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Overnight JPY Momentum Ignition Leads To Equity Futures Ramp

Tyler Durden's picture




 

It was the deep of illiquid night when the momentum ignition trading algos struck. Out of the blue, a liftathon in all JPY crosses without any accompanying news sent the all important ES leading EURJPY surging by 50 pips, which in turn sent both the Nikkei up over 1% in minutes, and led to an E-Mini futures melt up of just about 8 points just when everyone was going to sleep.

All of this happened completely independent of the actual data, which was chiefly European retail sales which missed (-0.6%, Exp. 0.4%, prior revised lower to 0.5%), Eurozone Service PMI which dropped (from 52.2 to 51.6) but beat expectations of 50.9 (notably the Spanish Service PMI of 49.6, up from 49.0 saw its employment index drop from 46.5 to 45.3, the lowest print since June), and finally, German Factory Orders which surged from last month's -0.3% to +3.3% in September. And while all this impacted the EUR modestly stronger, it had little if any residual effect on the ES. The bigger question is whether these slightly stronger than expected data point will offset the ECB's expected dovishness when Mario takes to the mic tomorrow).

A snapshot of Europe's final composite PMIs for October is shown below:

Looking at today’s calendar, there is a bit of a mid-week lull before we head into the business end of the week (ECB meeting tomorrow and payrolls/Bernanke on Friday). With largely irrelevant European data out of the way the main remaining US-based data releases are mortgage applications and the leading index. The Cleveland Fed’s Pianalto speaks on housing and the economy towards the end of the US trading day.

Market Recap from RanSquawk:

Despite the looming risk event (ECB policy meeting), stocks traded higher, as market participants used yesterday’s sell-off as an opportunity to re-establish longs. At the same time, Bunds also remained bid, albeit marginally but were again dragged lower by Gilts which underperformed the benchmark German equivalent following the release of yet more solid UK macroeconomic data (Manufacturing/Industrial Production). Looking elsewhere, the release of the latest Eurozone Retail Sales report, as well as Eurozone based services PMIs failed to have a meaningful impact on the price action, which remained range bound for much of the session. Going forward, market participants will get to digest the release of the latest Challenger Job Cuts report, Weekly DoE data and also earnings by Time Warner and QUALCOMM.

Overnight bulletin summary from Bloomberg and Ran:

  • Eurozone Retail Sales (Sep) M/M -0.6% vs. Exp. -0.4% (Prev. 0.7%, Rev. to 0.5%) and Eurozone Services PMI (Oct F) M/M 51.6 vs. Exp. 50.9 (Prev 52.2).
  • German Factory Orders (Sep) M/M 3.3% vs. Exp. 0.5% (Prev. -0.3%)
  • UK Industrial Production (Sep) M/M 0.9% vs. Exp. 0.6% (Prev. -1.1%) and UK Manufacturing Production (Sep) M/M 1.2% vs. Exp. 1.1% (Prev. -1.2%)
  • Treasuries steady, 10Y yield holding above 100-DMA, as market waits GDP and nonfarm payrolls on Friday for more clues on possible Fed tapering; ECB rate decision due tomorrow.
  • A pair of research papers by high-ranking Fed staffers make the economic case for prolonging stimulus by targeting a lower unemployment rate and a bigger window for inflation
  • SF Fed’s John Williams said economic growth in recent months has fallen short of his expectations, partially eroding his confidence gains in the  labor market will endure without monetary stimulus
  • German factory orders increased more than estimated 3.3% in September, more than forecast
  • U.K. industrial production rose 0.9% in September, more than economists forecast, helped by a rebound in manufacturing after a slump the previous month
  • New Zealand employment increased 1.2%, or by 27,000 jobs, from the 2Q, the most since early 2007
  • Sovereign yields mixed, EU peripheral spreads narrowing. Nikkei +0.8%, Shanghai falls 0.8%. European stocks, U.S. equity-index futures gain. WTI crude, gold, copper higher

Key US events:

US: Fed speaker Pianalto (13:10)
US : MBA mortgage applications, cons n/a (7:00)
US : Leading index, cons 0.6% (19:00)

Asian Headlines

BoJ Minutes for the October meeting said Japan's economy is recovering moderately and is expected to continue moderate recovery. According to the minutes, members said that consumer prices will likely rise gradually, while a few members said a rise in inflation expectations was moderate and that the pace of export recovery and output lacks strength.

EU & UK Headlines

As part of the ECB stress tests, sovereign debt holdings of Eurozone banks will not be counted toward the final assessment, according to unsourced reports.

