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Despite (Or Thanks To) More Macro Bad News, Overnight Futures Levitate To New All Time Highs

Tyler Durden's picture




 

The overnight fireworks out of China's interbank market, which saw a surge in repo and Shibor rates (O/N +78 to 5.23%, 1 Week +64.6 to 5.59%) once more following the lack of a follow through reverse repo as described previously, and once again exposed the rogue gallery of sellside "analysts" as clueless penguins all of whom predicted a quick resumption of Chinese interbank normalcy, did absolutely nothing to make the San Diego's weatherman's forecast of the overnight Fed-driven futures any more difficult: "stocks will be... up. back to you." And so they were, despite as DB puts it, "yesterday saw another round of slightly softer US data that helped drive the S&P 500 and Dow Jones to fresh highs" and "the release of weaker than expected Japanese IP numbers hasn’t dampened sentiment in Japanese equities" or for that matter megacorp Japan Tobacco firing 20% of its workforce - thanks Abenomics. Ah, remember when data mattered? Nevermind - long live and prosper in the New Normal.

Heading into US trading, today the markets will be transfixed by the FOMC announcement at 2 pm, which will likely say nothing at all (although there is a chance for a surprise - more shortly), and to a lesser extent the ADP Private Payrolls number, which as many have suggested, that if it prints at 0 or goes negative, 1800 on the S&P is assured as early as today.

On today's US docket

  • US: MBA mortgage applications, cons (12:00)
  • US: ADP employment change 150k (13:15)
  • US: CPI m/m cons 0.2% (13:30)
  • US: FOMC rate decision, cons unch 0.25% (19:30)

Market Recap from Ransquawk

Despite the looming risk event (FOMC), credit spreads tightened and stocks traded higher, with oil & gas sector outperforming following earnings from ENI. In spite of supply from Italy and Germany, Bunds also traded higher, supported by the positive NCR, with coupons & redemptions coming from Spain and Italy this week.  Italy successfully sold EUR 6bln in 5 and 10y BTPs, while German raised EUR 3.413bln in 2% 2023.

In terms of macroeconomic releases this morning, German joblessness rose to its highest level since June 2011 in October, but the unemployment rate remained close to its lowest level since reunification. Going forward, market participants will get to digest the release of the latest ADP Employment Change, CPI report for the month of September and also await the outcome of the FOMC meeting. On the corporate front, Visa, GM, Facebook and Starbucks are set to report earnings today.

Overnight bulletin recap from Bloomberg and RanSquawk

  • EU's Rehn sees a quite broad-based economy recovery in Europe and said that rapid initial fiscal tightening was essential in crisis and that Europe can now afford slower fiscal consolidation.
  • Apart from another round of earnings and a slew of macroeconomic releases, market participants will await FOMC rate decision due out later today.
  • Treasuries gain before Fed’s two-day policy meeting ends in Washington, statement due at 2pm, and as week’s $96b note auctions conclude with $29b 7Y notes.
  • Fed expected to leave asset purchases unchanged at $45b in Treasuries, $40b in MBS; for roundup of views
  • 7Y to be sold today yield 1.890% in WI trading; drew 2.058% in Sept. after 2.21% in August, highest in two years. 5Y notes sold yesterday drew 1.300%, near 1pm WI level
  • ECB says euro-area banks expect to ease credit standards on loans to companies in 4Q, the first such expectation since 4Q 2009; also said banks expect to ease standards on consumer credit and mortgages in 4Q
  • China’s yuan fell for a fourth day, the longest losing streak since July, as the central bank cut the currency’s reference rate amid a rally in the dollar
  • Sovereign yields mostly lower, EU peripheral spreads widen. Nikkei +1.2%, leading Asian equities higher; European stocks, U.S. equity-index futures gain. WTI crude lower; gold and copper rise

Asian Headlines

Movements in Chinese money market rates reflect temporary liquidity shortage and the PBOC is not tightening policy by limiting interbank funding, according to a unidentified person from the PBOC.

China's overnight repo weighted average rate hit highest since June at 5.28%, whilst the 7 day repo weighted average rate also hit highest since June at 5.68%.

