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Futures Unable To Ramp Higher Despite Cornucopia Of Disappointing Macro News
In addition to the bevy of ugly European unemployment and inflation news just reported, the overnight session had a dollop of more ugly macro data for the algos to kneejerkingly react to and ramp stocks to fresh time highs on. First it was China, where the PBOC did another reverse repo, however this time at a fixed 4.3% rate, 0.2% higher than the Monday iteration and well above the 3%-handle from early October, indicating that China is truly intent on tightening its monetary conditions. Then Japan confirmed that despite the soaring imported food and energy inflation, wages just refuse to rise, and have declined now for nearly 1.5 years. Then, adding core insult to peripheral injury, Germany reported retail sales that missed expectations of a +0.4% print wildly, declining -0.4% from a prior downward revised 0.5% to -0.2%. And so on: more below. However, as usual what does matter is how the market digests the FOMC news, and for now the sense is that the risk of a December taper has risen based on the FOMC statement language, whether warranted or not, which as a result is pushing futures modestly lower following an epic move higher in the month of October on nothing but pure balance sheet and multiple expansion.
The big data week in the US rolls on with the highlights being the Chicago PMI and initial jobless claims, which are expected to print their first accurate, non-impaired reading since August.
On today's US docket:
US: Initial jobless claims, cons 339K (13:30)
US: Chicago PMI, cons 55.0 (14:45)
Overnight news bulletin from Bloomberg and RanSquawk:
- Treasuries higher, erasing losses seen after the FOMC yesterday kept asset purchases at a pace of $85b/month and said it needs to see more evidence that the economy will continue to improve.
Euro-area inflation cooled to 0.7% in Oct., the slowest in almost four years, moving further away from the ECB’s goal - Very likely that ECB members will discuss a rate cut at Nov. 7 meeting following data: Market Securities
- The Bank of Japan maintained its commitment to unprecedented monetary easing and reiterated its forecast that inflation will almost match its 2% target in the year starting April 2015
- Japan should lower its effective corporate tax rate to Germany’s level, around 29%, to help bolster growth, according to one of Abe’s top economic aides
- G-7 central banks said emergency currency-swap lines established during the global financial crisis will be made permanent, providing backstops to safeguard against future turbulence
- China’s top four banks posted their biggest increase in soured loans since at least 2010 as a five-year credit spree left companies with excess manufacturing capacity and slower profit growth amid a cooling economy
- The U.S. reiterated its complaints that China’s yuan hasn’t strengthened as fast as needed and criticized Germany for its current-account surplus in a report yesterday
- Obama defended his health-care law, saying the flawed online insurance exchange will get fixed, people being thrown off the plans that don’t meet the law’s standards will be getting better insurance and “a fraction” of higher income Americans will pay more for plans that are better than they had
- Sovereign yields mostly higher, EU peripheral spreads little changed. Nikkei -1.2%, leading Asian equities lower; European stocks mixed, U.S. equity-index futures fall. WTI crude little changed, gold and copper lower
Market Recap from RanSquawk
Even though stocks traded lower this morning in reaction to the removal of language around tightening financial conditions by the Fed yesterday, which in turn prompted market participants to speculate over potential Fed taper in December, financials led the move higher in Europe following comments from ECB's Nowotny who said that there will be further liquidity provisions. The sector also benefited from an encouraging set of earnings from BNP Paribas, which led the way in France. Combination of comments from Nowotny, together with the move by the ECB to announce that emergency swap lines with other central banks will be made permanent, ensured that despite the risk averse sentiment, money market rates actually declined. Nevertheless, Bunds grinded higher, supported by coupon & redemption flows from Italy and Spain, as well as general month-end extensions.
Prices received another boost following the release of softer Eurozone CPI estimate and higher than expected Eurozone Unemployment Rate. Going forward, market participants will get to digest another round of earnings (Exxon, Conoco), as well as the weekly jobs data, Chicago PMI and also GDP report from Canada.
Asian Headlines
The Bank of Japan kept monetary policy on hold, alongside expectations, in a unanimous vote. BoJ 2014 Monetary Base Target (JPY)(Oct 31) 270trl vs. Exp. 270trl (Prev. 270trl).
Japanese Manufacturing PMI (Oct) M/M 54.2 (Prev. 52.5) - highest in over 3 years.
The PBoC injected CNY 16bln via 14 day reverse repos today, which was part of a net CNY 29.1bln injection this week vs. a CNY 58bln drain the previous week.
