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All Eyes Turn To The Fed, Again

Tyler Durden's picture





 

Today (like pretty much every other day), it will be all about the Fed and the start of its 2-day FOMC meeting, whose outcome will be influenced by today's 8:30 am CPI report as inflation (Exp. 0.1%) according to many is the only thing stopping the Fed from tapering in light of better than expected recent economic data as well as a clearer fiscal outlook. Or at least that's what the watercooler talk is. The hardliners now agree that since the Fed openly ignored the bond market liquidity considerations in September, that it will plough on through December with no announcement, and potentially continue into 2014 with zero chances of tapering especially now that we approach the end of the business cycle and the Fed should be adding accommodation not removing it. To that end, the consensus still is in favour of January or March for the first taper so markets are not fully set up for a move; conversely a dovish statement would probably result in yet another pre-Christmas, year end market surge, which in the lower market liquidity days of December is likely what the Fed is going for, instead of a volatile, zero liquidity sell off, despite Thursday's double POMO.

Looking at overnight markets, Asian equities are trading firmer and are poised to close higher for the first time in six trading sessions. Gains are being led by the Nikkei (+0.8%) and the Hang Seng (+0.3%). Chinese A-shares are lagging (Shanghai Comp -0.3%) with some attributing the underperformance to the PBoC who refrained from adding liquidity to the interbank market today. In the fixed income markets, 10yr UST yields have traded back down to Friday’s closing levels of 2.87% (-1.2bp) and AUDUSD is largely unchanged despite the Australian government announcing a sharp deterioration in its fiscal outlook. Moodys said that the fiscal outlook deterioration is unlikely to change its view on Australia’s Aaa rating. In Asian credit markets, the focus remains on CDS rolls and EM credit is stable heading into the first day of the FOMC.

Stocks in Europe are trading lower amid thin volumes and pulling back from the gains seen yesterday as expectations of a possible Fed taper were pushed back. Across Europe, the CAC and the oil and gas sector are underperforming, being dragged lower by Technip following the smaller France-listed CGG cut their 2013 EBIT target pre-market, which saw their shares trading down by 15%.

Volumes remain particularly thin ahead of this week’s FOMC decision with the Bund being provided with only a minor reaction following the German ZEW Survey which exceeded analyst expectations and marked the highest reading since April 2006.

On the docket today: US CPI, Current Account, NAHB Housing Market Index, API Oil Inventories, a $32bln 2 year note auction and a smallish $1.25-$1.75 billion POMO.

Overnight news bullein from RanSquawk and Bloomberg

  • Stocks in Europe are trading lower amid thin volumes and pulling back from the gains seen yesterday as expectations of a possible Fed taper were pushed back.
  • Volumes remain particularly thin ahead of this week’s FOMC decision with the Bund being provided with only a minor reaction following the German ZEW Survey which exceeded analyst expectations and marked the highest reading since April 2006.
  • Despite the fall in GBP/USD following the lowest annual CPI reading since November 2009, the pair still remains relatively unchanged for the session.
  • Looking ahead there is the release of US CPI, Current Account, NAHB Housing Market Index, API Oil Inventories, US USD 32bln 2y note auction.
  • Treasuries steady, 3Y-10Y yields decline by ~1-2bps before Fed’s two-day meeting begins with market’s views split on likelihood of tapering announcement.
  • Week’s auctions begin today with $32b 2Y notes, yield 0.355% in WI trading after drawing 0.30% in Nov.
  • Current note yield highest since October amid reports Stanley Fischer, who has been critical of forward guidance, is leading candidate for Fed vice chairman
  • Senate plans to vote this week on Yellen’s nomination to succeed Bernanke as Fed chairman
  • U.K. consumer prices rose 2.1% in Nov., moving closer to the Bank of England’s 2% target, from 2.2% in Oct.
  • German investor confidence rose to 62.0 in Dec. from 54.6 in Nov., highest level in more than seven years
  • ECB’s Draghi criticized plans by euro-area governments on how to deal with failing banks, saying current proposals might be too complicated to work properly
  • JPMorgan will prohibit its traders from using multi-dealer electronic chat rooms this week, according to a person with knowledge of the matter
  • The NSA’s program of collecting telephone-call data is probably illegal, a federal judge ruled, allowing a lawsuit claiming it violates the U.S. Constitution to go forward
  • Ukrainian President Viktor Yanukovych is in Russia today,  seeking a bailout loan of as much as $15b, while anti- government protesters in Kiev reject closer ties with the country’s former Soviet master
  • Sovereign yields mostly lower. EU peripheral spreads widen. Asian stocks mixed, Nikkei gains while China indexes fall. European stocks and U.S. equity index futures decline. WTI crude and gold lower, copper little changed