German Factory Orders (Sep) M/M 3.3% vs. Exp. 0.5% (Prev. -0.3%)
Eurozone Retail Sales (Sep) M/M -0.6% vs. Exp. -0.4% (Prev. 0.7%, Rev. to 0.5%)
Eurozone Services PMI (Oct F) M/M 51.6 vs. Exp. 50.9 (Prev 52.2)
German Services PMI (Oct F) M/M 52.9 vs. Exp. 52.3 (Prev. 53.7)
French Services PMI (Oct F) M/M 50.9 vs. Exp. 50.2 (Prev. 51.0)
Italian Services PMI (Oct) M/M 50.5 vs. Exp. 51.2 (Prev. 52.7)
Germany sells EUR 3.268bln in 1.00% 2018, b/c 2.3 (Prev. 2.0) and avg. yield 0.71% (Prev. 0.81%), retention 18.3% (Prev. 16.3%)
UK Industrial Production (Sep) M/M 0.9% vs. Exp. 0.6% (Prev. -1.1%)
UK Manufacturing Production (Sep) M/M 1.2% vs. Exp. 1.1% (Prev. -1.2%)
Industrial Output 2.2% (Sep) Y/Y - strongest annual rate since Jan 2011. Industrial Output adds 0.002% to UK Q3 GDP, impact therefore minimal.

US Headlines

Fed's Williams (Non-Voter, dove) expects growth to accelerate in early-2014 and said that growth is weaker than expected a few months ago. At the conclusion of the QE program, the Fed should announce an end instead of keeping it open-ended, according to Williams.

Equities

Stocks traded higher this morning, as market participants largely disregarded the looming risk event and used the sell off observed yesterday as an opportunity to re-establish longs. Technology and consumer services sectors led the move higher, although the risk on sentiment ensured that all major sectors traded in positive territory.

FX
GBP/USD outperformed its major counterpart EUR/USD yet again, supported by the release of yet another solid UK based macroeconomic
data. Broad based rebound by EUR following yesterday's aggressive sell-off weighed on the Greenback, with the USD index down 0.27% at
1108GMT. Elsewhere, NZD was supported overnight trade following the release of New Zealand jobs data where the Unemployment Rate
printed at 6.2% as expected but Employment Change beat expectations at 1.2% vs. Exp. 0.5% Q/Q.
Of note, Goldman Sachs said the RBA is just about done, but it still sees a cut, adding that the strength of AUD is pressing the central bank
to cut rates.

Commodities

Iranian foreign minister said believes Iran can reach a framework agreement on nuclear talks this week, but not necessary to do so.

The Eni CEO has said that its Libya terminal is under attack by protestors in an attempt to stop exports, as reported by ANSA.

Furthermore for Libya according to Union, Libya's Hariga port not open for exporting crude as former petroleum facility guards are not allowing tankers to enter the Haringa port.

US API Crude Oil Inventories (Nov 1) W/W 871k vs. Prev. 5900k
Cushing Crude Inventory (Nov 1) W/W 999k vs. Prev. 2200k
Gasoline Inventories (Nov 1) W/W -4300k vs. Prev. 740k
Distillate Inventory (Nov 1) W/W -2700k vs. Prev. 815k

Chinese metal and mining companies could be facing a heightened risk of write-downs, according to Barclays’s analysis of earnings reports from the June-September quarter.

SocGen recaps the key macro headlines:

FX volatility stayed bid overnight even as USD gains have been whittled back, but EM currencies continue to struggle as rates from Brazil to South Korea are backing up. Brazil central bank head Tombini sounded a warning to stay vigilant on inflation yesterday and a surprise 3.5 percentage point jump in US ISM non-manufacturing employment added to the corrective price action as UST yields rose above 2.64%, a key technical level. US leading indicators for October are proving that the government shutdown has had a trivial impact on private sector hiring, and consequently, investors are now readjusting underweight USD positions. How far can this run? The repositioning vs a low initial payroll consensus estimate of 120k may have further to go, but much will depend on how much US payrolls surprise on Friday. A 140k gain would not bring Fed tapering any closer and the back up in yield we are seeing would swiftly run out of steam. This makes it tricky to call the next move.

