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Stock Euphoria Persists Despite Obama Rejection Of Republican Proposal

Tyler Durden's picture




 

Despite stock (not bond) euphoria yesterday that a DC debt ceiling deal was sealed leading to the second largest risk ramp of 2013, last night was spent diffusing the excitement as one after another politician talked back the success of a "non-deal" that Obama rejected, at least according to the NYT. As a result, with both retail sales data and the PPI not being released (and the only data of note the always leaked UMichigan consumer confidence) markets will again be at the behest of developments on Capitol Hill, with some talk from Republicans suggesting a deal as early as today could be possible in an effort to reopen government on Monday. It is entirely possible that talks could continue over the weekend though, which would ensure a gappy open to Asian markets on Monday.

Jim Reid recaps yesterday's DC confusion as follows: the celebrations were about to start in DC, but the champagne has been held on ice after a number of debt ceiling developments overnight. Following talks with House Republicans at the White House late yesterday, President Obama stopped short of accepting the Republican proposal for a short 6-week extension to the debt limit in exchange for wide-ranging negotiations on spending. Importantly though, Obama did not outright reject the Republican plan, and the talks between House Republicans and White House remain constructive according to various accounts. As House Budget Committee Chairman Paul Ryan put it, Obama “didn’t say yes, he didn’t say no”. The President told Republicans during the meeting that he wants any proposal to also include an agreement to reopen government. Representatives from both sides of politics are locked in talks as we type and there seems to be some hope that an agreement could come later today. The exact parameters of the Republican proposal are not clear, but it does appear that negotiations are centred on how far to extend the debt limit and how much funding they would provide the government when it opens, according to Republicans. Significantly, defunding Obamacare does not appear to be a condition of this short term agreement. Just as expected.

Market recap (Via Ran)

In Early European trade the Swiss SMI leads the way as the health care sector is this morning’s outperformer. Furthermore for European equities, Italian banks saw some initial upside amid reports that the Head of the Italian Central Bank Visco, is to hold a meeting with the top six Italian banks in order to carry out an asset review. The key piece of overnight news from the US has been President Obama’s rejection of a Republican six week debt-cap proposal as it will not enable the government to reopen. However, sentiment has remained positive during early trade as market participants interpret this news as a further step in Republican and Democrat negotiations, bringing expectations for an imminent resolution to the fore.

Looking ahead for the European session, there is little in the way of major Eurozone macroeconomic data, however, from the US there is the preliminary release of the University of Michigan confidence figure. It is also worth noting that due to the government shutdown, US PPI, Retail Sales and WASDE Crop  reports will not be released today.

Overnight new bulletin from BBG and Ran

  • Late yesterday, President Obama rejected a proposal from politically besieged House Republican leaders to extend the nation’s borrowing authority for six weeks because it would not also reopen the government.
  • Fitch said it still expects an agreement to raise the US debt ceiling and that a default would only occur if US didn't honour interest/principal payment.
  • Treasury yields little changed, with 5Y and 7Y yields 3bps-5bps higher on the week; Obama and House Republican leaders moving toward an agreement to extend the nation’s borrowing authority even as they remained at odds over terms for ending the partial government shutdown.
  • Merkel and Germany’s Greens agreed to hold a second meeting aimed at a possible coalition after talks yesterday, raising the chance of an alliance and piling pressure on the Social Democrats
  • U.K. house prices rose to a record last month as easier access to credit drove first-time buyers back to the market, Acadametrics said
  • U.K. construction output declined in August as a drop in infrastructure, public work and maintenance offset a surge in homebuilding to its highest level for at least three years
  • China is poised to post its first slowdown in export growth in three months, a result that may understate the strength of demand after fake reports inflated figures in the year-earlier period
  • Westpac Banking Corp. agreed to buy Lloyds Banking Group Plc’s Australian assets as tighter capital rules following the 2008 financial crisis prompt European  and U.S. lenders to retreat from the Asia-Pacific region
  • BofAML Corporate Master Index OAS narrows 1bps to 151bps as $6.05b priced yesterday; effective duration at 6.55 from 6.56, Markit IG narrows to 79bps from 83bps. High Yield Master II OAS narrows 6bps to 461bps, no deals yesterday; effective duration 4.33 from 4.34. CDX High Yield rose to 105.31 from 104.60; YTD range 101.03 (June 24), 107.37 (May 8, record high)
  • Sovereign yields mixed, peripheral spreads narrow. Nikkei rises 1.48%, leading Asian markets higher. European stocks, S&P 500 futures gain. WTI crude and gold lower, copper gains
  • Market participants await earnings from JP Morgan due at 1200BST (0600CDT) and also Wells Fargo at 1300BST (0700CDT).