US Event Calendar

  • CPI, cons 0.1%, ex food, energy cons 0.1% (8:30)
  • NAHB housing market index, cons 55 (10:00)
  • Fed to purchase $1.25b-$1.75b in 2036-2043 sector (11:00)
  • Treasury sells $32bn, 2y notes (13:00)

Asian Headlines

BoJ governor Kuroda suggested that Japan is half way there on its inflation target but added that there is a long way to go. Kuroda also stated that the BoJ intends to achieve the 2% inflation target and maintain it in a stable manner, further commenting that many indicators show that expected inflation may be 1.0%-1.5%. Nomura raises China Q4 GDP forecast to 7.6% from 7.5% Japanese Machine Tool Orders (Nov F) Y/Y 15.4% (Prev. 15.4%)

EU & UK Headlines

UK CPI (Nov) Y/Y 2.1% vs Exp. 2.2% (Prev. 2.2%); Annual rate lowest since November 2009
- UK CPI Core (Nov) Y/Y 1.8% vs Exp. 1.8% (Prev. 1.7%)
- UK CPI (Nov) M/M 0.1% vs Exp. 0.2% (Prev. 0.1%)

UK ONS House Price Index (Oct) Y/Y 5.5% vs Exp. 4.1% (Prev. 3.8%)
- UK house prices rising at the fastest pace in 3 years.

German ZEW Survey Expectations (Dec) M/M 62.0 vs Exp. 55.0 (Prev. 54.6); Highest since April 2006 & above the top end of analyst expectations
- German ZEW Survey Current Situation (Dec) M/M 32.4 vs Exp. 29.9 (Prev. 28.7)

Eurozone CPI (Nov F) Y/Y 0.9% vs Exp. 0.9% (Prev. 0.9%)
- Eurozone CPI Core (Nov F) Y/Y 0.9% vs Exp. 1.0% (Prev. 1.0%)
- Eurozone CPI (Nov) M/M vs -0.1% Exp. -0.1% (Prev. -0.1%)

Euro-Zone ZEW Survey Expectations (Dec) M/M 68.3 (Prev. 60.2)

ECB's Weidmann has pressed Eurozone governments to accelerate economic integration ahead of this week’s EU summit in Brussels, saying a lack of progress is hindering the task of the currency bloc’s central bankers.

EBA said leading EU banks shed EUR 817bln in risk weighted assets over the same period and core capital at leading EU banks rose by EUR 80bln over same time period and average ratio at 11.7%. EBA added that leading banks' exposure to sovereign debt grew 9.3% in 18 months to June.

French Finance Minister Moscovici sees higher French 2013 GDP growth at 0.1-0.2%, 2014 growth at 1% or more and 2015 at 1.7-2.0% (currently estimated at 0.20%, 0.90% and 1.70% respectively by the European Commission).

Merkel has been elected as Chancellor by the Lower-House lawmakers in Berlin, alongside expectations.

EONIA spread turns the most negative in over 6 weeks, with the spread the most negative since the day after the ECB cut the main refi rate in November. The spread cited is the June EONIA forward vs. Feb forward, which has now inverted. This is as traders continue to eye last Friday's higher than expected ECB LTRO repayment announcement, and today's higher than expected allotment of the ECB's 5-Day MRO. Analysts at IFR note that excess liquidity (today's reading rose to EUR 171.5bln from yesterday's EUR 158.7bln) is expected to fall below EUR 150bln by the year's end as banks look to build precautionary buffers instead of approaching the ECB for liquidity.