Japanese Industrial Production (Sep P) M/M 1.5% vs. Exp. 1.8% (Prev. -0.9%); Y/Y 5.4% vs. Exp. 5.5% (Prev. -0.4%)

The BoJ is likely to raise FY 2014 Japan GDP forecast from 1.3% on government stimulus measures.

EU & UK Headlines

EU's Rehn sees a quite broad-based economy recovery in Europe and said that rapid initial fiscal tightening was essential in crisis and that Europe can now afford slower fiscal consolidation.

German Unemployment Change (000's) (Oct) M/M 2k vs. Exp. 0k (Prev. 25k, Rev. 24k)
German Unemployment Rate (Oct) M/M 6.90% vs. Exp. 6.90% (Prev. 6.90%)
German CPI - Saxony (Oct) Y/Y 1.1% (Prev. 1.5%)
German CPI - Hesse (Oct) Y/Y 0/9% (Prev. 1.1%)
German CPI - Bavaria (Oct) Y/Y 1.0% (Prev. 1.4%)
German CPI - Brandenburg (Oct) Y/Y 1.2% (Prev. 1.3%)
German CPI - North Rhine Westphalia (Oct) Y/Y 1.4% (Prev. 1.5%)

Eurozone Business Climate Indicator (Oct) M/M -0.01 vs. Exp. -0.19 (Prev. -0.20, Rev. -0.19)

BoE governor Carney said 7% unemployment threshold right time to adjust policy. Carney said won't tighten policy until recovery is sustained. Carney added that the UK's recovery was being driven by the housing market.

Germany sells EUR 3.413bln in 2% 2023 Bund Auction, b/c 1.7 (Prev. 1.3) and avg. yield 1.71% (Prev. 1.79%), retention 14.6% (Prev. 18.8%)

Italian bond auction results, sells EUR 6bln vs. Exp. EUR 6bln
- Sells EUR 3bln in 3.50% 01/18, b/c 1.65 (Prev. 1.43) and avg. yield 2.89% (Prev. 3.38%)
- Sells EUR 3bln in 4.50% 03/24, b/c 1.53 (Prev. 1.38) and avg. yield 4.11% (Prev. 4.50%)

Barclays month-end extension: Euro Agg +0.08y
Barclays month-end extension: Sterling Agg +0.02y

US Headlines

A handful of Democratic senators, many facing tough elections in conservative states next year, are beginning to echo longstanding Republican demands for delays and other technical changes in the law, including to the individual mandate that will impose a tax penalty on every uninsured American beginning
next year.

Equities

Looming risk event failed to dent investor appetite for risk and instead stocks traded higher, with oil & gas sector outperforming following an impressive earnings report from ENI. Elsewhere, Barclays shares also rose after the bank reported inline with exp. adjusted pretax profits, while also noting that the amount that it has set aside to pay compensation for mis-sold personal protection insurance is unchanged at GBP 3.95bln.

FX

EUR/USD and GBP/USD traded steady this morning, with GBP/USD moving back towards its 21DMA line as market participants refrained from committing ahead of the key FOMC rate decision later on today.

Combination of higher gold prices, together with touted demand from Asian central bank saw AUD/USD trend higher overnight in Asia and in Europe this morning. Technically, upside resistance level is seen at the 21DMA line.

Commodities

Gold on the spot
market is cheaper in Shanghai than in London for the first time in 2013,
after trading at a premium for most of the year. In fact, the premium
had widened in April to USD 30 a troy ounce as tumbling prices prompted a
rush of buying by Chinese consumers and investors.

China's
alumina capacity may rise to to 60mln tonnes by end of 2013 57.2mln
tonnes in 2012, according to Chalco's Zhengzhou research alumina
division director Yin.

Senator Menendez has said that new
sanctions are to be debated in the Senate that will halve Iran's oil
sales by around 500,000bpd. However, analysts have said that these
measures are unrealistic.

Rosneft have asked Russian President Vladimir Putin to sell the states 20% holding in the Novorossiisk Commmercial Sea Port to the Russian oil producer.

