This page has been archived and commenting is disabled.

24 Hours Later - Here's The Biggest Post-FOMC Movers

Tyler Durden's picture





 

US equity markets were the first to move yesterday on the news of the tapering which is a loosening and not a tightening move by the Fed. Overnight and today has seen stocks stabilize as the rest of the world wakes up to what this slowing of flow actually means... From EM FX to precious metals to collossal flattening in the US Treasury term structure, things are making major moves...

 

And as a bonus, here are some just released thoughts from Goldman on Emerging Market currencies - arguably the biggest wildcard in a post-taper world:

Some EMs are adjusting, others are less clear

 

We have seen higher yields and weaker currencies across most of the troubled EMs; both developments accommodate economic adjustment. But not all economies are responding to these shifts in a similar way. External balances remain challenging for Turkey, Brazil, Indonesia and South Africa. Even though a temporary rally is not out of question, the ZAR, TRY, IDR and BRL remain risky currencies with scope for further depreciation. In contrast, India’s impressive current account improvement is driven both by import restraint and by export growth and, in our view, the INR is likely to remain broadly stable or even strengthen on the margin (Exhibit 3). Given this more positive view, the wide FX forwards, the elevated implied volatility and the skew towards depreciation in FX options create attractive carry opportunities in the INR. Alternatively, long INR positions can help offset the negative carry in short TRY, ZAR or BRL positions.  

 

Equities and credit in ‘DMs of EMs’ offer better risk-reward than EM FX or bonds

 

From a medium-term perspective, a global backdrop where US growth accelerates, US medium-term yields rise (but gradually) and the front end is anchored at exceptionally low levels (but is subject to upside risks) should benefit equities and credit more than bonds or currencies. And, by extension, EM currencies (vs the USD) and bonds are likely to offer inferior risk-reward ratios compared with EM equities and credits (Exhibit 4). As we have argued recently, EM sovereign credit from the ‘DMs of EMs’ (those countries with the stronger institutional set-ups in the EM world) can continue to perform strongly along with US high yield credit (‘’DMs of EMs’ not underperforming significantly despite the rally’, EM Macro Daily, October 28, 2013). That said, for global investors, we still see a better balance of reward and risk in DM equities and credit relative to EM counterparts.  

 

For now, anchored front-end DM rates should help certain ‘risky receivers’

 

Immediately after the September FOMC dovish surprise we argued that EM central banks were likely to respond with dovish responses. Since then, we have seen a slew of such surprises (rate cuts in Chile, Mexico, Thailand and Hungary are among the primary examples). Over the last few days we have seen dovish shifts both in Colombia and in India, while expectations for rate hikes have also moderated in Brazil.

 

South Africa is one of the clearest sources of opportunity in EM front ends relative to our forecasts (Exhibit 5). We expect no hikes by the SARB next year, while the FRAs are pricing in an increase in policy rates from 5% to 6.3% in one year, and to 7.3% two years from now. There is also space for Brazilian DI rates to decline towards the 10.30 area, in line with our Latam Economists’ view of one last hike of 25bp for BACEN. But unless one is ready to position for no further hikes in the near term in Brazil, the risk-reward below that level becomes less appealing. Lastly, the inverted curve in India is a result of the elevated near-term money market rate – a result of tight liquidity measures, which may be eased as the economy continues to show signs of adjustment. 

 

But, at some point, strong US data may test the Fed’s resolve

 

The substantial decline in US (and by extension G3) front ends suggests that the market views the Fed’s commitment to low rates for longer as credible, given the current data flow. However, as activity picks up in 2014 (in our forecasts), there is room for periodic upside data surprises. A few months of meaningfully strong growth data could prompt the market to front-load some tightening premium (Exhibit 6). In other words, there are upside risks to front-end rates next year, stemming primarily from US data strength.

 

This means that bouts of EM pressure driven by US rates are likely to resurface. And the momentum in US data will determine how quickly this occurs. The uncertainty around timing makes it hard to position for such an eventuality via shorting high-carry EM instruments. Instead, low-yielding currencies from economies in need of economic adjustment, such as the THB and MYR, can offer ways to hedge against a Dollar rally vs EM, driven by higher front-end rates. In rates markets, ILS 1-year rates are pricing more than 10bp of policy rate cuts in the year ahead. Our view is that the BoI is more likely to hike by 50bp (see ‘A shift in the Bank of Israel’s ‘policy mix’ in 2014’, EM Macro Daily, December 18, 2013). Israel rates are correlated with US front-end yields and they can offer a way to hedge against such risks, earning positive carry and benefiting from local fundamental drivers that may prompt the central bank to hike next year.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 12/19/2013 - 15:11 | Link to Comment Sufiy
Sufiy's picture


Bloomberg: London Gold Vaults Are Virtually Empty


  Bloomberg quite suddenly provides some really interesting information about the state of the gold market and ongoing manipulations around it these days. Could the reports about JPMorgan being Net Long Gold now be correct in the end? http://sufiy.blogspot.co.uk/2013/12/bloomberg-london-gold-vaults-are.htm...

Thu, 12/19/2013 - 15:37 | Link to Comment ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

Sounds more and more like the "Freegolders" are right.  Gold prices moving rapidly towards $0.  Then we find out the price in the cash and carry markets.

 

I love that guys attempt to sound neutral:  "I don't know whether there will ever be interested in gold again, but if there is, the gold is not there anymore".