Asian Headlines

Stocks rallied overnight in Asia, with the Nikkei 225 index up 1.48% at the close of trade and Shanghai Comp up 1.70% as market participants reacted positively to the fact that negotiations in the US appear to be  developing despite Obama rejecting the latest Republican proposal.

EU & UK Headlines

The Italian Treasury sold EUR 6bln in BTPs and CCTeu bonds this morning vs. Exp. EUR 6bln. Bidding data is as follows:

- Sells EUR 3.5bln in 2.75% 2016, b/c 1.41 (Prev. 1.52) and avg. yield 2.25% (Prev. 2.72%) - lowest yield since May 13th.

- Sells EUR 1.25bln in 4.75% 2028, b/c 1.59 (Prev. 1.36) and avg. yield 4.59% (Prev. 4.88%) - Lowest since February.

- Also sells EUR 1.25bln in 2018 CCTeu.

German Chancellor Merkel's Conservatives and Greens party agreed to second round of talks next week to explore coalition according to party sources.

ECB says banks to repay EUR 597mln in 1st 3y LTRO and EUR 250mln in 2nd 3y LTRO.

UK mortgage lending has rebounded to levels not seen since before the global financial crisis, according to a survey by LSL Property. According to the reports, more than 68,000 mortgages were written in September, the highest level since February 2008.

US Headlines

- Late yesterday, President Obama rejected a proposal from politically besieged House Republican leaders to extend the nation’s borrowing authority for six weeks because it would not also reopen the government.

There were also comments from a Boehner spokesman that US Republican leaders offered White House proposal to temporarily extend debt limit, appoint budget negotiators and begin talks to reopen, adding that no final decisions have been made.

- Fitch said it still expects an agreement to raise the US debt ceiling and that a default would only occur if US didn't honour interest/principal payment. Fitch added it would cut US IDR to RD until default event cured and that the US is unlikely to return to AAA in short term and medium term if cut to RD.

JPMorgan have taken certain precautionary measures with respect to money market funds, favouring liquidity over holding short-term bills.

Equities

Even though stocks in Europe traded higher this morning, gains were led by health care stocks, amid somewhat cautious risk on sentiment after Obama rejected a proposal from politically besieged House Republican leaders. Nevertheless, the fact that lawmakers are at least negotiating looks to be more than enough to encourage investors to remain optimistic that the US will avoid a downgrade if the looming October 17th deadline is breached. Furthermore for European equities, Italian banks saw some initial upside amid reports that the Head of the Italian Central Bank Visco, is to hold a meeting with the top six Italian banks in order to carry out an asset review.

FX

Despite softer USD, USD/JPY continued to benefit from higher bond yields and also renewed hope that despite Obama rejecting latest Republican proposals, lawmakers appear more willing than ever to negotiate to avoid potential negative action by ratings agencies on sovereign credit rating. Overnight in Asia, the pair failed to breach the key 100DMA line and traded steady during the first half of the European trading session, in close proximity to the 50DMA line.

This morning saw the USD index fall below its 21DMA line, down around 0.20%, which in turn supported EUR and GBP pairs this morning. Upside resistance level in GBP/USD seen at the 21DMA line at 1.6041, trades 1.5984 last.

Commodities

IEA has increased its 2013 demand growth forecast by 100,000bpd to 1mbpd, maintained 2014 oil demand growth forecast at 1.1mbpd. IEA also upped 2014 non-OPEC supply growth forecast to 1.7mbpd, sees OPEC oil supply near 2y low in Sep on drop in Libyan and Iraqi output and says the US are to overtake Russia as largest non-OPEC liquids producer by Q2 2014.

Concerns in the US are growing with the pace of approval for the Keystone XL pipeline and other offshore drilling plans continuing to be weighed on by the government shutdown.

Goldman Sachs forecast LNG exports to reach 8bcf per day by 2021.

* * *

Finally, here is the remainder of Deutsche Bank's overnight summary

The latest opinion polls indicate that Republicans appear to be getting more of the blame for the standoff. An NBC/Wall Street Journal poll released on Thursday found approval of the Republican Party at 24 %, which is a record low. Democrats won the approval of 39% of the U.S. public. In addition to that, the two highest profile leaders of the GOP’s 'Defund Obamacare' effort, Ted Cruz and Mike Lee, have also suffered a sharp fall in popularity according to the latest Gallup poll.