US Headlines

US Senator Reid filed a motion to advance Janet Yellen's Fed chair nomination with the Senate to vote later this week.

US Department of State Secretary Kerry says US is not approaching East China sea issue with any particular view toward China but US will state its view if China makes a unilateral move.

Equities

After pulling back from yesterday's gains, European stocks are seen mainly red across the board with the CAC underperforming with Technip dragging the index lower following the smaller France-listed CGG cuting their 2013 EBIT target pre-market, which saw their shares trading down by 15%. The SMI is seen up, being lead higher by Zurich after reports that Swiss Re's George Quinn is to join Zurich Insurance as CFO. In terms of specific stock movements, Wirecard shares are one of outperformers after a positive broker move at Exane.

FX

With volumes continuing to remain light ahead of the FOMC decision tomorrow, FX markets are trading in a rangebound manner with the exception of AUD which is trading lower after the Australian government downgraded their GDP forecasts.

Australia forecasts a 2013/14 deficit of AUD 47bln vs. August estimate of AUD 30.1bln and sees 2.5% GDP growth in 2014/15 vs. August estimate of 3%, according to its Mid Year Economic and Fiscal Outlook.

New Zealand expects NZD 86mln surplus in 2013-14 and NZD 1.7bln in 2015-16. New Zealand also raised forecast for budget surpluses from 2014-2015 and sees GDP growth peaking at 3.6% in 2015.

Sweden’s Riksbank has cut their interest rate by 25bps to 0.75% as expected saying that a slow increase in the repo rate is not expected to begin until the start of 2015. This comment was perceived as dovish and consequently weakened the local currency.

USD/TRY was seen higher this morning upon the news that financial police have searched the HQ of state-run lender Halkbank.

Commodities

The Jan WTI crude future is seen broadly flat heading into the North American open where as Brent futures trade lower paring back some of yesterday's sharp gains following a break down in talks regarding the re-opening of key oil ports in Libya. At present the initial estimates for tomorrow's DoE inventory data forecasts a draw in crude of 3.250mln with gasoline expected to show a build of 1.750mln and distillate expected at a build of 240k.

Iraq will take 'necessary actions' if the Kurdistan Regional Government is taking oil out of the country without permission from the government, according to the deputy PM for energy affairs.

A strike at Total's La Mede, Gonfreville and Feyzin refineries in France entered its fifth day today.

A leading Saudi prince demanded a place for his country at talks with Iran, assailing the Obama administration for working behind Riyadh's back.

India will keep a tight leash on gold imports despite a recent improvement in its trade deficit and lobbying by a bullion industry struggling with high premiums and a supply crunch.

* * *

DB's Jim Reid concludes the overnight recap

Whatever we think of the Fed's ability to successfully withdraw QE over the coming months, it seems increasingly likely that they'll start the ball rolling fairly soon. DB's chief US economist Peter Hooper now expects the Fed to taper tomorrow after their 2-day meeting. He thinks it will be in the order of $5-15bn and skewed towards Treasuries. He also thinks that the taper, if it does come, will be accompanied by a dovish statement that reinforces the low for longer message on policy rates. The one thing that has stopped Peter from being more confident of late has been the low level of inflation and today's CPI could still be a swing factor. The expectations here are for a +0.1% MoM print on the both the headline (-0.1% previous) and core CPI (0.1% previous). In terms of what the Fed could do to reinforce the low for longer message, Peter thinks that it isn’t very likely that the FOMC will lower its current unemployment threshold from 6.5%, reduce interest on excess reserves or provide calendar guidance. Instead, there may be more Fed support for a specific inflation floor, lowering projections for the Fed funds rates or through various verbal means such as pointing out that their actions could be reversed if markets react negatively enough to put the economic expansion at risk. On the subject of forward guidance, Peter doesn’t think that Stanley Fischer’s candidacy for Fed Vice Chair will significantly affect the outcome of the December meeting if the Fed does decide to taper, but this is an issue worth watching in the future. Fischer has been previously quoted as being opposed to forward guidance.

