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With Less Than A Day Until The X-Date, Hope And Optimism Remain If Not Much Else

Tyler Durden's picture





 

It's gotten beyond silly: with less than a day to go until the first X-Date, beyond which if Jack Lew is correct (he isn't) all hell will break loose if the US doesn't have a debt deal in place, stocks couldn't care less, Bills continue to sell off, carry traders only care how big the central banks' balance sheets are, all news are generally shunned and yet stocks have soared 600 DJIA points on Harry Reid's relentless optimism a deal will get done, even though so far none has. Today, as we observed on Monday, we expect more of the same: stocks and futures will ignore the reality that the midnight hour will come and go with no deal in place, but will continue to explode higher as Harry Reid's latest set of "optimism" headlines hits the tape in low volume trading. We expect the first big hope rally around POMO time, then shortly after Senate comes back in Session, around noon. Then for good measure, another one just before market close. Why not: it's not like the "market" even pretend to be one anymore. Keep an eye on today's 4-Week bill auction before noon. It should be a far bigger doozy than yesterday's longer-dated bills.

US Government Shutdown Update from Bloomberg and RanSquawk:

Fitch placed US 'AAA' sovereign on rating watch negative. Fitch said the US was placed on rating watch negative as US authorities have not raised Federal debt ceiling in a timely manner. Fitch also cut its US GDP growth 2013 forecast to 1.6% from 1.9% and cut its 2014 GDP growth forecast to 2.6% from 2.8%. Fitch added that the rating watch negative status will be resolved by end of Q1 2014. There were also comments from the US Treasury that Fitch's decision reflects urgency with which congress should act to remove the threat of default.

The House Rules Committee postponed its hearing as support for Speaker John Boehner’s new plan appeared to be in serious doubt. Following the House postponing the vote, US Senate leaders resumed negotiations on a deal to avert default and fund the government, where a senate source commented that US Senate leaders could announce a deal within hours.

GOP Representative Dent said House Speaker Boehner is to allow a 'clean' Senate bill vote and that the House is likely to take up and approve a senate bill.

The US senate are due to reconvene at 1100CDT/1700BST and US President Obama is to meet with Treasury Secretary Lew at 1325CDT/1925BST on Wednesday.

Market Re-Cap

European Equities are seen broadly negative, with consumer goods and tech sectors underperforming, following a number of disappointing premarket earnings reports and a lack of progress in the US to resolve the deadlock in Washington. The CAC 40 is the worst performing index in the European morning as large cap stocks Danone and LVMH trade lower by around 3% and 6% respectively after both co.’s missed expectations in their earnings reports.

Late yesterday Fitch placed the US 'AAA' sovereign on rating watch negative, pointing to the fact that US authorities have not raised Federal debt ceiling in a timely manner. As a result, credit spreads widened this morning and the Eurodollar curve steepened, albeit marginally.

In FX GBP/USD traded higher by 40 pips and broke above the 1.60 handle approaching its 21DMA to the upside as USD weakened throughout the morning and the UK’s better than expected jobs report drove participants to further doubt the BoE’s forward guidance of low rates into 2016. Meanwhile, having risen to its highest level since late Sep, GBP SONIA 12X24 forward rate fell sharply following the release of the aforementioned jobs report, which revealed that even though UK jobless claims fell the most in 16 years, the unemployment rate held steady at 7.7%.

Looking ahead, markets will pay close attention to the US Senate who are due to reconvene at 1100CDT/1700BST as we enter the penultimate day of the debt ceiling deadline, additionally US President Obama is to meet with Treasury Secretary Lew at 1325CDT/1925BST on Wednesday. Also Fed's Beige Book will be released later on in the session, also, given the recent rise in yields on soon to be maturing T-Bills, today's sale of USD 68bln by the US Treasury in T-Bills across various short-dated maturities will likely be closely watched.

Asian Headlines

China's NDRC says it feels optimistic about keep CPI this year under 3%.

The PBOC said China credit rose relatively fast in Sept with the country having ample liquidity and reiterated their prudent monetary policy.