SocGen summarizes the key macro catalysts of the day

The outcome of the FOMC meeting today should be straightforward, with no change expected to the current asset purchase rate of USD85bn per month thanks to sluggish US economic data and a H2 drag on growth due to the government shutdown. There is no press conference, or for that matter even economic projections, planned after the FOMC meeting ends. So, from where will the markets take their cue, given the certainty in the status quo? Every wording in the outlook statement will be carefully scrutinised by the markets to discern how the Fed's thinking has evolved after the recent softness in the labour market as well as the added uncertainty that the federal shutdown has induced. As a result, the FOMC minutes due to be released on 20 November will be of greater importance, and the markets will weigh the probability of tapering starting based on statements from Fed speakers in the interim. Profit taking and positioning ahead of the FOMC meeting have meant that the USD cut some losses vs most G10 counterparts yesterday. The Aussie remained the worst performer within the G10 space, registering a ~0.8% drop after RBA Governor Stevens commented that it will be “materially lower” than it is today. The rates markets, however, were calm as 10y treasuries continued to swing between gains and losses, with 10y rates ranging between 2.50% to 2.53%.

Ahead of the seminal FOMC outcome tonight, we have the KOF leading indicator from Switzerland, German unemployment and CPI data as well as consumer confidence data from the eurozone. In the US, we also have MBA mortgage applications, ADP employment and CPI data.

Within emerging markets, China continues to hog the limelight, as a cash injection of CNY13bn seemed to be insufficient to pull down the benchmark 7-day repo rate below 5%. By resetting the 7-day reverse repos at 4.1% (up 20bps) vs the 3.9% that was being offered at previous auctions since mid August, is the PBOC hinting at an upcoming mild tightening?

DB's Jim Reid complete the overnight event walkthrough.

Aside from the FOMC, today will also see the release of the October ADP employment report which has become an increasingly good guide to payrolls over the last few months. DB’s Joe Lavorgna points out that since October 2012, when the vendor responsible for compiling the ADP survey changed from Macroeconomic Advisors to Moody’s, the absolute forecast miss between ADP and private payrolls has been just 38k. Looking just at the last six months to September, the average discrepancy between the two surveys has been around 36k on an absolute basis, including a couple of recent months (June and August) where the two measures were virtually the same. For the record, the consensus is expecting today’s ADP report to show a +150k gain, lower than last month’s +166k result. At the moment, Bloomberg consensus is pointing to a +155k gain in next week’s BLS private payrolls, and just a 115k gain in nonfarm payrolls (though these estimates will probably get revised after today’s ADP). The ADP report is due before the opening bell in New York, which will set the tone for trading before we get to the FOMC later in the day.

Overnight markets are trading with a positive tone across the board led by the TOPIX (+0.8%) and Hang Seng (+1.0%). The release of weaker than expected Japanese IP numbers (1.5% MoM vs 1.8% expected) hasn’t dampened sentiment in Japanese equities, and a strong gain in USDJPY (+0.5%) is probably helping. The Chinese seven day repo rate continues to climb (+45bp to 5.85%) after yesterday’s small RMB13bn liquidity injection by the PBoC was seen as mostly a symbolic move. Market chatter continues to suggest that the PBoC is attempting to limit recent consumer and house price inflation while others are attributing the recent money market rate rises to month-end effects and corporate tax payments. The rise in the repo rate hasn’t stopped A-shares from posting solid gains (+1.0%) today. Elsewhere S&P500 futures are flat, after a strong run late yesterday.

Indeed yesterday saw another round of slightly softer US data that helped drive the S&P 500 (+0.6%) and Dow Jones (+0.7%) to fresh highs. European markets started off on a weaker footing, after a number of earnings misses from banks saw financial stocks struggle at the open. The sentiment improved later in the day, thanks to stronger earnings from the likes of BP. Indeed, the DAX (+0.48%) managed to break above the 9000 mark for the first time in the minutes before the close. The positive sentiment was evident across asset classes including credit where the European senior and sub financials indices grinded to new series tights. In the UK, there is increasing market chatter about what the Chancellor will decide in terms of RBS’ problem assets. RBS subordinated paper continues to be better bid, perhaps on reports that Osborne will avoid a breakup of the group.

