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Equities Act Weak, Confused Following Oscar-Worthy Good Cop, Bad Cop Performance By The Fed

Tyler Durden's picture




 

As non-collocated, carbon-based traders walk in today, they are once again greeted by a very unfamiliar shade of green in the equity futures market. There has not been a specific catalyst for another day of equity weakness however it started in Asia, where we again witnessed a bout of EM vulnerability led by the likes of Indonesia. This follows weakness in EM across EMEA and LATAM yesterday that saw major EM sovereign CDS about 3-5bp wider while a number of LATAM 10yr rates were up between 5-10bp. EM FX in EMEA was under some pressure yesterday as well (PLN and ZAR notably), but this abated as the day wore on. This morning Indonesia CDS is quoted about 6bp wider while cash bonds are down about half to 1 point. Asian EM FX is generally weaker across KRW, INR and IDR. Asian equities have been sold from the open today including a 2% drop in the Jakarta Composite index which is on track for its largest fall since Sept 30th. The disappointment over lack of detail from the Chinese government’s Third Plenum meeting is showing up via a 2.0% drop in the HS China Enterprises Index and 1.3% drop in the Hang Seng.

In Europe, stocks also traded lower, with the FTSE-100 index underperforming its peers where a number of blue-chip companies traded ex-dividend. Overall, financials and basic materials sectors led the move lower, where UniCredit shares fell over 4% as credit spreads widened (iTraxx subFin index up 6bps). The focus was very much on the UK, where market participants digested the release of better than expected jobs report and then the latest Quarterly Inflation Report by the BoE, who brought forward likelihood of 7% jobless rate to 2015 Q3. As a result, GBP outperformed its peers and the short-sterling strip bear steepened as market participants reassessed future interest rate path. Looking elsewhere, softer stocks supported Bunds, which edged higher after supply from Italy and Germany was successfully absorbed.

As DB notes, it appears that markets continue to steadily price in a greater probability of a December taper judging by the 2bp increase in 10yr UST yields, 1.2% drop in the gold price and an edging up in the USD crosses yesterday. Indeed, the Atlanta Fed’s Lockhart, who is considered a bellwether within the Fed, kept the possibility of a December tapering open in public comments yesterday. But his other comments were quite dovish, particularly when he said that he wants to see inflation accelerate toward 2% before reducing asset purchases to give him confidence that the US economy was not dealing with a “downside scenario”. Lockhart stressed that any decision by the Fed on QE would be data dependent - so his comments that the government shutdown will make coming data "less reliable" than might otherwise have been, until at least December, were also quite telling. The dovish sentiments were echoed by Kocherlakota, a FOMC voter next year.

In other words, an Oscar-worthy good-cop/bad-cop performance by the Fed's henchmen, confusing algotrons for the second day in a row.

Going forward, the US Treasury will auction off USD 24bln in 10y notes, while Cisco will report after the closing bell on Wall Street. After the US market close, Bernanke will be speaking at townhall of teachers on the history of the Fed. He will be taking Q&A.

 

Overnight news bulletin from Bloomberg and RanSquawk

  • BoE brings forward likelihood of 7% jobless rate to 2015 Q3, cuts forecast for near-term inflation on lower data and GBP.
  • UK Jobless Claims Change (Oct) M/M -41.7K vs Exp. -30.0k (Prev. -41.7k, Rev. to -44.7k) - 12th straight monthly decline.
  • German government advisers see 0.4% 2013 growth, 1.6% in 2014 vs. Exp 2013 GDP of 0.5% and 1.70% in 2014.
  • Treasuries gain, led by belly of curve; 10Y yield retreat from highest level since mid-Sept. as stocks decline across the globe, copper falls.
  • Focus remains on timing of any Fed decision to taper asset purchases; Yellen may shed light at tomorrow’s confirmation hearing. Lockhart yday said taper would likely be considered in December; Kocherlakota said tapering could impede economy’s slow progress
  • 10Y notes to be sold today yield 2.790% in WI trading; drew 2.657% at October auction and 2.946% in Sept., which was highest since June 2011
  • Bank of England Governor Mark Carney signaled that officials may consider raising interest rates sooner than they previously forecast as the U.K. economy recovers “robustly” and inflation slows * U.K. unemployment declined to 7.6% in 3Q, closer to the  BOE’s key threshold, while a narrower measure of joblessness fell for a 12th month in October
  • U.K. Deputy Prime Minister Nick Clegg will distance himself from David Cameron’s call for permanently lower state spending, saying his Liberal Democrats aren’t ideologically wedded to budget cuts
  • Merkel’s willingness to compromise with the Social Democrats to form a coalition risks rolling back steps taken by her predecessor that made Europe’s biggest economy stronger, her Council of Economic Experts said
  • Former President Bill Clinton endorsed altering a key provision of Obamacare, saying Obama should keep a pledge he repeatedly made in campaigning for the law that Americans wouldn’t lose coverage they liked when it took effect
  • China elevated the role of markets while maintaining the state’s dominance in the nation’s economic strategy, seeking to balance finding new sources of growth with sustaining the Communist Party’s grip on power
  • Sovereign yields mostly lower, EU peripheral spreads widen. Asian and European stocks, U.S. equity-index futures fall. WTI crude, and gold gain; copper lower