EU & UK Headlines

UK ILO Unemployment Rate 3-Months (Aug) 7.7% vs. Exp. 7.7% (Prev. 7.7%)
Avg Weekly Earnings 3M/Y (Aug) 0.7% vs. Exp. 1.0% (Prev. 1.1%, Rev. to 1.2%)
Weekly Earnings ex. Bonus 3M/Y (Aug) 0.8% vs. Exp. 1.0% (Prev. 1.0%)

UK Jobless Claims Change (Sep) M/M -41.7K vs. Exp. -25.0K (Prev. -32.6K, Rev. -41.6K)
Claimant Count Rate (Sep) M/M 4.0% vs. Exp. 4.2% (Prev. 4.2%)

EU Trade Balance (Aug) SA M/M 12.3bln vs. Exp. 11.8bln (Prev. 11.1bln, Rev. 11.0bln)

ECB's Praet said we are in relatively normal range in EUR FX rate and discussion on liquidity measures are open.

German Chancellor Merkel's parties see no common ground to form a coalition with Greens and decide not to pursue any further talks on forming a coalition government between the parties.

US Headlines

CME to add 12% to base margins for OTC interest rate swap portfolios due to uncertainty around US debt ceiling impasse. (FT-More)

Equities

Equities are seen broadly lower as sentiment is weighed upon by US debt ceiling concerns and poor earnings. Specifically Danone shares trade lower by 3% after reporting Q3 overall LFL sales growth up 4.2% vs. Exp. up 4.8% and co. lowers 2013 forecasts. Similarly LVMH shares see losses of 6% after reporting Q3 Revenue EUR 7.02bln vs. Exp. EUR 7.24bln, Q3 Organic sales growth 8% vs. Exp. 10% although the co. remains upbeat for the rest of the year. These two co.s have caused underperformance for the CAC 40.

Conversely the FTSE MIB stands alone in positive territory as Monti Paschi provides a lift after source reports that the co. is to meet with the Italian government to discuss a sale of their stake.

Apple is cutting iPhone 5C orders by less than 20% in Q4 but increasing orders for the iPhone 5S according to sources. Aftermarket earnings from the US included Intel, Yahoo and CSX, which all beat expectations in their Q3 EPS reports.

Overnight news bulletin from Bloomberg and RanSquawk

  • Fitch placed US 'AAA' sovereign on rating watch negative as US authorities have not raised Federal debt ceiling in a timely manner.
  • UK ILO Unemployment Rate 3-Months (Aug) 7.7% vs. Exp. 7.7% (Prev. 7.7%) and Jobless Claims Change (Sep) M/M -41.7K vs. Exp. -25.0K (Prev. -32.6K, Rev. -41.6K)
  • Markets anticipate the earnings from large cap companies IBM, Bank of America, PepsiCo, eBay, American Express, BlackRock, Bank of New York Mellon today.
  • U.S. equity futures advance and JPY weakens against all its peers after Senate leaders said they’ll resume talks on the debt limit as the deadline looms; GBP gains vs most major peers after U.K. job claims dropped most in 16 yrs.

    U.K. unemployment rate remained at 7.7 percent while jobless claims dropped the most since 1997 amid signs the labor market is improving

  • Senate leaders press toward fiscal deal with House in disarray
  • Investors holding $120b of Treasury bills coming due tomorrow are increasingly worried that they won’t get  paid
  • New Zealand’s dollar touched a 1-month high after data showed inflation accelerated to the fastest pace in two years, fanning speculation RBNZ will raise borrowing costs.
  • China’s stocks fell the most in 3-wks after JP Morgan advised reducing holdings; companies linked to Shanghai’s free-trade zone tumbled on concern valuations are excessive

We conclude as always with the overnight recap by Deutsche's Jim Reid

Following a tipsy turvy session overnight the S&P 500 fell 0.71% to close near the day’s lows on news that a House Republican driven fiscal proposal had failed to receive enough internal support. The spotlight is now  firmly back to the Senate with Senator Reid and Senator McConnell quick to resume negotiations to hopefully craft a bipartisan deal before the looming deadline. As reported by the New York Times, under the emerging Senate deal, the government would be funded through 15th January and the debt limit extended until the 7th February. Both the House and Senate would also need to agree on a detailed tax-and-spending blueprint for the next decade by 13th December. A proposal to delay the imposition of a tax on medical devices has been dropped from the deal, as has a complicated tax on self-insured unions and businesses participating in the health care exchanges. All that remained for Republicans was the language around tightening income verification for those seeking subsidies on the insurance exchanges but that language was still being negotiated.