Yesterday’s US dataflow supported those arguing for a later start to the taper. US retail sales for September were down 0.1% MoM (vs 0% expected) and retail sales ex auto and gas were up 0.4%, lower than the 0.5% expected. On the inflation side, September PPI was lower than expectations in the headline (- 0.1% vs. +0.2% expected). Consumer confidence for October dropped sharply to 71.2 (vs 75.0 expected, 79.7 previous) probably due to the impact of the fiscal standoff in Washington. Most surprising of all was the gain in the USD (dollar index +0.46%) which strengthened in spite of the weaker than expected US data. This weighed on EURUSD (-0.3%) which had its sharpest fall in three weeks. Treasuries traded in a tight range between 2.50% to 2.53%. An uneventful 5yr UST auction helped 10yr yields close at 2.50%, not far from where they are trading this morning.

Today will be mostly about the FOMC announcement and the ADP employment report. Ahead of that, German CPI and unemployment data will be released together with the Spanish preliminary Q3 GDP report. It will be a busy day on the government bond calendar with new Italian 5 & 10yr, German 10yr and 7yr UST supply. In the US, the other data releases of note are the monthly budget statement and CPI (consensus 0.2% MoM vs 0.1% in August). General Motors reports earnings today before the opening bell – its always interesting to hear management’s views on global demand, particularly in light of Ford’s upbeat assessment last week.

 

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Wed, 10/30/2013 - 07:13 | 4104071 GetZeeGold
GetZeeGold's picture

 

 

THANK YOU!!!!

 

Seriously.....what's not to be bullish about here? Why didn't we think about 29.5 hour jobs sooner?

Wed, 10/30/2013 - 07:29 | 4104101 stocktivity
stocktivity's picture

It's all Bullshit!!!!!

Wed, 10/30/2013 - 07:30 | 4104103 negative rates
negative rates's picture

1800's or bust!

Wed, 10/30/2013 - 07:36 | 4104113 Bearwagon
Bearwagon's picture

Bah! 1800, bust or not!

Wed, 10/30/2013 - 07:12 | 4104075 Cognitive Dissonance
Cognitive Dissonance's picture

Getting closer to peak insanity. Hide the women and kids.......and the PMs as well.

Wed, 10/30/2013 - 08:20 | 4104190 Battleaxe
Battleaxe's picture

Good data is good for the market and bad data is even better. BTFATH! THIS IS NOT A BUBBLE!

Wed, 10/30/2013 - 07:12 | 4104077 29.5 hours
29.5 hours's picture

 

 

Good morning Tyler. You forgot to insert one of the most significant bits for today. From Bloomberg:
Another Ponzi Bites the Dust.

 

 

Wed, 10/30/2013 - 07:27 | 4104096 Quinvarius
Quinvarius's picture

And I have a mint condition Speedball #1.  I thought my restirement was set!

Wed, 10/30/2013 - 07:38 | 4104111 Cognitive Dissonance
Cognitive Dissonance's picture

If you read the article it says that there are two markets, one only for the top tier comic books in mint condition shopped by the (super) rich and a secondary market of low low prices (caused by a flood of baby boomers selling their comic book stash) for everything else.

Sounds like the Manhattan real estate market compared to West Virginia.

Wed, 10/30/2013 - 08:20 | 4104191 new game
new game's picture

two markets; desparado's and lords.

your choice where you "fall".

debt free with middle finger proudly displayed...

Wed, 10/30/2013 - 07:19 | 4104088 buzzsaw99
buzzsaw99's picture

Reid is funny:

Indeed yesterday saw another round of slightly softer US data that helped drive the S&P 500 (+0.6%) and Dow Jones (+0.7%) to fresh highs...

The new reality.

Wed, 10/30/2013 - 07:23 | 4104091 Quinvarius
Quinvarius's picture

Lets face it.  They are printing shit tons of money.  If you want 10,000x gains and to be able to cash out all those gains into three eggs in 10 years, put it all in stocks.

Wed, 10/30/2013 - 07:27 | 4104097 GetZeeGold
GetZeeGold's picture

 

 

The last helicopter we sent out carrying shit tons of money didn't make it back....we didn't even get a distress call. It just vanished!