The overnight headline that Obama had sent the Republican proposal back to the drawing board caused a short wobble in overnight markets. But sentiment has since bounced back with S&P 500 futures recovering from the early lows to post a .0.1% gain as we type. Asian equities are having a solid day led by the Nikkei (+1.3%), Hang Seng (+1.3%) and KOSPI (+1.1%). Regional credit markets are around 5-6bp tighter in both cash and CDS, while AUDUSD and USDJPY are both up +0.3%.

So a possible 6-week breathing space is undoubtedly a relief for markets if it happens but will be tempered by the fact that we may have a repeat nearer Thanksgiving. So its kicking the turkey down the road perhaps. We've always found it almost impossible to believe that the US will see a default because of these wranglings and would feel the same about where we might be in a few weeks time. So resolutions are always by far the most likely outcome but it doesn't mean there won't be fear and choppiness on the way. Perhaps 1am is the new midnight. So this remains an ongoing story but one that is increasingly looking likely to lead the Yellen Fed into 2014 without tapering.

On the topic of tapering, Joe LaVorgna wrote a piece overnight looking at some of Yellen's speeches this year and potential implications for Fed policy. The first thing to note is that while Yellen has notably “toughened” her inflation rhetoric over the past year, she is acutely focused on the long-term economic damage inflicted by extended periods of labor market slack. Second, she focuses on long-term unemployment and its associated risks, including skill atrophy and the potential for household credit problems. The ranks of individuals out of work for more than half a year has steadily declined since mid-2010, although it remains roughly double the average of the prior economic cycle. Regardless of which labor metric that the next Fed Chair is watching, all of these metrics remain well outside of the range which the “dovish core” of the FOMC would deem a substantial improvement in the labor market—the necessary precondition for ending QE. This may not happen by the December 17-18 Fed meeting, so the QE taper may not commence until Yellen’s first meeting as Chairman in March 2014.

Back to yesterday's markets, the hope of a deal pushed the S&P 500 to its second best day of the year (+2.18%) yesterday, only surpassed in 2013 by the January 2nd relief rally after the fiscal cliff resolution. So a theme is developing here. To give some perspective though, the sharp rally only puts us back to where we were last Wednesday. Elsewhere, the yield on the October 17th Treasury bill fell by 17bp to 0.308%. This is still at an elevated level compared to recent history, but much lower than Wednesday’s high of 0.478%. There remains a lot of focus on a number of dealers who have been cautious on accepting ultra-short dated T-bills as collateral for repo transactions. The Hong Kong Exchange has imposed a 3% haircut on treasures with maturities of less than one year in margin requirements for index futures and options, up from 1% previously. The haircut for Treasuries of longer maturities is not affected (Bloomberg).

10yr UST yields closed 2bp higher at 2.68% but the move higher was partly stalled by weaker than expected initial jobless claims data (374k vs 311k expected, affected by data quality issues and the Government shutdown). A solid result at yesterday’s 30yr UST auction also saw yields come in a touch. Speaking at the Economic Club of New York late yesterday, Draghi reiterated the Governing Council’s easing bias and said that the bias provides for further rate reductions should this summer’s volatility return. There was some brief weakness in EURUSD on the back of those comments (EURUSD ended at 1.352 yesterday), but has since rebounded to its current level of 1.354 in the overnight session (+0.15%).

Apart from the developments in Washington, today marks the start of the reporting season for the large US banks. First off the mark is JPMorgan who reports prior to the opening bell today. Bloomberg consensus is centreing around a $24bn and $1.29 print for Q3 revenues and EPS respectively, but as always the underlying trends will be closely scrutinised. Apart from ongoing legal settlement issues, one of the areas of scrutiny is JPMorgan’s mortgage business and the impact of recent rate rises there. The company recently warned of mortgage origination losses in the second half of this year. The other area of interest is fixed income trading revenues, where there is an expectation that the bulge bracket banks have struggled in Q3 due to the volatility in both EM and DM bond markets and a drop in client flow. Wells Fargo, a bellwhether for the mortage and housing sectors, reports shortly after JPMorgan and the focus there will be mostly on momentum in the mortgage business and the impact of cost cuts.

Turning to the day ahead, markets will again be at the behest of developments on Capitol Hill, with some talk from Republicans suggesting a deal as early as today could be possible in an effort to reopen government on Monday. It is entirely possible that talks could continue over the weekend though, which would ensure a gappy open to Asian markets on Monday. IMF and World Bank meetings continue today. On the data front, German/Spanish/Italian CPI is scheduled to be released today. In the US, the UofMichigan consumer report for October will provide an indication on whether confidence has been dented by the government shutdown. China reports September trade numbers tomorrow.