A spokesman for Reid said that the majority leader was “optimistic that an agreement is within reach” with McConnell but that there are still risks of delays. Assuming that a Reid-McConnell agreement is struck, a parliamentary maneuver could be used to allow the majority leader to quickly move the deal to the Senate floor today. However this would require unanimous consent to ensure a final vote on the same day. In the absence of unanimous consent, things may just drag on for a bit longer. Indeed several articles have highlighted the risks of further delays if Senator Ted Cruz or other conservative hardliners chose to object. Cruz has repeatedly said that “I will do everything necessary and anything possible to defund Obamacare.” So reaching a broad agreement aside there are still a few hoops to go through before it can be considered a done deal. All eyes clearly will be on this today as we await for further developments from Capitol Hill.

On the other hand, Fitch was certainly in less of a “wait and see” mode yesterday. The US sovereign’s AAA rating was placed on Rating Watch Negative in a post market announcement. The agency continues to believe that the debt ceiling will be raised soon but highlighted that the political brinkmanship and reduced financing flexibility could increase the risk of a US default. This is somewhat at odds with Moody’s which again reiterated that it expects that the US government will pay interest and principal on its debt even if the debt ceiling isn’t raised.

Default concerns are also being reflected in the short term funding costs of the US government. The yield on the $120bn in T-bills maturing this Thursday has risen by about 17bp over the last two days to close at 0.363% yesterday. 1- month T-bill yields were also up by 19bps from the intraday lows yesterday to close at around 0.349% - highest in 5 years. Yesterday’s bills auctions also didn’t go well as 3-month T-bills were priced at the highest discount rate since 2011. The Treasury will sell a total of US$68bn in T-bills across various shortdated maturities today so something for markets to watch out for besides events in Washington.

On that note, we came across an interesting comment from Citi’s CFO who said that the bank no longer held USTs maturing before 1 November and had minimal exposure to US debt maturing before 16 November. Citigroup yesterday reported lower-than-expected quarterly earnings as fixed income and US mortgage revenue weakness dominated. After market also saw Intel reported better-than-expected numbers for Q3 although worldwide PC shipments is said to have declined by 8.6% during the quarter. Asian equity markets are on the weak side this morning but S&P 500 Futures are actually trading half a percentage point higher overnight on hopes of a Senate driven deal today. The Hang Seng and the Shanghai Composite are around -0.4% and -1.3% lower, respectively. Asian credit spreads are generally tighter across the board with the Asia iTraxx about 4bps tighter on the day. Gold has given back some of yesterday’s gains currently at around $1279.5/oz whilst the Dollar index is firmer overnight.

Looking ahead to today, the Fed’s Beige Book, mortgage applications and the NAHB Housing Market index for October are the notable economic releases. We will also hear from the Fed’s Pianalto, Geroge and Fisher through the day. Bank of America, PepsiCo and IBM are some of the bigger names reporting today but in reality data and company results will continue to take a backseat for now. All eyes will continue to be firmly set on developments in Washington.

 


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Wed, 10/16/2013 - 07:08 | Link to Comment disabledvet
disabledvet's picture

this is literally the definition of "Cognitive Dissonance." What if the world doesn't end tomorrow? What if tomorrow turns out to be...just another day?

Wed, 10/16/2013 - 07:18 | Link to Comment J Pancreas
J Pancreas's picture

Yes it is. And just like the .gov shutdown the person in middle America will not notice. Which begs the question, why have the douchebags taxing us, redistributing money, and waging wars against our will at all? States rights ftw

Wed, 10/16/2013 - 07:23 | Link to Comment negative rates
negative rates's picture

Hey we can still wait out the 23hrs of tomorrow before we pull the trigger, or did they arrange to pay the first minute after midnite or else?

Wed, 10/16/2013 - 07:25 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Hope And Optimism Remain If Not Much Else

 

I thought it was hope and change?