Asian Headlines

On the Chinese third plenum, Goldman Sachs says China Plenum is 'insufficient' to drive China stocks up.

Separately S&P's Kim Eng Tan says the implementation of reforms that support the decisive role of market forces in the allocation of resources could in turn support the long term sovereign credit ratings on China. In other news, Morgan Stanley says China to cut interest rates twice in 2014.

BoJ's Miyao said won't rule out any steps in advance if BoJ were to act again.

EU & UK Headlines

BoE brings forward likelihood of 7% jobless rate to 2015 Q3, cuts forecast for near-term inflation on lower data and GBP.

BoE's Carney said constant rate scenario shows potential advantages of keeping rates unchanged after hitting 7% unemployment. He also did not rule out lower jobless threshold to 6.5% from 7.0%. Forecasts are based on market expectations, not nominal rates and uses market forecasts of key rate reaching 1% by 2015 Q4.

UK Jobless Claims Change (Oct) M/M -41.7K vs Exp. -30.0k (Prev. -41.7k, Rev. to -44.7k) - 12th straight monthly decline.
- ILO Unemployment Rate 3-months (Sep) 7.6% vs. Exp. 7.6% (Prev. 7.7%)
- Employment Change 3M/3M (Sep) 177K vs. Exp. 113K (Prev. 155K)
- Claimant Count Rate (Oct) M/M 3.9% vs Exp. 3.9% (Prev. 4.0%) - lowest Since Jan 2009
- Average Weekly Earnings (Sep) 3M/Y 0.7% vs Exp. 0.7% (Prev. 0.7%, Rev. to 0.8%)
- Weekly Earnings ex Bonus (Sep) 3M/Y 0.8% vs Exp. 0.9% (Prev. 0.8%)

German government advisers see 0.4% 2013 growth, 1.6% in 2014 vs. Exp 2013 GDP of 0.5% and 1.70% in 2014.

Eurozone Industrial Production SA (Sep) M/M -0.5% vs Exp. -0.3% (Prev. 1.0%)

Eurozone Industrial Production WDA (Sep) Y/Y 1.1% vs Exp. 0.0% (Prev. -2.1%) - biggest gain since September 2011.

Italy successfully sold EUR 5.468bln (vs. exp. EUR 5.5bln) in 3y, 30y and CCTeu bonds. The shorter dated paper was sold at lowest yield since March 2010. Germany also sold EUR 4.032bln in 0.25% 2015, b/c 2.2 (Prev. 2.3) and avg. yield 0.1% (Prev. 0.19%), retention 19.4% (Prev. 15.18%).

US Headlines

PIMCO's Bill Gross raised the percentage of Treasuries and other US government-related debt in his flagship fund in October after the Federal Reserve unexpectedly maintained its bond purchases.

CME Group has substantially raised transaction fees for the first time in four years as it flexes its pricing muscle as the dominant US futures exchange operator.

Equities

Risk averse sentiment dominated the session this morning, with the FTSE-100 index underperforming its peers where a number of blue-chip companies traded ex-dividend. Overall, financials and basic materials sectors led the move lower, as credit spreads widened (iTraxx subFin index up 6bps) and Bunds moved into positive territory after supply from Italy and Germany was absorbed.

FX

GBP outperformed its peers, driven by the release of better than expected jobs report and also the release of the latest Quarterly Inflation Report by the BoE, who brought forward likelihood of 7% jobless rate to 2015 Q3. As a result, the pair managed to recover some of the losses made yesterday following the release of softer than expected inflation data.