A lot also rides on the ECB meeting tomorrow - simply put, the market will be disappointed if there is no dovish signal. For EUR/USD, the 1.3455 level remains key, and yesterday's price action shows that bulls will not throw in the towel easily with scattered buying reported by different types of accounts on EUR dips. Currencies displaying a strong correlation with US 10y yields were the biggest losers yesterday. These include the BRL, MXN and ZAR. The 4.7% move in USD/BRL since last week has propelled the pair to close to the pivotal 2.30 level. A break could spell more trouble and a potential return to 2.40 if the push higher in US yields carries on.

EUR/GBP fell to a fresh one-month low of 0.8385 in Asia following on from the sharp retreat yesterday. A surge in the UK services PMI to 62.5 boosted optimism of a further acceleration in Q4 GDP growth to above 1% qoq. The BoE has its homework cut out ahead of the Inflation Report next week. An upward revision to GDP (and inflation?) forecasts is now likely and will keep the debate going over the timing of a first rate hike. On this basis and with a potentially dovish ECB lurking tomorrow, momentum is behind a return of EUR/GBP to the October low of 0.8332.

Final services PMI data from the eurozone are not expected to reveal any shocks this morning. Nor are German new industry orders, but we expect the 2018 bond tap (EUR4bn) to show only moderate demand given the relatively poor value to the curve. Germany has so far achieved 88% of this year's issuance programme compared to 86% at the same stage last year. In the UK, manufacturing output is forecast to have gained 1.1%, reversing the 1.2% contraction of August. In EM we look for the Polish central bank to keep its benchmark rate on hold at 2.50%.

DB's Jim Reid concludes the overnight recap:

The prospect of an earlier taper, offset to some extent by later rate hikes, weighed on treasury markets yesterday. 5yr, 7yr and 10yr UST yields added 1bp, 3bp and 5bp respectively. A better than expected US ISM nonmanufacturing report for October added further momentum to the sell-off. The headline print came in at 55.4, which is 1 point higher than the previous months’ reading and beat Bloomberg consensus expectations by 1.4 points. Our economists highlight that the headline was led by a large 3.5 point jump in employment to 56.2 which is the highest reading since August when nonfarm payrolls grew by +193k. DB are projecting a +130k increase in Friday’s October employment report, but the ISM figures impart some mild upside risk to that forecast.

Indeed it was a weak day for most fixed income markets as markets turned bearish on duration. We saw softness across bunds (+7bp), OATs (+7bp) and gilts (+10bp) which accompanied the selloff in EM fixed income. The underperformance of gilts was attributed to another strong UK economic report - this time the service sector PMI - which came in at 62.5 against expectations of 60.0. EURGBP fell 0.8% yesterday and is down more than 2% over the last five days. Credit spreads were pulled wider across cash and indices; but that backdrop didn’t dampen activity in the primary markets though, with over US$14bn of investment grade deals launch yesterday across 21 tranches on Tuesday (Reuters). The S&P500 managed to claw its way back from early lows of -0.7% but a late drop saw the index close weaker (-0.28%) for just the fifth time in 20 trading days.

Looking at today’s calendar, there is a bit of a mid-week lull before we head into the business end of the week (ECB meeting tomorrow and payrolls/Bernanke on Friday). The final PMI services numbers for Europe are due out shortly after we go to print, which will be followed up by  German factory orders for September. A German 5yr bund auction will take place today. In the US, the main data releases are mortgage applications and the leading index. The Cleveland Fed’s Pianalto speaks on housing and the economy towards the end of the US trading day.

 

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Wed, 11/06/2013 - 07:51 | 4126153 Headbanger
Headbanger's picture

It was a dark and illiquid night...

There, I fixed it for ya.

Wed, 11/06/2013 - 08:27 | 4126204 negative rates
negative rates's picture

Same as always, just finding new ways to cook the books.

Wed, 11/06/2013 - 09:38 | 4126419 asteroids
asteroids's picture

Tomorrow is an "ECB" day. As usual, they had to ramp up the markets to prepare for the "sell the news" reaction Friday. Shameless bastards.

Wed, 11/06/2013 - 07:56 | 4126154 GetZeeGold
GetZeeGold's picture

 

 

Thank goodness.....things are finally looking up!

 

Please turn off your electronic devices and stow any sharp objects.

Wed, 11/06/2013 - 07:59 | 4126165 Bearwagon
Bearwagon's picture

If possible, put on a massive Rhenium hat for best results.

Wed, 11/06/2013 - 08:13 | 4126179 Headbanger
Headbanger's picture

And wrap yourself in at least two layers of duct tape to stay in one piece.

And thank you for flying with us today and enjoy your final destination...