 

Dammit....if you're gonna change stuff I'd appreciate a little advanced notice.

Wed, 10/16/2013 - 07:56 | Link to Comment Abi Normal
Abi Normal's picture

No sir, it is Hoax and Chains for all don't ya know!

The bullshit is going to come to a stop, one way or another, I am tired of this crap myself!

The oligarchs in DC will probably come up with another last minute deal to extend and pretend for a few months, and we'll be right back here in no time!  Or they let the bottom fall out, as the grand communist plan comes together...tank the USA, as it is the last impediment to world peace, open borders, etc...just ask ol' George Soarazz...

Barry is doing a beautiful job transforming Amerika, let's all give him a golf clap, yes?

 

Wed, 10/16/2013 - 09:32 | Link to Comment superflex
superflex's picture

Harry Reid is a smelly, disease infested cunt.

Maybe if the assmaggot would come up with a budget for once in 5 years, we wouldn't be at this juncture.

Wed, 10/16/2013 - 07:18 | Link to Comment Lost My Shorts
Lost My Shorts's picture

You are totally right, the world won't end.  No one has their cards on the table.  The big pols are just playing for the next election, trying to stay in power.

Maybe Obama reads ZH, and knows well that the economy is in trouble.  He was probably thinking, how can I not take the blame for that?  Maybe play chicken with the repubs, and go into default, and then whatever happes after that is their fault !!!  So clever.

Wed, 10/16/2013 - 07:24 | Link to Comment stocktivity
stocktivity's picture

Even the Tylers are agreeing now...It's all Bullshit!!!!

Wed, 10/16/2013 - 08:00 | Link to Comment Abi Normal
Abi Normal's picture

If there is no agreement, and this thing goes on much longer, past 10/24, then it will not be BS.  You will see the biggest custer fuck you've ever seen....prepare accrodingly.   This is no joke people, although I find it hard to believe we are even close to this mess, we are here.

Time to take a stand, make your voices heard and don't settle for cheap compromises.  Stand for something or fall for anything.

God speed to you all.

Wed, 10/16/2013 - 07:32 | Link to Comment AnAnonymous
AnAnonymous's picture

What if tomorrow turns out to be...just another day?
________________

Another day in an 'american' world. Every day in an 'american' world must be sensational.

Just as the incoming one reveals to be a non event, 'americans' will rush to their fantasy mill to propagate their new dead line of ultimate death, to make each day a sensational day.

The way it works in an 'american' world.

Wed, 10/16/2013 - 07:43 | Link to Comment disabledvet
disabledvet's picture

that's kind of depressing. I would ask the question this way: "is there planning involved and if so what is it?" don't tell me "plans for global domination" cuz everyone has one of those (oddly enough.) there could be an "in your facie" pathology at work here...but if true it still remains elusive to me.

Wed, 10/16/2013 - 08:11 | Link to Comment Keyser
Keyser's picture

The only planning taking place in DC is for the members of each party to get re-elected. There is no forward thought for how to improve life in the US, only to maintain the status quo. You want to see future planners that are gobbling up arable land, natural resources and winning the minds of people through trade and not intimidation, then look to China. 

 

Wed, 10/16/2013 - 09:36 | Link to Comment superflex
superflex's picture

What if today turns out to be two days before the day after tomorrow.

http://www.youtube.com/watch?v=AiPUjGNTi24

We all get the shaft.

Wed, 10/16/2013 - 07:13 | Link to Comment Zgangsta
Zgangsta's picture

They tell me over and over and over again, my friend.

You don't believe we're on the eve of destruction.

Wed, 10/16/2013 - 07:24 | Link to Comment Devotional
Devotional's picture

In 1974/1975 (in Portugal) there was widespread private property, private business and wealth confiscation by the then communist bastard party. About 700 metres down the road from where I live, there are still apartments (inhabited) which were confiscated during the PREC movement of the time. These apartments were simply raided and seized by the population. Yep, I have an example of confiscation down the road. True story btw.

Wed, 10/16/2013 - 07:34 | Link to Comment BandGap
BandGap's picture

There is a lot of empty housing right now. Not on the scale of China, but a lot nonetheless.