RBNZ Financial Stability Report said the NZD remains elevated, and timing and size of interest rate increases are uncertain. RBNZ's Wheeler said interest rates are likely to rise.

Commodities

Commerzbank's technician Axel Rudolph says that a slip through the six-month support line at USD 1270.16 will confirm bearish outlook.

AMCU lowered basic wage increase demand to ZAR 8,668 from ZAR 12,500, according to Impala spokesman. Also, according to AMCU, Impala Platinum raises wage offer to union by 0.5%. It was also reported that Amplats security disperses protest with rubber bullets, according to SAFM.

The Israeli PM Netanyahu has called for Western countries to trim their dependency on oil for the transportation sector due to the instability of the commodity.

Libya's Zawiya refinery has reopened, according to the National Oil Corp

Following last month's late payment by Ukraine to Russia, Ukraine has said it does not need to buy any Russian gas before the year's end.

Key Macro/FX highlights from SocGen

Let's hear it from the horse's mouth this morning: does BoE governor Carney now believe that the UK unemployment rate threshold of 7% will be reached earlier than it though t back in August? GBP is not an outright buy vs the USD if that is the case (UK real rates are falling vs the US), but sterling should stay bid vs the currencies where deflationary or disinflation pressures reign supreme, ie the Scandis, the EUR and the Swiss Franc. EUR/GBP did well yesterday to reach back over the 50d ma (0.8440) but this should be as good as it gets if the BoE revises up its short-term growth and inflation forecast. UK rate hike expectations have eased back thanks to the delayed tapering in the US, but short sterling may not easily be swayed by the governor to give up pricing in a first hike at the turn of 2014/2015 in particular if the employment data due one hour ahead of the QIR shows a fall in the unemployment rate to 7.6%.

UST 10y yields traded a 2.79% high yesterday (swaps 2.92% high) giving the USD free rein to strengthen vs its major counterparts. Scandi currencies continued to take a beating after CPI data showed Sweden slipped into deflation in October. Whether that leads the majority on the Riksbank committee to give in to the two doves Ekholm and Flordenand vote for a 25bp rate cut at the December meeting remains to be seen, but the high correlation with US 10y yields suggests there is further upside potential for USD/SEK. Also keep an eye on USD/JPY. As the pair approaches 100.00, short-term vol has started to pick up.

Bank of Indonesia, in a surprise decision yesterday increased its benchmark reference rate by 25bps to 7.25% a move aimed at easing its current account shortfall. Meanwhile, INR depreciated for a 9th day in a row (MSCI EM down for an 8th day on trot) and there could be more pain for the rupee after weaker industrial output (+2% yoy) and higher inflation (10.09%) sparked worries of stagflation.

The RUB took no solace from the flash GDP estimate yesterday (Q3 GDP +1.2% yoy in Q3). The central bank widened tio corridor by 5 kopeks to 32.45-39.45 rubles. We believe another quarter of growth below1.5% would force CBR to cut its benchmark rate in early 2014. With EUR/HUF on the verge of 300, we will be paying close attention to the minutes of Hungary's central bank meeting. Will these provide justification to expect future policy easing after a sharp drop in CPI inflation to 0.9% in October? Next resistance is at 303.21.

DB's Jim Reid concludes the overnight event recap

It appears that markets continue to steadily price in a greater probability of a December taper judging by the 2bp increase in 10yr UST yields, 1.2% drop in the gold price and an edging up in the USD crosses yesterday. Indeed, the Atlanta Fed’s Lockhart, who is considered a bellwether within the Fed, kept the possibility of a December tapering open in public comments yesterday. But his other comments were quite dovish, particularly when he said that he wants to see inflation accelerate toward 2% before reducing asset purchases to give him confidence that the US economy was not dealing with a “downside scenario”. Lockhart stressed that any decision by the Fed on QE would be data dependent - so his comments that the government shutdown will make coming data "less reliable" than might otherwise have been, until at least December, were also quite telling. The dovish sentiments were echoed by Kocherlakota, a FOMC voter next year.