Wed, 11/06/2013 - 07:55 | 4126162 29.5 hours
29.5 hours's picture

 

 

In other news, looks like all money in the MF Global debacle will be restored, at least for the NYTimes:

MF Global Customers Will Recover All They Lost

I guess that means we will now hear how Corzine was not really a slimebucket thief and liar. He must have really been a victim!

 

 

 

 

Wed, 11/06/2013 - 08:16 | 4126164 GetZeeGold
GetZeeGold's picture

 

 

Sorry we had to steal that from you.......you can have it back now.

 

You're welcome.

 

No animals or grifters were injured, charged, or jailed during the criminal act....or in it's aftermath. In other words....it's all good!

Wed, 11/06/2013 - 08:04 | 4126170 slotmouth
slotmouth's picture

Clinton Corzine 2016!

Wed, 11/06/2013 - 08:12 | 4126178 Manthong
Manthong's picture

I suppose that if JPM can conjure up a boatload of billions to pay cost of doing business fines it can scare up a paper cup full of billions to restore MF’n Global deposits.

Wed, 11/06/2013 - 09:07 | 4126283 yogibear
yogibear's picture

No problem, Yellen and the other 12 Fed members can print any billions needed to cover any fines for their member banksters.

Money is no object in the land of fiat.

Wed, 11/06/2013 - 08:34 | 4126222 Dr. Engali
Dr. Engali's picture

The Bernank can print 1.6 billion in the breath of a fart.

Wed, 11/06/2013 - 08:09 | 4126176 Iam Yue2
Iam Yue2's picture

Germany's factory orders.

It is perhaps pertinent to point out that domestic orders were down 1.0%, whilst exports were up 6.8%.

Draghi still faces a deflationary time bomb in the peripheral eurozone states, whilst Germany happily exploits a cheap euro (relative to the DM).

Wed, 11/06/2013 - 08:35 | 4126203 Orly
Orly's picture

The EuroYen pair is about to break through the bottom of a long-term triangle that was established after the big yen cross run-up over the summer last year.  It has been straight up from there but with less and less participation from the market as evidenced by smaller and smaller Weekly candles.  This will be the first time since July 2012 for a downside break and correction.

What does it mean for the SPX?  Stay tuned because it could be the start of something big.

:D

Addo:

P.S.  Got gold?  (I hope not...)

Wed, 11/06/2013 - 09:32 | 4126379 LawsofPhysics
LawsofPhysics's picture

Physical or paper?  Wake me when I can take delivery again for under $300 an ounce.  I won't hold my breath.

How's your mandarin Orly?  Personally, I have been working on my Portuguese lately...

Wed, 11/06/2013 - 08:30 | 4126213 new game
Wed, 11/06/2013 - 08:46 | 4126237 nakki
nakki's picture

All numbers are made up surveys. The good, the bad, all fictitious. In this day and age we still use surveys. I can track a package sent to me almost to the minute from something I bought online, and yet we still use antiquated survey to figure out almost all data points from Tokyo to San Fransisco and everywhere in between. Well I guess those purchasing managers need to do something. Shit, we still call it NON-FARM payroll (another survey), like people, other than illegals still work on farms. ONE CENTRAL BANK, one way to figure out economic data. Plus what would all those economists and talking heads talk about and give us their expert opinion on if we just had up to the minute hard data? Paper pushing world!! RIP Richard Dawson "survey says"!!!!

Wed, 11/06/2013 - 08:46 | 4126245 caShOnlY
caShOnlY's picture

when this mother finally blows ..... lookout.   "it's raining men" will be all over W.st.

Wed, 11/06/2013 - 09:33 | 4126381 LawsofPhysics
LawsofPhysics's picture

Optimist.

Wed, 11/06/2013 - 08:46 | 4126246 thismarketisrigged
thismarketisrigged's picture

whats the difference its all fucking bullshit.

 

these are our free markets, yesterday dow falls 116 very early on good volume, than somehow it erases all of that in minutes only to not move the rest of the day.

 

yep, free market capitalism.

 

it will be great when 25-30 percent gains are all  erased within days.

Wed, 11/06/2013 - 08:55 | 4126256 polo007
polo007's picture

http://www.businessweek.com/news/2013-11-06/u-dot-s-dot-economy-slack-justifies-stimulus-top-fed-staff-papers-show

The Federal Reserve’s policy of seeking to drive down the U.S. unemployment rate is effective, and the level of slack in the economy justifies an accommodative stance, according to two separate papers by top Fed officials.