The consensus still seems to be in favour of January or March for the first taper so markets are not fully set up for a move although a dovish statement would help. We continue to think that the Fed will find it more difficult to remove the full $85bn in 2014 than they and the market think. Much depends on how markets/economies react when the Fed starts. It might not be immediate but the start of the removal of some of the artificial stimulus is likely to have an adverse impact somewhere in the coming months especially when you see how sensitive so many assets have been to liquidity. As such we think the taper pace will be slow and 2014 will still be a year of very high  global central bank liquidity and possibly the highest ever when considering the BoJ and what the ECB might have to do. There may however need to be some wobbles in H1 first to cement this outcome.

Monday saw a rebound in global risk sentiment after what was a tough few days for markets last week. The S&P 500 managed to break a string of four consecutive losses by posting a +0.63% gain and there were similarly strong performances from the Dow (+0.82%) and the NASDAQ (+0.71%). Nevertheless, since Thanksgiving US equities have had 9 red days out of the last 12 as markets have increasingly priced in the risk of a start to the liquidity unwind. Yesterday’s rally had a cyclical tone to it with industrial (+1.0%), oil & gas (+0.98%) and tech stocks (+0.95%) leading the way higher. In contrast to the consensus-beating European flash manufacturing PMIs (with the exception of France), the US manufacturing data was more mixed. The December Empire survey headline series improved to +1.0 vs. -2.2 previously but this was disappointing relative to consensus of 5.0. DB’s economics team notes that the Empire survey has tended to be more erratic over the past six months compared to other measures of manufacturing activity such as the Philadelphia Fed survey, Chicago PMI and manufacturing ISM. The Markit preliminary PMI came in at 54.4 for December which was down slightly on last month’s number of 54.7. On a more positive note, November industrial production managed to surprise on the upside (1.1% vs 0.6% expected) with strong gains in utility output, motor vehicle production and hi-tech production.

Our economists noted that the capacity utilization rate rose to a post-recession high of 79.0% (vs. 78.2% previously) which DB’s Joe Lavorgna notes is an important leading indicator of private-sector capex. On the fixed income side, 10yr treasury yields ended the day at a three-month high of 2.878%. EURUSD was rangebound after Draghi’s speech in the European Parliament provided a repeat of his call that the ECB is aware of the downside risks of prolonged low inflation and that the Council stands ready to act if required.

Looking at overnight markets, Asian equities are trading firmer and are poised to close higher for the first time in six trading sessions. Gains are being led by the Nikkei (+0.8%) and the Hang Seng (+0.3%). Chinese A-shares are lagging (Shanghai Comp -0.3%) with some attributing the underperformance to the PBoC who refrained from adding liquidity to the interbank market today. In the fixed income markets, 10yr UST yields have traded back down to Friday’s closing levels of 2.87% (-1.2bp) and AUDUSD is largely unchanged despite the Australian government announcing a sharp deterioration in its fiscal outlook. Moodys said that the fiscal outlook deterioration is unlikely to change its view on Australia’s Aaa rating. In Asian credit markets, the focus remains on CDS rolls and EM credit is stable heading into the first day of the FOMC.

Turning to the day ahead, there will be two main data releases to note today. The first of these is the German ZEW survey where consensus is expecting the expectations component to continue its upward march. Then we get what will be the final major data release of relevance to the FOMC which is the US CPI for November due at 1:30pm London time. Mortgage applications and the NAHB housing index will also be released today.

 


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Tue, 12/17/2013 - 08:11 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

This is the most important FOMC meeting ever. We really really really could taper you know. Really!

