies in the second half of the year to help them through an industry downturn. Rongsheng Heavy Industries is a name of interest here as we mentioned earlier this week on how the struggling shipbuilder has filed a profit warning and has reportedly requested for a government bailout. Rongsheng's share price is 1% lower overnight.

Taking a quick look at markets this morning, Chinese-related equities are trading lower weighed by the aforementioned comments by China’s finance minister. The Hang Seng (-0.4%) and Shanghai Comp (-0.5%) are both trading softer led by banking stocks. Other regional equities are having a flat day with the Nikkei up (+0.2%) as we type. Asian credit is trading a touch tighter.

We have a relatively light calendar ahead today. In terms of data, the University of Michigan consumer survey and Euroarea IP are the notable economic reports. The Philly Fed’s Plosser and St Louis Fed's Bullard speak on a panel discussion at Jackson Hole today. Note that this is not the marquee annual Fed economic summit organised by the Kansas City Fed (which is due to be held in August). Finally as discussed above, JPMorgan and Wells Fargo report before the opening bell today.

 

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Fri, 07/12/2013 - 07:04 | 3744366 GetZeeGold
GetZeeGold's picture

 

 

Is this heaven?

Fri, 07/12/2013 - 07:27 | 3744394 Frastric
Frastric's picture

Or is this just fantasy?

Fri, 07/12/2013 - 07:34 | 3744402 Divided States ...
Divided States of America's picture

In baseball terms, this hit streak may continue for the next thirty games/days more but it will all be one hit per game, a bunt single.

Fri, 07/12/2013 - 07:31 | 3744397 kridkrid
kridkrid's picture

Me and my brother used to think drowning in beer would be like heaven. Now he's not here...I've got two soakers, this isn't heaven...this SUCKS!

Fri, 07/12/2013 - 07:07 | 3744370 Frastric
Frastric's picture

I for one welcome the four horsemen of the inflationary apocalypse.

 

Fri, 07/12/2013 - 07:09 | 3744372 john_connor
john_connor's picture

If the 3 month t bill rises, the fed will be forced to raise short term rates. The market will decide, not the fed.

Fri, 07/12/2013 - 07:10 | 3744375 Al Capowned
Al Capowned's picture

Biggest Pump and Dump in human history playing out!    

Fri, 07/12/2013 - 07:11 | 3744377 max2205
max2205's picture

Trend is your friend. ..btfd...don't fight the Fed....weeeee. up 7% in 2 weeks....spy 1800 this year

Fri, 07/12/2013 - 07:13 | 3744379 WTFUD
WTFUD's picture

Would we all be better off staying in bed and hand over everything to the algos?

Fri, 07/12/2013 - 07:19 | 3744386 Cheeseus Sonofdog
Cheeseus Sonofdog's picture

Our fate is in the hand of the bond vigilantes. They are the only ones that can expose the lies of the Fed.

Fri, 07/12/2013 - 07:23 | 3744388 fonzannoon
fonzannoon's picture

not this time. your faith should be in crude oil, and i would not put much faith in it.

Fri, 07/12/2013 - 08:06 | 3744451 gjp
gjp's picture

no kidding fonz, the vigilantes have been summarily shot or tortured and brainwashed into complete submission.  No-one will challenge the all powerful Oz now.  Who will be Toto?

Fri, 07/12/2013 - 07:26 | 3744391 observer007
observer007's picture

Watch Your Data Traveling Through The Internet

 

(and how it is collected by the NSA):

http://homment.com/internet-nsa

Fri, 07/12/2013 - 07:26 | 3744393 gigeze787
gigeze787's picture

Egypt unraveling...China liquidity crisis and their stocks were tanking...US mortgage apps plummeting...Japan (Fukushima) leaking radiation...Portugal govt failing....Greece suicide epidemic...

...what was Bubble Ben to do?

Let the house of cards collapse BEFORE his triumphant hero's send off to the "temporary" sabbatical at an armored Kibbutz in IZ?

Commissar Ben just had to print...he had to!

He just couldn't do it until JPM & friends told him they had reached their downside target on PMs.

Fri, 07/12/2013 - 07:30 | 3744398 MyBrothersKeeper
MyBrothersKeeper's picture

No QE tapering imo....just a ruse to keep people from front running Fed. But, the negative consequences of the jawboning will make them think hard about doing it again because anything that kills housing and adds to interest paid on debt will send shockwaves to an already fragile GDP. That is the lesson learned......but hey, crazy people will do crazy things so what do i know.  I would be happy if a gag order was placed on Fed members until after the Sept jobs number.