William English, head of the Division of Monetary Affairs, wrote that the strategy of not raising interest rates if unemployment is above 6.5 percent has provided effective stimulus, and that an even lower threshold could be helpful. A paper by David Wilcox, the research and statistics chief, says that slack in the economy argues for loose policy at a time of contained expectations for inflation.

With the central bank debating the timing of winding down its $85 billion a month in bond purchases, the research provides a window into the views of the senior Fed staff members who write the briefing materials for Federal Open Market Committee meetings and draft the Fed’s policy options. The papers were posted on the International Monetary Fund’s website ahead of a two-day conference starting tomorrow in Washington.

 

Wed, 11/06/2013 - 08:58 | 4126259 polo007
polo007's picture

http://www.federalreserve.gov/pubs/feds/2013/201376/201376pap.pdf

Nov 2013/2013-76

The Federal Reserve's Framework for Monetary Policy--Recent Changes and New Questions

William B. English, J. David Lopez-Salido, and Robert J. Tetlow

 

Wed, 11/06/2013 - 08:59 | 4126264 polo007
polo007's picture

http://www.federalreserve.gov/pubs/feds/2013/201377/201377pap.pdf

Nov 2013/2013-77

Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy

Dave Reifschneider, William Wascher, and David Wilcox

Wed, 11/06/2013 - 09:34 | 4126392 LawsofPhysics
LawsofPhysics's picture

More mental masterbation from academic paper-pushers...

Wed, 11/06/2013 - 09:10 | 4126294 ...out of space
...out of space's picture

As part of the ECB stress tests, sovereign debt holdings of Eurozone banks will not be counted toward the final assessment, according to unsourced reports.

 

hmm...

Wed, 11/06/2013 - 09:10 | 4126295 polo007
polo007's picture

According to Macquarie Research:

https://app.box.com/s/j0desfvkuqh6bitsvhuz

Could the Fed flip flop?

“Enlargement” could become the new “tapering”

- Our view that tapering will commence in March 2014 has become the consensus and continues to be our base case (50% chance). We place a lower probability (15%) on an earlier taper (Dec/Jan) and a higher probability (25%) it occurs later (April to Sept). While incremental delays could impact near-term asset class performance these would only provide temporary respite from longer-term trends established when expectations for tapering began in early 2013.

- One outcome (to which we assign our final 10% probability) that would result in a more dramatic shift would be a 180 degree turn or flip flop in Fed communication that caused investor anticipation to move from “taper” to “enlargement”. The potential for such a shift is barely being acknowledged (no less considered!), by consensus. This is all the more reason to give it attention in our view. Such a flip flop would have important implications for asset market returns. In particular, it would likely lead to outperformance from emerging market equities and precious metals. Treasury bonds would also benefit.

The Fed would need to doubt the recovery’s sustainability

- Incoming data are an obvious catalyst for a Fed flip flop. The labour market has softened recently (Fig 8, 9), housing momentum has slowed (Fig 10, 11) and inflation is well below target (Fig 12, 13). Despite downgrades in its forecasts (Fig 14), the FOMC remains above consensus (Fig 15). While this evidence may be enough to delay tapering, modest downgrades or data misses likely won’t be enough to change the Fed’s tapering narrative.

- In our view, for such a flip flop to take place, members must become more pessimistic about the recovery’s sustainability. What might cause this? The combination of continued soft data alongside greater than expected fiscal tightening in 2014 is one possibility. It was the worry about the impact from the fiscal cliff, after all, that contributed to the QE3 launch decision in 2013.

And the Tea Party could provide the catalyst

- Consensus expects the Tea Party and other Republicans to take a less hardline approach towards negotiations in 1Q14 after they were punished in public opinion polls as a result of the shutdown. Such a near-term detente in Washington will only become likely should President Obama make concessions. Should this occur, the President may be more willing to sacrifice on near-term spending rather than changes to Obamacare (his legacy) or long-term entitlement programs (resistance from his own party) (see pgs 3 to 5).

- The magnitude required to impact the 2014 growth outlook is not high. Annual spending cuts offsetting just one-third of the long-term debt impact from Obamacare would act as an incremental ~0.4% headwind to growth in 2014 (combined with sequestration already embedded in current law, this would mean fiscal drag of ~0.5 to 1.0% for much of the year) (Fig 7).

Wed, 11/06/2013 - 10:07 | 4126534 SheepDog-One
SheepDog-One's picture

Like a see-saw which always goes higher. I dip, you dip, but we both end up higher. 

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