EU & UK Headlines
ECB's Nowotny said that there will be further liquidity provision, adding that he wants to avoid sudden effects and must avoid falling off cliff as LTRO comes to an end. Nowotny suggested that the LTRO will be more tailored to countries perceived to have funding requirements.
The ECB has said it's standing swap lines agreements with the BoE, Federal Reserve, BoJ, SNB and BoC are to become permanent facilities and may adjust the frequency and maturity on changing market conditions.
Eurozone Unemployment Rate (Sep) M/M 12.2% vs. Exp. 12.0% (Prev. 12.0%, Rev. 12.2%)
Eurozone CPI Estimate (Oct) Y/Y 0.7% vs. Exp. 1.1% (Prev. 1.1%)
CPI Core (Oct A) Y/Y 0.8% vs. Exp. 1.0% (Prev. 1.0%) - growth rate is a low for the series, matching early 2010 low.
Barclays month-end extension: Euro Agg +0.08y
Barclays month-end extension: Sterling Agg +0.02y
US Headlines
As a reminder, following the FOMC statement yesterday Hilserath said that the Fed is still looking at tapering and there is no sign of taking action, adding that the Fed still has taper on table at the December FOMC meeting.
Republican Senators McCain and Graham seek to delay confirmation of Fed chair nominee Yellen over Benghazi attacks, with Senator Graham vowing to block appointments without more info on Benghazi.
According to reports, Senator McCain is attempting to leverage Senate approval of an Obama nominee to the Fed, in order to collect more information on the 2012 attack on US facilities in Benghazi, Libya, that killed four Americans.
Barclays month-end extension: Treasury +0.07y
Equities
Equities traded mixed in Europe, as market participants reacted to somewhat less dovish than expected FOMC statement late yesterday, though financials outperformed following comments by Nowotny who stated that there will be further liquidity provision. Consensus beating earnings from BNP Paribas, which led the way in France, also supported investor demand for financials in Europe.
As a reminder, after the closing bell on Wall Street yesterday, Facebook reported Q4 Adj. EPS USD 0.25 vs. Exp. USD 0.19 and Q3 revenue USD 2.02bln vs. Exp. USD 1.91bln. Separately, Visa reported Q4 EPS USD 1.85 vs. Exp. USD 1.85 and reaffirmed forecast for year rev. and EPS growth.
FX
The risk averse sentiment also translated into lower trending EUR/CHF and USD/JPY, with USD/JPY also driven lower by option related flow. Good sized strikes are said to be placed between 98.00-50 level. With that in mind, 1m implied fell to its lowest level since Dec 2012, while the spread above realised vol is around 1.0 level.
RBNZ Official Cash Rate (Oct 31) 2.50% vs. Exp. 2.50% (Prev. 2.50%) - Governor Wheeler said that currency gains provide flexibility that rate increases and that a rate increase will likely be needed in 2014.
The US Treasury's FX report said that Germany's weak demand and export dependence create deflationary bias for Euro area and world economy. The US Treasury also commented that China's currency is not rising as fast as needed and that China cannot be labelled a currency manipulator at this time.
Commodities
Libya's oil exports are currently around 150,000-200,000bpd according to a government official. Furthermore for Libya, a government official has said that the Sharara oil field may restart in 10 days.
US Secretary of Energy Moniz has said the US would like to coordinate with China on any use of strategic petroleum reserves, with discussions to take place over the next 12 months.
According to the OPCW Syria have destroyed their chemical weapons production and mixing facilities. Analysts at ANZ expect the slowing of physical gold demand and the decline in Shanghai premiums will mean gold prices will have to fall further before sparking any strong end-user demand.
SocGen's summary of the key macro events:
No surprises this time around - the Fed keeps its US$85bn monthly bond buying programme intact. Slight disappointment however was from the optimistic sounding Fed vs. dovish expectations, which led to almost 8bps jump in the US 10y swaps immediately after FOMC announcement. G10 FX barring Aussie and yen are trading weaker against the greenback in Asia as shorts get squeezed. No change to unemployment and inflation target, but Fed dropped the notion that financial conditions have tightened, also there was no guidance of when they would start tapering. So what lies next? If the recent economic data is any indication, the momentum that the US economy has gathered since the beginning of the year has ebbed since the Fed last met. Our money is now on tapering to start in March 2014, meaning that it would be the next Fed chairman (likely Yellen) and not Bernanke who would be at the helm when we get to hear of the Fed actually starting to taper. The reasons for this are obvious, in that it would give the FOMC members sufficient data points to assess the housing and employment situation, which is expected to be back on track by then. Uncertainty from the budget impasse should also have subsided by then. However, with Fed's optimistic tone, a taper start earlier than March is not completely out of reckoning.