<Honest. I really mean it this time.>

Tue, 12/17/2013 - 08:42 | Link to Comment Popo
Popo's picture

"...except for things aren't QUITE perfect yet.   At this time, we're thinking we're going to wait just a teensy, weensy, wittle bit longer before we unplug the giant life-support machine that's making the rich richer,  you poorer and otherwise keeping the entire world from shitting the bed.  Besides... it's bonus season on Wall Street.   I wouldn't want to make my leash-holders angry.

But just so you know... at this rate, things are bound to be perfect in just a couple more weeks... and then we'll probably taper... y'know... like, when I'm gone, working for Warburg Pincus, and hawking a book on how a complete and utter clown can do the easiest and most utterly obvious thing ever and be called a hero."   -- Ben Bernanke

Tue, 12/17/2013 - 09:11 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

So does that mean you're gonna taper.......or not? :)

<Cus it's all about the taper.>

Tue, 12/17/2013 - 10:09 | Link to Comment Doubleth1nker
Doubleth1nker's picture

Retail playbook:

Fed tapers ---> BTFD

Fed doesn't taper ---> BTFATH

Its all bullish anyway. Just buy

Tue, 12/17/2013 - 08:23 | Link to Comment fonzannoon
fonzannoon's picture

taper taper taper taper taper taper no taperno taper taper january taper no taper march taper taper taper taper bitcoin taper no taper no taper gold surging silver surging gold katankered silver pummeled taper taper bitcoin bitcoin bitcoin taper taper taper.

Tue, 12/17/2013 - 08:27 | Link to Comment negative rates
negative rates's picture

He tapers me, he doesn't taper me. He tapers me, he's doesn't taper me. He tapers me, he doesn't taper me. Im almost out of pedals to zee metals.

Tue, 12/17/2013 - 08:33 | Link to Comment Headbanger
Headbanger's picture

TAPER IT YOU FED PUSSIES!! 

Meanwhile...  Snowden wants to live in Brazil:

http://bigstory.ap.org/article/report-snowden-would-help-brazil-if-given...

 

He's got to be into big booty:

http://www.youtube.com/watch?v=aZ18nPl9S-0

Tue, 12/17/2013 - 09:06 | Link to Comment kralizec
kralizec's picture

Gotta be big up top to counter-balance that backyard or why bother?!

Tue, 12/17/2013 - 08:22 | Link to Comment buzzsaw99
buzzsaw99's picture

triple. dog. dare.

Tue, 12/17/2013 - 09:09 | Link to Comment kralizec
kralizec's picture

To taper or not to taper, that is the question...

No, really, the question is: Why are people so willing to give a tinkers damn about anything these asswipes say?  Watch what they do!

Tue, 12/17/2013 - 08:26 | Link to Comment negative rates
negative rates's picture

The Fed, always wrong, but never in doubt.

Tue, 12/17/2013 - 08:30 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Wrong only to the people that don't count.

<In case you're wondering.....that would be the little people says the late Leona Helmsley.>

Tue, 12/17/2013 - 08:38 | Link to Comment negative rates
negative rates's picture

They wanted me to go rehab, but I said NO NO No.

Tue, 12/17/2013 - 08:27 | Link to Comment 22winmag
22winmag's picture

Tapering isn't like asking a crack smoker to taper his habit.

 

Tapering is like asking a crack dealer to taper his sales and distribution.

 

Not happening, Not now. Not ever.

Tue, 12/17/2013 - 08:31 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

The Fed is conducting a going out of 'bidness' sale. Free fiat with the purchase of free fiat.

Tue, 12/17/2013 - 08:38 | Link to Comment negative rates
negative rates's picture

This man is our reserve chairman, this place is going to pizzas, get yours at the loco DC parlor.

Tue, 12/17/2013 - 09:07 | Link to Comment new game
new game's picture

.005 laundering (anualized, could be in the 100's percent return with zero risk, just membership of the club) by law time billions(pomo)= big time bonuses at the cost of future freedom.

does that help?