 

We suspect Quantum Mechanics may be to blame....but we're not sure.

Wed, 10/30/2013 - 07:30 | 4104104 Quinvarius
Quinvarius's picture

Send two more.

Wed, 10/30/2013 - 07:39 | 4104116 Cognitive Dissonance
Cognitive Dissonance's picture

LOL

Send two MOAR.

<Fixed it for ya.> :)

Wed, 10/30/2013 - 07:39 | 4104117 Bearwagon
Bearwagon's picture

No, it's not quantum mechanics, it's relativity that's to blame. Namely time dilatation. While there have only a few seconds passed inside the helicopter, it have been years here on the outside.

Wed, 10/30/2013 - 07:26 | 4104095 NoDebt
NoDebt's picture

"DB’s Joe Lavorgna points out that since October 2012, when the vendor responsible for compiling the ADP survey changed from Macroeconomic Advisors to Moody’s, the absolute forecast miss between ADP and private payrolls has been just 38k."

Yes, because the goal is always to bring your numbers into as close agreement with government published numbers as possible.  No disagreement allowed.

Wed, 10/30/2013 - 07:43 | 4104125 Running On Bing...
Running On Bingo Fuel's picture

Long and levered bitches. God bless me.

Over.

Wed, 10/30/2013 - 07:45 | 4104126 GetZeeGold
GetZeeGold's picture

 

 

No worries.....just remember......chicks dig scars.

Wed, 10/30/2013 - 07:48 | 4104129 Running On Bing...
Running On Bingo Fuel's picture

If I make it out alive I'll buy you one.

Over.

Wed, 10/30/2013 - 07:52 | 4104134 GetZeeGold
GetZeeGold's picture

 

 

What ever you do....just make sure you have a stop loss in place over the weekend.

 

Wed, 10/30/2013 - 07:53 | 4104136 Running On Bing...
Running On Bingo Fuel's picture

I'll need your prayers. Let us pray for Bingo Fuel.

Oh lord, please bless Bingo Fuels index positions and let them levitate beyond the demonic clutches of predator algos.
Lord hear our prayer. Amen.

Over.

Wed, 10/30/2013 - 07:58 | 4104140 overmedicatedun...
overmedicatedundersexed's picture

too much fiat causes insanity, after the basics of life are met, even very high IQ types invest in tulip's, rare comic books, rare paintings of dead artists, did I say comic books? for me investing in people is my vice...be kind to those who deserve your gifts, support your community, and understand, wealth is an illusion which can be disappeared quicker than an brazilian oil well or a brex gold deposit.

Wed, 10/30/2013 - 08:18 | 4104149 GetZeeGold
GetZeeGold's picture

 +1 for Bre-X

 

Your test results are in....and I'm happy to report....you do not have Alzheimer's.

 

16 years ago.....seems like just yesterday.

Wed, 10/30/2013 - 08:34 | 4104225 overmedicatedun...
overmedicatedundersexed's picture

 Get zee, cursed with a good memory,never took a helo ride after that poor geologist got his one way ride for bre-x..

Wed, 10/30/2013 - 08:03 | 4104146 ncdirtdigger
ncdirtdigger's picture

Just think, if the economy ever REALLY collapses, how good will that be for stocks? YEE effing HAW!

Wed, 10/30/2013 - 08:19 | 4104187 PowerPlayer
PowerPlayer's picture

QE is no real substitute for economic growth and eventually the market will start selling off as people realize the economy may never get better.  

Wed, 10/30/2013 - 08:22 | 4104195 PowerPlayer
PowerPlayer's picture

What happens when the Fed balance sheet hits $10 trillion and yet we have no economic grwoth.  At some point they may have to admit this has been a failed experiment, although the S&P 500 will be at 5,000.   

Wed, 10/30/2013 - 12:11 | 4104999 yogibear
yogibear's picture

"What happens when the Fed balance sheet hits $10 trillion "

Do a  disappearing  act with the balance sheet. They can play the ultimate money game.

It's called mark to fantasy accounting. It's why the banks wanted it.


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