Wed, 10/16/2013 - 07:15 | Link to Comment PontifexMaximus
PontifexMaximus's picture

the longer gov off duty, the better for the markets

Wed, 10/16/2013 - 07:23 | Link to Comment overmedicatedun...
overmedicatedundersexed's picture

barry o bum a AKA soerto, has thrown gas on the fire at every turn, inoperable healthcare sign up, ebt shut downs, refusing any compramise with congress, harry reid standing firm with him, remember he was our uniter? It is obvious this is by design..will he push us to his idol's method -Lincoln,( may he burn in hell)..default is but a tool to his hot civil war, or do our eyes not clearly see his actions?

Wed, 10/16/2013 - 07:17 | Link to Comment Sudden Debt
Sudden Debt's picture

MAC???!!

MAC, WHAT THE HELL IS HAPPENING?!!

I I I I iCan'tbelieveyou'reslipping!

Wed, 10/16/2013 - 07:20 | Link to Comment J Pancreas
J Pancreas's picture

"Change we can believe in!!!"

Wed, 10/16/2013 - 07:24 | Link to Comment negative rates
negative rates's picture

Who's your daddy?

Wed, 10/16/2013 - 09:37 | Link to Comment superflex
superflex's picture

Because Obama

Wed, 10/16/2013 - 07:19 | Link to Comment Gunga
Gunga's picture

Keep the feral government shutdown. That's a cleaner solution than the rest of us seceding.

Wed, 10/16/2013 - 07:33 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

We could just go for a fundamental shift and send the nonessential government workers to the border and have them protect America's gates. Maybe grab an illegal on the way and throw them across the river.

 

It's all about problem solving.

Wed, 10/16/2013 - 08:13 | Link to Comment Keyser
Keyser's picture

Keep the criminal government shutdown.

Fixed that for you... 

Wed, 10/16/2013 - 07:31 | Link to Comment Julian
Julian's picture

Maybe the fed will just bail out the treasury after Obama declares an emergency, that way he can sideline the senate and the house, the ultimate rise of the executive....QE 150b?

Wed, 10/16/2013 - 07:33 | Link to Comment tradewithdave
tradewithdave's picture

In academic cicles they refer to it as "The Because Obama Doctrine."

www.tradewithdave.com

Wed, 10/16/2013 - 07:36 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Obama Doctrine

 

We could call it that I suppose. Saul Alinsky is dead...it's not like he's going to complain.

Wed, 10/16/2013 - 07:34 | Link to Comment NoDebt
NoDebt's picture

"We expect the first big hope rally around POMO time, then shortly after Senate comes back in Session, around noon. Then for good measure, another one just before market close. Why not: it's not like the "market" even pretend to be one anymore."

Now you're just being salty.  Probably right, too.

Wed, 10/16/2013 - 07:55 | Link to Comment disabledvet
disabledvet's picture

Detroit got obliterated. That didn't seem to ruffle Wall Street's feathers. I'd be very wary of "yanking the chain" of Mr Market because "we don't want to be told by the bond market what to do." the bond market is a conditional reality...not a "person" we don't take orders from. and what's up with blaming Jamie Dimon for everything now anyways? "The House of Demon" now? Ridiculous. my beef is...and will always remain "New York used to have those profits. Now they're in DC." c'est la vie.

Wed, 10/16/2013 - 07:49 | Link to Comment whirlybird rules
whirlybird rules's picture

Orchestration of Asian mkts overnight was tough, bt worry not, as in the last three session, Italy is leading the European mkts. Congress or Pres hv to give in.. BECAUSE THEY (the free mkts) SAY SO!

Wed, 10/16/2013 - 07:53 | Link to Comment Squeezedshorts
Squeezedshorts's picture

Hopetimism:

The ideology held by a die hard Obama supporter.

 

Realism:

The ideology held by anyone that can see the shit that dribbles out of Obama's mouth.

Wed, 10/16/2013 - 08:03 | Link to Comment Hedgetard55
Hedgetard55's picture

I have the impression that Obama WANTS a "default" (I know, there will be no real default by the standard definition) for political reasons and the next election in 2014. So he will not deal. Hedge accordingly.