Tue, 12/17/2013 - 08:33 | Link to Comment Skin666
Skin666's picture

If they even think of tapering this month, and unleash the clusterfuck that is the stock market meltdown before Christmas, these guys truly are fucking morons!

 

'Taper' in Jan, Meltdown in Feb

Tue, 12/17/2013 - 08:33 | Link to Comment GrinandBearit
GrinandBearit's picture

LIESman was just pumping taper talk hard on CNBC.  The rest of the crew (Joe, Becky, Andrew, Jim Grant) were calling him out his inconsistancies of predicting taper in the past... hard to believe.  They must need ratings -lol

Tue, 12/17/2013 - 08:36 | Link to Comment Bearwagon
Bearwagon's picture

Come on, guys. We all know that no taper is to happen, unless negative rates are introduced ....

Tue, 12/17/2013 - 08:42 | Link to Comment jvetter713
jvetter713's picture

Not this month but January...definitely January!  /sarc

Tue, 12/17/2013 - 08:42 | Link to Comment XAU XAG
XAU XAG's picture

Taper "to be or not to be"..........is the question

Tue, 12/17/2013 - 08:51 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

Oh, big boy, why donna ya come on over and taper me....

Tue, 12/17/2013 - 08:59 | Link to Comment goldenbuddha454
goldenbuddha454's picture

its like a game of chicken

Tue, 12/17/2013 - 09:00 | Link to Comment NoDebt
NoDebt's picture

Yeah, but using other people's cars.

Tue, 12/17/2013 - 08:59 | Link to Comment NoDebt
NoDebt's picture

I predict they'll announce a taper of $1 from their $85B/mo. run rate.  Just so The Bernank has his reputational cover story for later.

The S&P will still drop 30 handles.

Tue, 12/17/2013 - 09:04 | Link to Comment XAU XAG
XAU XAG's picture

@NoDebt

It would have to be at least $2..............a $1 ain't what it used to be!

Tue, 12/17/2013 - 09:09 | Link to Comment NoDebt
NoDebt's picture

That would make their tapering trajectory 100% steeper.  That sounds WAY too aggressive to me.  The economy could easily tip into recession at that torid pace.  And, of course, the S&P would be off 60 instead of only 30.

Tue, 12/17/2013 - 09:15 | Link to Comment XAU XAG
XAU XAG's picture

@NoDebt

 

ROTFLMAO!

Tue, 12/17/2013 - 09:13 | Link to Comment new game
new game's picture

against the grain, predicting 5/5 B reduction in purchases to restore/maintain credibility. yea i said credibility...

Tue, 12/17/2013 - 09:10 | Link to Comment SheepDog-One
SheepDog-One's picture

What...the FED guys are all recovered from their big 'Century of Cornholin' celebration hangover already and ready to do some more cornholing?

Tue, 12/17/2013 - 09:06 | Link to Comment eddiebe
eddiebe's picture

The talk around the water-cooler is that Ben was passing gas on the elevator earlier today on his way from his penthouse suite this morning. ' This must be considered as bullish', Jack Hoff breathed gleefully.

Tue, 12/17/2013 - 09:11 | Link to Comment ThirdWorldDude
ThirdWorldDude's picture

Screw tapertalk, there won't be any factual fiscal tightening for reasons well beknownst to ZHers...

Meanwhile, Sweden's CB, Riskbanken (sic!) has made a great step forward in the ongoing race to the bottom and just cut it's interest rates by 25 bps to 0.75% in order to fight deflation (cue BS siren). It matters not that the average Herring-Svennson family's debts are over 170% of disposable income, the important stuff is to keep on blowing this soap bubble and increase the support for bank vultures...

Wi Tu Lo, bitches!  Stack on!

Tue, 12/17/2013 - 09:16 | Link to Comment whopper
whopper's picture

I hate that fucking word taper. The Fed needs it's own TV channel.

Tue, 12/17/2013 - 09:35 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

Yeah, I'm all for fighting deflation.  I hate paying LESS for things and I get uncomfortable and twitchy if my money ISN'T losing value.  I am a New World Man!....

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