Fri, 07/12/2013 - 07:35 | 3744403 Save_America1st
Save_America1st's picture

muppets beware....

Beyond here, there be dragons...

Fri, 07/12/2013 - 07:35 | 3744404 Racer
Racer's picture

Herd of cats? Oh c'mon.... it is a mindless flock of HFTs

Fri, 07/12/2013 - 07:36 | 3744406 Dr Benway
Dr Benway's picture

"Strong Australian employment data"?

 

The latest data came in even worse than forecast, unemployment at four year highs. Plus increasing proportion part-time and contracting roles for the jobs that remain, job ads hitting lows, hiring intentions at lows.. Is this a cleaner dirty shirt kind of thing?

Fri, 07/12/2013 - 07:38 | 3744409 WTFUD
WTFUD's picture

Ben will we be happy? Will we be rich?
You'll have to wait and see.
Kiss my arse my arse
Forever will be will be
The future is mine you'll see
Kiss my arse my arse

Fri, 07/12/2013 - 07:38 | 3744411 WTFUD
WTFUD's picture

Ben will we be happy? Will we be rich?
You'll have to wait and see.
Kiss my arse my arse
Forever will be will be
The future is mine you'll see
Kiss my arse my arse

Fri, 07/12/2013 - 07:59 | 3744437 thismarketisrigged
thismarketisrigged's picture

of course the s&p will make it 6 for 6 tyler, is that even a question?

 

you think they are going into the weekend on a down note? as a matter of fact, expect a quiet ramp today, by the time u look, s&p will be at 1685.

 

i wish someone had the balls to flatout ask bernanke how it feels to singlehandly be the one to ruin free markets ( ok maybe greenspan as well, but still)

Fri, 07/12/2013 - 08:05 | 3744447 Zen Bernanke
Zen Bernanke's picture

Game on!  the cat's officially out of the bag.   Bernanke slipped up.   he actually confirmed the bernanke put and quite obviously said the fed would intervene if the markets dropped 5 - 7%.  This is completely opposite of fed history, where they would never suggest they are directly invovled in propping up markets.    between obama's scandals and now the fed, we are living in crazy times. 

Fri, 07/12/2013 - 08:46 | 3744533 orangegeek
orangegeek's picture

S&P500 going 6 for 6 and... wait for it....

 

NASDAQ100 going 13 days straight up.

 

http://bullandbearmash.com/chart/nasdaq100-daily-heads-higher-overthrow-...

 

Just another short squeeze day.

Fri, 07/12/2013 - 10:26 | 3744934 polo007
polo007's picture

According to CIBC World Markets:

The world remains a place where enormous amounts of debt just keep stacking up. Paying this debt back is constantly believed to be less of an issue given the crucial assumption that economic growth rates in the order of 3% to 5% will return AND will be sustainable. Even if it does, it must be noted that “total payback” of the debt could be unlikely to ever be achieved. At some US$18 trillion of total debt in the U.S., it would take 14,400 million ounces of gold or some 160 years’ worth of annual global gold mined supply (at the current price of some US$1,240/oz. and at current global output of some 2,800 tonnes per annum) to pay this down. At the same time, gold production is about to take an almighty knock and we won’t be surprised to see as much as 25% less gold output in the next five years.

Still, much of this precarious (let’s just stop the debt load from growing) position is critically dependant on very low interest rates being maintained – once rates start moving higher, debt repayment schedules quickly blow out, while the value of bonds, in particular government bonds, starts to decline. The current dramatic decline in the value of government bonds will already see banks’ balance sheets shrinking again, with possible resultant liquidity squeezes across the globe. Euro sovereign debt costs are already up dramatically and Italy is seemingly also sitting with an apparent +30 billion euro loss in the derivatives market…

This could very quickly turn out to be a very bad scenario, but the point, as far as we are concerned, is really that it does not even need to get to this for the markets to start realizing that currencies will have to depreciate much further – we believe this to be a crucial mechanism for delivering lower sovereign debt levels long term. Gold will be the currency that continues to benefit in the longer term. So, making a positive case for the gold price is not too difficult – particularly if inflation becomes a problem much sooner than everybody currently expects.

The real problem, unfortunately, is that all of this argument is dependant on data that will only become apparent much later down the line. Right now, nobody is willing to go against the Fed. That simply means bonds and gold are both getting the “chop” because the Fed is signaling a return to stronger economic growth – leading to a stronger U.S. dollar.

Fri, 07/12/2013 - 11:39 | 3745329 jtlien
jtlien's picture

I checked to see how many foreign markets are back up to their May peaks.   The only one I could find was Kuala Lampur.

S&P new high now sticking out like a sore thumb vs the rest of the world.

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