In Asia this morning, we are again witnessing a bout of EM vulnerability led by the likes of Indonesia. This follows weakness in EM across EMEA and LATAM yesterday that saw major EM sovereign CDS about 3-5bp wider while a number of LATAM 10yr rates were up between 5-10bp. EM FX in EMEA was under some pressure yesterday as well (PLN and ZAR notably), but this abated as the day wore on. This morning Indonesia CDS is quoted about 6bp wider while cash bonds are down about half to 1 point. Asian EM FX is generally weaker across KRW, INR and IDR. Asian equities have been sold from the open today including a 2% drop in the Jakarta Composite index which is on track for its largest fall since Sept 30th. The disappointment over lack of detail from the Chinese government’s Third Plenum meeting is showing up via a 2.0% drop in the HS China Enterprises Index and 1.3% drop in the Hang Seng. On this point, DB’s Jun Ma thinks further detail may be released a few days later, but it’s fair to say that the market has been a little underwhelmed thus far. US treasury secretary Jack Lew said this morning that there are “lots of questions still to be answered” on Chinese reforms, particularly in the area of currency.

Coming back to the issue of low inflation, European inflation has been topical recently especially following the low inflation reading for the euro area in October, the recent rate cut from the ECB and a dovish report on Draghi yesterday (Germany’s FAZ newspaper reported that Draghi is concerned about the possibility of deflation in the euro zone although he will dispute that publicly). Indeed yesterday we saw the October inflation reading in Germany confirmed at just 1.2% YoY, while in the UK the annual inflation reading was below consensus at both the headline (2.2% vs 2.5% expected) and at the core level (1.7% vs 2.0% expected). Indeed the UK’s core inflation number is at a level that was last seen in 2009. Again this ties in with the arguments made in our long-term study from September "A Nominal Problem" where we highlighted how we were having a global problem with both low real GDP and low inflation. The latter get mentioned less when talking about central bank policy, especially in connection with the US taper. In terms of the market reaction, EURGBP gained 0.75% yesterday, with the bulk of the increase coming after the UK inflation print with 10yr gilts outperforming amid a generally weakish day for fixed income.

The economic data calendar looks light again today but one highlight will be the Bank of England’s inflation report. UK employment, Eurozone industrial production and Spanish CPI are also worth looking out for today. It will be a bumper day of Italian auctions with more than $5bn in new issuance today consisting of 5yr floaters, 2016s and 2044s. After the US market close, Bernanke will be speaking at townhall of teachers on the history of the Fed. He will be taking Q&A.

 

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Wed, 11/13/2013 - 08:17 | 4149234 GetZeeGold
GetZeeGold's picture

 

 

Just wait until they pull out the taser.

 

So am I a good cop.......or a bad cop? Do you feel lucky punk?

 

To protect and serve......if and when we feel like it.

Wed, 11/13/2013 - 08:31 | 4149259 negative rates
negative rates's picture

Ummm, carbon based, yea we need more of that.

Wed, 11/13/2013 - 09:15 | 4149342 StychoKiller
Wed, 11/13/2013 - 08:14 | 4149236 buzzsaw99
buzzsaw99's picture

the fed wants higher trading volume, lower rates on the 10Y

 

step 1) scare carbon based units into selling equities

step 2) anti taper

 

whipsaw bitchez

Wed, 11/13/2013 - 08:17 | 4149238 Bearwagon
Bearwagon's picture

We need to taper moral hazard ...

Wed, 11/13/2013 - 08:22 | 4149246 GetZeeGold
GetZeeGold's picture

 

 

Go ahead and taper Ben Shalom.......I double-dog dare you!

Wed, 11/13/2013 - 08:36 | 4149265 Bearwagon
Bearwagon's picture

Yes, that would be one of the most promising implementations of my idea ...

Wed, 11/13/2013 - 08:19 | 4149241 max2205
max2205's picture

Change the cpi back to work what it was in 1980 and poof.....target reached.

 

Morons and their smoke and mirrors....who buys this bs?

Wed, 11/13/2013 - 08:35 | 4149264 EscapeKey
EscapeKey's picture

those, whose paycheques depend on it.

which is to say everyone on wall street and washington dc.

Wed, 11/13/2013 - 08:24 | 4149250 new game
new game's picture

the liars should get their story straight

Wed, 11/13/2013 - 09:04 | 4149316 RSloane
RSloane's picture

I wonder if Bernanke's lecture about the Fed will include the phrase: ".....and under my guidance has single-handedly destroyed both quality of life and economic security in America for several generations to come".