 

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Fri, 10/11/2013 - 07:00 | 4044199 GrinandBearit
GrinandBearit's picture

I just sit back in amusement and laugh at all this political theater.  Anyone attempting to trade this nonsense is most likely going to get their face ripped off.

Hoping Au gets nailed again so I can get more.

Fri, 10/11/2013 - 07:04 | 4044206 johngaltfla
johngaltfla's picture

Yup. Eventually, either right after every bull gets raped the Republicans will announce their sudden "deal" and screw the nation and everyone over. Watch and see....

 

The Republicans Secret Betrayal of 2013

Fri, 10/11/2013 - 07:08 | 4044209 GetZeeGold
GetZeeGold's picture

 

 

+1 for faces getting ripped off.

Fri, 10/11/2013 - 07:08 | 4044210 Devotional
Devotional's picture

and ripping off bankster gonads!

Fri, 10/11/2013 - 07:15 | 4044218 Devotional
Devotional's picture

ok, a bankster thumbed me down. booohooohooo.

Fri, 10/11/2013 - 07:19 | 4044224 GetZeeGold
GetZeeGold's picture

 

 

Let that be a lesson to you little mister.

Fri, 10/11/2013 - 07:34 | 4044239 max2205
max2205's picture

Republican proposal is doa because of the ban on gimicks by treas to stay under limit...imo

Fri, 10/11/2013 - 07:58 | 4044275 Devotional
Devotional's picture

yes sir!

Fri, 10/11/2013 - 07:35 | 4044237 NoDebt
NoDebt's picture

Somebody just went down the whole thread and down-arrowed everyone around 7:15.  Don't take it personally.

I just ignore the down-arrows.  A little trick I learned from the BLS.

 

Fri, 10/11/2013 - 07:37 | 4044241 Headbanger
Headbanger's picture

There. Is that better now?

Fri, 10/11/2013 - 07:57 | 4044278 Devotional
Devotional's picture

I noticed that too.

Fri, 10/11/2013 - 07:06 | 4044208 Devotional
Devotional's picture

There seems to be a correction that may take GLD down to 1209 USD, ride this correction out and then BUY BUY BUY. That is what I am doing this time round.

Stack on the real deal!

Fri, 10/11/2013 - 07:13 | 4044214 Nothing but the...
Nothing but the truth.'s picture

Alan Greenspans " irrational exuberance " comes to mind in all this madness . One is left wondering if all the bad news around is not bad enough in these markets . It is even doubtfull that a full on US default would bother these markets at all - nobody could  ever script this farcical scenario even in their wildest dreams.

Fri, 10/11/2013 - 07:27 | 4044232 stocktivity
stocktivity's picture

It's all Bullshit!!!

Fri, 10/11/2013 - 09:01 | 4044473 HardAssets
HardAssets's picture

The purpose of the BIG GOVT/BIG CORP DemoRepubliCraps is to get attention off Commie-'health care' (the whole reason some held up the budget). That and the complete opening of the borders to millions of illegals should put the final nails in the coffin of America.

Now the gnat length focus of Americans is on the shut down, closed Yellowstone Park, etc, etc

Massive illegal surveillance and Benghazi ?    Huh . . . thats no longer in short term memory either.

Fri, 10/11/2013 - 08:47 | 4044425 HardAssets
HardAssets's picture

CREDITOR:  "Mr. Jones, I'm calling because your last payment check bounced due to 'not sufficient funds'. "

JONES:  "Sorry about that. I'm right in the middle of negotiations with my partners. If everything goes well, you'll soon get another new (NSF) check, to cover that last one. "

 

Fri, 10/11/2013 - 07:02 | 4044200 fightthepower
fightthepower's picture

Loser Republicans are caving....shocker!

Fri, 10/11/2013 - 07:25 | 4044202 GetZeeGold
GetZeeGold's picture

 

 

Gridlock and Presidential tough talk is bullish bitchez!

 

I don't think Barry is amused with all this euphoria.

I remember a time a President used to talk and the country listened....not so much anymore.

Fri, 10/11/2013 - 08:05 | 4044297 earnyermoney
earnyermoney's picture

Barry, Lew and the Democrats are getting pissed off at the market movements from Republican proposals. Short positions are getting torched by the bankstas. LOL

 

 

Fri, 10/11/2013 - 07:02 | 4044203 jubber
jubber's picture

As usual the Gold spike from this morning was swiftly dealt with by TPTB

Fri, 10/11/2013 - 07:06 | 4044207 q99x2
q99x2's picture

BTFD until the mushroom clouds hit.