Also, I think printing 85 billion smackers a month by Ben is the equivalent of default, is it not?

Wed, 10/16/2013 - 08:17 | Link to Comment Keyser
Keyser's picture

Bingo. If this happens, he will declare a national emergency and take over, usurping the roll of the Judicial and Legislative branches of the government. In other words, he becomes Nero. Which IMHO, is exactly what he is angling for as he will have free reign to do whatever the fuck he wants and it will all be legal. 

 

Wed, 10/16/2013 - 08:05 | Link to Comment Abi Normal
Abi Normal's picture

Today is going to be a pivotal day friends, either they FIX the problems or they won't...I say another short term CR. One day, there will be no going back to the way things were, DC plays with FIRE, and they will get burned!  Sad thing isn't it.

Wed, 10/16/2013 - 08:09 | Link to Comment muleskinner
muleskinner's picture

If I were in church today, the preacher would tell the congregants "this is the day that the Lord hath made, let us rejoice and be glad in it".

It's a good idea, rejoice and be glad in it.  Rather the Lord has made it or not, it is questionable.  I know it can't be built by anybody, so nobody can take the credit.  If anybody can do it, the Lord can.  Might as well let him to the job.

Can't we have Central Committee of China govern the US?  The Chinese came over here to build the railroads, they can govern the country at 1/10th the cost and have a few trillion to spare when all is said and done.  True or not, something would get done.

With the US Congress, after everything gets said and done, everything gets said and nothing gets done.

 

Wed, 10/16/2013 - 08:15 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Can't we have Central Committee of China govern the US?

 

If I'm reading my schedule right....that can't happen until next week.

Wed, 10/16/2013 - 08:15 | Link to Comment thecoloredsky
thecoloredsky's picture

Fitch placed US 'AAA' sovereign on rating watch negative. Fitch said the US was placed on rating watch negative as US authorities have not raised Federal debt ceiling in a timely manner

So getting more credit cards and reckless spending is positive outlook?? Bizarro world!!

Wed, 10/16/2013 - 08:17 | Link to Comment thismarketisrigged
thismarketisrigged's picture

dont worry guys, the economy is doing great and fb is up 66 cents pre market, trading at 50.14.

 

that is all that matters in the stock markets these days. keep fb up no matter what, and keep the spy up.

 

 

Wed, 10/16/2013 - 08:27 | Link to Comment nyquil762
nyquil762's picture

It's all one big progaganda laced infomercial.

Wed, 10/16/2013 - 09:10 | Link to Comment Zymurguy
Zymurguy's picture

Heard on some conservative talk radio this morning some discussion about this not really being some drop dead date for calamity... something about the true deadline being in March and this being a lot of smoke/mirrors+political posturing.

 

Can anyone here elaborate or verify/discredit or provide some links so we can all understand this more clearly???

THANKS!

Wed, 10/16/2013 - 09:30 | Link to Comment SKY85hawk
SKY85hawk's picture

Don’t any of you  remember who signed the Budget Control Act of 2011?

Obama signed it.  

That was his opportunity to honor his campaign pledge to only tax the RICH.

His credibility would be much higher if he had Vetoed the tax increases on the non-rich.

 

In doing so, the president said, "Is this the deal I would have preferred? No. But this compromise does make a serious down payment on the deficit reduction we need, and gives each party a strong incentive to get a balanced plan done before the end of the year."[13] 

 

Harry Reid AND Boehner and many House members signed it, too.

 

Now they’re trying to protect their ‘jobs’ by assuming we’re clueless sheep. 

 

Fool us twice, shame on US!

Wed, 10/16/2013 - 09:50 | Link to Comment 20-20 Hindsight
20-20 Hindsight's picture

I don't think anyone has the answer to that, but my guess is as follows: 

Scenario A: If they reach a deal by midnight today... then everyone pats each other on the back and praise heavens for saving the day. In other words, they will say that the world was once against saved from calamity.  Thanks for trusting us!

Scenario B: If they don't reach a deal, then they will say that this is just a minor technical default, and that everything will be fixed by.... (insert whatever date here.)  In other words, they will say, that the world was not really saved from calamiy, but don't worry, it WILL be saved.  Thanks for trusting us!

 

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