Wed, 11/13/2013 - 08:25 | 4149251 apberusdisvet
apberusdisvet's picture

We all know that any talk of tapering is absolute BS; despite the disinformation and propaganda, the true economic statistics still suck.  Notice the recent BS by Carney of the UK "recovery" and the parroting by Lew, reinforced by financial media this morning.  Of course, this aids the bullion banksters in suppressing the gold price before the December delivery schedules for which they are just a tad short in inventory to deliver physical.  The bullion banks have less than 16 tons in the vaults, and December OI is much higher.

Wed, 11/13/2013 - 08:30 | 4149256 new game
new game's picture

if only a few of these gold shills would take deleivery, the problem would be solved

Wed, 11/13/2013 - 08:33 | 4149260 KTV Escort
KTV Escort's picture

As I was in the process of checking the proverbial piggy bank to decide on an appropriate donation for Philippines relief it hit me, why don't they divert a few billion of the 85 (or whatever the true amount is) over there, I wanted to vomit at how out of whack and Godless this farce is. I realize a few billion isn't going to end the cycle of poverty but JFC.

Wed, 11/13/2013 - 08:45 | 4149273 negative rates
negative rates's picture

That's aint our 85 bills/mo, and those greedy foriegners won't donate cause they already feel they are the only one feeding the poor right now , and besides their dry powder bills are going up so they have to take care of their middle men.

Wed, 11/13/2013 - 08:34 | 4149262 EscapeKey
EscapeKey's picture

ah, just another 10 point cataclysmic drop, setting the stage for a 400-point relief rally.

all hail the fed.

Wed, 11/13/2013 - 08:46 | 4149276 negative rates
negative rates's picture

Hail to the Federal three stooges.

Wed, 11/13/2013 - 08:49 | 4149280 Bearwagon
Bearwagon's picture

Nail the Federal three stooges - onto a cross!

Wed, 11/13/2013 - 09:06 | 4149319 RaceToTheBottom
RaceToTheBottom's picture

1)  Draw the line

2)  Follow the line

Wed, 11/13/2013 - 09:28 | 4149387 SheepDog-One
SheepDog-One's picture

Yea we should be getting the planned 'good news' drop anytime now to offset by +50 more S&P the terrifying red shade of markets this morning which has everyone so scared.

Wed, 11/13/2013 - 08:51 | 4149286 ...out of space
...out of space's picture

what about that news that russian will have to close all usd acount in one month?

Wed, 11/13/2013 - 08:58 | 4149292 GetZeeGold
GetZeeGold's picture

 

 

Throw me a link and I'll go look at it.

 

My stance right now is....no comment.

Wed, 11/13/2013 - 09:06 | 4149321 GetZeeGold
GetZeeGold's picture

 

 

Thanks a lot for that....but I don't speak Italian.

Wed, 11/13/2013 - 09:10 | 4149325 Mordenkainen
Mordenkainen's picture

GetZeeTranslator

Wed, 11/13/2013 - 09:11 | 4149328 RaceToTheBottom
RaceToTheBottom's picture

Interesting article.  Could just be Flaky russian politician or it could be a concerted effort to get russian currency into something other than a joke.

Watch for the US to invade Russia....  Shades of Iraq

Wed, 11/13/2013 - 09:14 | 4149306 RaceToTheBottom
RaceToTheBottom's picture

I wonder what it feels like to go to sleep each night as a central bankster?  Seriously, are those guys so deep that they believe their own stuff?  Or are they just making this stuff up as they go along?

This is almost like a couple of JV High school coaches running around the sidelines on a Friday night trying to win a game that they have never played.

Wed, 11/13/2013 - 09:04 | 4149317 Dr. Engali
Dr. Engali's picture

Good cop bad cop? One would think that these "market gurus" would have it figured out by now that there will be no taper. No growth, 750 trillion in derivatives,and moar debt means they will never taper.

Wed, 11/13/2013 - 09:26 | 4149379 SheepDog-One
SheepDog-One's picture

There won't be a 'taper event', it will just suddenly implode 1 morning.

Wed, 11/13/2013 - 09:25 | 4149372 SheepDog-One
SheepDog-One's picture

Who the fuck would plan their evening with sitting and listening to Bernank speak about the history of the FED? Go read The Creature from Jeckyl Island.

Wed, 11/13/2013 - 09:25 | 4149373 Stuck on Zero
Stuck on Zero's picture

Has anyone asked the Fed why it's necessary to keep asset prices higher than they should be? 

 

Wed, 11/13/2013 - 10:15 | 4149568 geno-econ
geno-econ's picture

Make my Day Punk-----go ahead and Taper

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