Fri, 10/11/2013 - 07:34 | 4044213 GetZeeGold
GetZeeGold's picture

 

 

Paging Major Kong.....please pick up the white courtesy phone.

http://www.youtube.com/watch?v=JlSQAZEp3PA

 

We can almost be assured of subsidized gold.....right up to the white hot flash of light.

Fri, 10/11/2013 - 07:12 | 4044212 NoDebt
NoDebt's picture

This is like watching one of my kid's cartoons.  Lots of pointless action leading to an all-too-predictable conclusion.

Fri, 10/11/2013 - 07:15 | 4044215 29.5 hours
29.5 hours's picture

 

Paper up, real stuff down. Next stop: Utopia!

Stocks Advance as Italy Bonds Gain While Corn Declines

 

 

Fri, 10/11/2013 - 07:17 | 4044219 Peter Pan
Peter Pan's picture

Do you belong to any of the following groups?

Whistleblower

Gold and silver owner

Saver

Blogger

Doomsday prepper

Walmart worker

If you do, take care, there is a lot of shit headed your way. These folks higher up are evil in a way we cannot fathom.

Fri, 10/11/2013 - 07:18 | 4044221 Kina
Kina's picture

All of it is nonsense, all of it just a paper facade, everything now exists through words, self enforced blindness to all things.

They all know that global  fiat has become a bunch of crap, the whole thing blowing in the wind.

And just with GFC1 MBS it will collapse when the first person demands a bit of reality be crystalised out of the fantasy....then they all run for the exits, first in first served.

 

AND then the only thing that will be seen to offer certainty among the chaos will be physical bits of gold and silver....the rest will be rapidly growing and popping bubbles over and over, quicker and quicker.

 

Gold standard is somewhere out there.

Fri, 10/11/2013 - 07:16 | 4044222 More_sellers_th...
More_sellers_than_buyers's picture

Can someone just write an algo to tell me where the market will be on a given date based upon what the other algos are doing? Then we can just shut the lights off and write checks to each other when we want in or out.  No need for a market. Just in or out.

 

Fri, 10/11/2013 - 07:48 | 4044261 Proofreder
Proofreder's picture

Better,

perhaps,

that the "market" become a giant parimutuel betting parlor.  Makes sense to anyone but the TBTF's.

Have a daily entrance fee or a transaction tax to cover the maintenance expense for the computers.

Really level the playing field - nothing but Luck involved.

Gentlemen, place your bets!

Fri, 10/11/2013 - 07:22 | 4044227 goldenbuddha454
goldenbuddha454's picture

Would like to know how much both sides have collected over the last two weeks during the theatrical shutdown.  Not a dimes bit of difference between the two, yet people fall for the same ole game year after year.

Fri, 10/11/2013 - 07:24 | 4044228 Blopper
Blopper's picture

"Stock Euphoria Persists Despite Obama Rejection Of Republican Proposal"

 

Why, Tyler? Is there a problem with that? You can't make money in such environment? You expect everything to be within your expectation?

Fri, 10/11/2013 - 07:45 | 4044249 Peter Pan
Peter Pan's picture

If you can't see the current euphoria for what it is then I suggest you book yourself in for a full frontal lobotomy. It might work wonders in your case.

Fri, 10/11/2013 - 09:22 | 4044610 Blopper
Blopper's picture

Me being the surgeon and you being the patient? Definitely!

Fri, 10/11/2013 - 08:57 | 4044485 Toolshed
Toolshed's picture

Paid troll alert!

Fri, 10/11/2013 - 08:15 | 4044324 thismarketisrigged
thismarketisrigged's picture

dear every fucking banker on the planet, every politician, every hedge fund manager, please fucking end your lives already and fucking jump.

 

sincerely, all of main st america.

 

fuck u assholes, hope u get hit by some type of black plague.

Fri, 10/11/2013 - 09:02 | 4044514 Never One Roach
Never One Roach's picture

Who is buying? All three of my brokers at various institutions are  advising to "Sell" or at least "Don't buy."

Even realtors i n my area are now telling people to sell the ir houses since house prices will most likely start to drop.

I'd love to know the details of who or what is doing all the buying on the NYSE.

Oh yeah, talking about "Good news" and "Robust recovery"...my friend [who was one of the 16,000 research PhD scientists fired from Merck] found an even better job. Too bad it's overseas but the pay is 40% higher and all moving expenses, housing costs there, etc covered.

Few write about this but we are seeing a reverse brain drain in some areas. As Indian and Chinese flood the USA for IT jobs, many Americans are going to China for jobs.

Topsy Turvy.

Fri, 10/11/2013 - 09:08 | 4044525 Gunga
Gunga's picture

Leave the feral government shutdown. That makes more sense than the rest of us seceding.

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