In the context of emerging markets, a delayed start to Fed tapering should now be music to EM investors' ears. We see the Fed's decision as a green signal for carry trade investors as it gives a free hand to investors as well as giving the emerging markets sufficient time to show improvements in economic growth, which has been scaring investors away amid fears of an end to easy money.
US initial claims (SG forecast 330K) and the Chicago PMI (57.0) will be in focus today. We believe any positive surprises on the US economic front will gradually but eventually add to paying interest, helping yields to back up further by the year end. Additionally, on the European economic agenda, we have the unemployment and CPI data to look for, where there is a risk of the euro HICP inflation rate coming in lower than our earlier forecast of 1.0% y/y (which has now been revised to 0.9%), following the German state and Spanish national inflation data.
As usual, we conclude with Jim Reid's overnight event recap
Risk assets including equities (S&P 500 -0.49%) and credit (CDX IG +2bp) traded weaker going into the FOMC and the tone after the event left things pretty much unchanged. This has come after the S&P 500 recorded a 7% gain since the October 8th, so the market can be forgiven for pausing for breath yesterday. In terms of the data, the ADP employment survey was worse than most estimates. The gain in private nonfarm payrolls came in at just +130k for October, 20k lower than the median 150k estimate. The vendor responsible for compiling the report (Moody's) commented that the government shutdown hurt an already softening job market in October but did not quantify the effect.
Elsewhere September CPI suggested that inflationary pressures remain benign as the latest print showed only modest gains for both the headline (+0.2%) and core (+0.1%). Outside of the data flow, Republican Senator John McCain made some headlines threatening to delay Yellen’s confirmation, in an effort to obtain information from the White House about attacks on US assets in Benghazi, Libya. In Europe, DB’s economists interpreted the latest ECB lending survey as suggesting a moderate improvement in credit standards in Q3 2013 and an outright easing of credit standards in Q4 – indicating a stronger credit impulse going forward.
On the micro side, there were a few interesting snippets to highlight. Facebook’s after-market earnings beat was well liked and the market responded by bidding its shares up more than 10% for a brief period in afterhours trading before fading back to unchanged. Facebook disclosed that more than 40% of Q3 sales came from mobile-derived sources, up from 14% the same quarter last year – but on its conference call it suggested that mobile ad growth may slow. General Motors reported adjusted earnings that beat analyst estimates and its shares traded up 3%. The management commentary sounded broadly similar to that of Ford who reported last week. Encouragingly, GM reported solid demand coming out of North America and revenues in Europe rose on a YoY basis for the first time in two years. On a less positive note, a bankruptcy filing from Brazilian oil company OGX, a former market darling controlled by ex-billionaire Eike Batista raised a few eyebrows. The company had a one-time market cap of US$45bn but had only barely passed the start-up phase and had produced almost no crude oil, according to Reuters. The company failed to reach a restructuring agreement with bondholders. Bond markets are seeing this as a test of Brazil’s 8 year old bankruptcy laws, which are reportedly similar to US Chapter 11 proceedings (Reuters).
Turning to overnight markets, Asian equities are tracking lower following the lead of Wall St. The major Chinese banks reported earnings yesterday which have mostly disappointed the markets. Indeed, three of the four major Chinese bank’s stocks are down more than 1% today, underperforming the Hang Seng (-0.5%) and Hang Seng China Enterprises Index (-0.5%). Reported earnings growth among the banks continued to be solid (+10.8% for the quarter) but this was the slowest pace in seven quarters. There is also concern over the growing balance of non-performing loans among the majors which increased 3.5% in the third quarter to a combined total of RMB330bn (US$54bn). The average bad-loan ratio widened to 1.02% (Bloomberg). The four major banks have set aside an average 279% of the value of their bad debt as provisions, up from 272% at the end of June according to Bloomberg data. Outside of China, the BoJ kept its policy unchanged in its meeting today. AUDUSD spiked higher after a strong building approvals number (+14.4% MoM vs 2.8% expected) – recent price increases in the Australian property market appear to have spurred building activity.
Turning to the day ahead, consumer spending and retail sales in France and Germany, together with Eurozone unemployment and CPI are the major data releases today in Europe. The big data week in the US rolls on with the highlights being initial jobless claims and the Chicago PMI.
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So awesome we don't have inflation here...and our unemployment numbers flat out rock! I've got 3 part time jobs and a paper route.
I've got 3 part time jobs and a paper route.
Let's hope it's enough to cover the fine.
Heard a rumor that overtime and child labor laws were going to be outlawed in the land of the free and home of the brave.....so far it's just a rumor.
And that paper route has decreasing subscribers...
We're working on legislation to deal with that....we'll let you know.
Lookit, good news is bad and bad news is good, just turn your hat upside down (rally hat style) and go along for the ride!
Take the contrarian view at all times, maybe you'll just be right once or twice?
This economy is fake, just like the people running it and we are supposed to swallow the whole load...ummm, thanks but no! I refuse to be led by the nose ring.
Just a matter of time now, everything else is baked into the cake - let's eat!
Golly. When did the gubmnt revert back to the accurate unemployment reports?
these are actually the book cooked "good" numbers
Taper and things will crater.
Yep, the writing is on the wall now for taper to happen sooner than later!
The big banks, which really are the Federal Reserve after all, have had it with playing the game with Obama now that they see it's not working.
And the big banks are not going to be the bag holders this time cause there's no more bailout for them.
It's almost like they're in some sort of trap or something with liquidity. Like a..... liquidity trap! Hey, I just came up with that!
It's more like they're on a rapidly sinking ship and the rats are all starting to turn on each other to bail out.
The rush for the exists in this "market" will be crushing to say the least. And it will leave the sheeple completely stunned and helpless when they realize they were let down by the rats they put in charge!
Then we'll see the witch hunts begin and our own "Spanish Inquisition"
Taper my ass. The Fed is the only thing keeping the market afloat and everyone knows it, and also knows the Fed can't taper, hence why the market keeps going higher.
The only taper from the Fed will be the taper from the End of the rope used to hang the Fed officials and bank chairmen after they have blown-up the US economy. Yes, I have my "ass-less" chaps, crossbow, and motorcycle tucked away my garage in anticipation of the full execution of the Fed's "policies".
Full Disclosure:
Long - one man helicopters and hacksaws
Short - Champagne for Fed's " Tapering" Party and Dog Food
futes only matter 5 minutes before the open and then it's Bang Dae-Ho bitchez.
A fraction of Americans will see their insurance rates go up, uh 95%. Is that a fraction?
Sure. 19/20 is a fraction. Hell, even 95/100 is a fraction.
Is that a fraction?
Yes it's a fraction......a really big fraction......but still a fraction.
http://www.bizjournals.com/sanfrancisco/blog/2013/10/twitter-sued-124-mi...
Headline...lmao. Too early to be spitting food all over the table, tyler.
Bad news is bad news now. With Ben not increaseing QE, the market is now stuck with only $85B/month with recession headwinds.
Bearish.
In steps hyper-printer Yellen soon, just in time to save Wall Street's massive bonuses.
DAX straight up back over 9000 on the great European news
This is a bit unnerving. Nice flash-crash in heating oil http://finviz.com/futures_charts.ashx?t=HO&p=m5
December taper before the holiday season in this corporatist state. Yeah, right.
Any excuse to explain what will be a brief respite in the global ponzi.
"In addition to the bevy of ugly European unemployment and inflation news just reported..."
my, my, another "ugly" paired with "...and inflation? see my commentary here
eurozone inflation, including food and energy, is at (estimated) 0.7%
beauty is truly in the eye of the beholder
Aug food up 3.2%, Sep food up 2.6% of course it is dismal.
Taper is what we all do in the morning, right after a cup of java...there will be no taper ANY TIME SOON from the Fed! If anything, they will increase the QE to infinity and beyond!!!!
I like Rand Paul's idea, of not Fed chairsatan confirmation, until the Fed is audited...won't happen, but it sure is a good idea...I'd like to throw in an amendment to also audit Ft. Know too!!
Jamie and his Phuckheads are 'Tricking' Silver....no treat
US regain ALL their overnight losses, the whole of Europe bright green after terrible figures, even Nikkei green with Yen Crosses melting, and of course PM's totally anihlated...unreal
record Italian, Spanish unemployment rallies IBEX and FTSEMIB. DAX rallies 75 points...sigh
Meteor to destroy planet earth today, whole world death and destruction seen as a win for Wall Street...Stock futures up on this great bad news..
Nice to see they are fucking metals in the ass again
Great Headline!
Sign of the times.