Thu, 12/19/2013 - 17:08 | Link to Comment TheRideNeverEnds
TheRideNeverEnds's picture

That begs the question, if one cannot purchase gold with any amount of fiat is the gold price really zero or is it infinity and will it even really matter at that point?    

Thu, 12/19/2013 - 15:46 | Link to Comment ZerOhead
ZerOhead's picture

The qustion is NOT whether or not they are net long (they will absolutely have to be when fiat collapses)... but WHO THE FUCK will be NET SHORT when they are.

My guess is that the big investment banks will have to create another AIG or Lehman Bro's (TBTF) to unload the megashort onto so that they get paid and the taxpayers are once again forced to foot the bill or die...

Thu, 12/19/2013 - 15:47 | Link to Comment agent default
agent default's picture

Problem: In such a situation everyone will demand physical settlement.  You cannot offload.  It will be a huge mess when the government sponsored fraud of this scale and audacity is exposed.  

Thu, 12/19/2013 - 15:52 | Link to Comment ZerOhead
ZerOhead's picture

When personal possession of gold is outlawed (again) only outlaws will own gold.

Problem solved.

Thu, 12/19/2013 - 16:51 | Link to Comment max2205
max2205's picture

I am one more reverse split away from losing 100% on a small TVIX position from last year...thanks Ben...fuck you Ben....let it ride

Thu, 12/19/2013 - 16:59 | Link to Comment ...out of space
...out of space's picture

Solution: comex can do a money settlement. 

Thu, 12/19/2013 - 15:14 | Link to Comment LetThemEatRand
LetThemEatRand's picture

Seems like crude is the one market too big for them to move around at will.  

Thu, 12/19/2013 - 15:34 | Link to Comment Tasty Sandwich
Tasty Sandwich's picture

 

 

Rollover

Saw this posted here a few weeks ago.  It's a decent movie.

It's actually somewhat impressive they've kept it going this long.

Basically, the Saudis decide to stop rolling over their dollar holdings and begin turning them into gold.

Thu, 12/19/2013 - 16:06 | Link to Comment tarsubil
tarsubil's picture

They would instantly be labeled enemies and face ruthless military action. I'm sure the company has enough dirt on the leaders that they'd all be taken out by a "popular uprising." I doubt the Saudis are going to rock the boat.

Thu, 12/19/2013 - 16:14 | Link to Comment Seer
Seer's picture

The "Royal Family" isn't alone in the boat...  It's been an issue for quite some time now- continuity; I figure this is why the U.S. went full-bore on Iraq.  Anyway...

I saw the point of the movie more about the panic that would likely set in from any big trigger event (black swan).

Thu, 12/19/2013 - 16:19 | Link to Comment Tasty Sandwich
Tasty Sandwich's picture

A military doesn't run too well without oil.  I guess the SPR would work for the military for a little while.  Still hard to distribute it, though.

Instead of gold, they get US military protection of their regime.

Saddam decided he was no longer interested in dollars for oil.  Gaddaffi wanted a gold dinar.

Thu, 12/19/2013 - 20:03 | Link to Comment Seer
Seer's picture

Another thing to consider about access to oil is that there are economies of scale to consider.  If the consumer base is severely depeleted then on a per-unit basis that oil is going to be MUCH more expensive: economies of scale in reverse.

Thu, 12/19/2013 - 16:50 | Link to Comment ...out of space
...out of space's picture

what are u talking about? 2008 crude fall from 150 to 35 in six of month

that was no free market move

Thu, 12/19/2013 - 15:16 | Link to Comment Xploregon
Xploregon's picture

Looks like a back the truck up day to me!

Thu, 12/19/2013 - 16:14 | Link to Comment Crash Overide
Crash Overide's picture

Today's smack down is an excuse to go to the coin shop and trade in my worthless paper again. :)

Thank you fake taper talk, the lower the price, the more I hold.

Thu, 12/19/2013 - 15:18 | Link to Comment NoDebt
NoDebt's picture

How high's the water, ma?  2.939 and risin'!

Thu, 12/19/2013 - 15:20 | Link to Comment NoTTD
NoTTD's picture

As usual, everything I believe and invest in is down, and everything else up.

 

These are truly the times that try men's souls.

Thu, 12/19/2013 - 15:30 | Link to Comment ChaosEquilibrium
ChaosEquilibrium's picture

Strong indicator that you will be the ULTIMATE WINNER....and receive a free chicken dinner......in the long run.............if we are NOT dead!

Thu, 12/19/2013 - 17:04 | Link to Comment rp1
rp1's picture

Look for deep value, and don't be greedy or fearful.  I'm in TAN (solar energy) and DXJ (Japanese stocks short yen) so far.  I think they're money good, and they're going up.

Thu, 12/19/2013 - 15:18 | Link to Comment InspectorBird
InspectorBird's picture

Actually im surprised that they couldnt bring PM-s down more...  they held up quite well.

Thu, 12/19/2013 - 15:21 | Link to Comment Gief Gold Plox
Gief Gold Plox's picture

Agreed. I was sure silver was going to go sub 19 again.

Oh well, maybe tomorrow I get to back up the truck.

Thu, 12/19/2013 - 15:24 | Link to Comment InspectorBird
InspectorBird's picture

yeah, but then again the first year of QE forever was very bad for PMs, maybe tightening is actually good for PMs, go figure :)

Thu, 12/19/2013 - 16:54 | Link to Comment FieldingMellish
FieldingMellish's picture

PMs have been falling because QE has been working (shock! for any ZH reader, I know). Tapering is confirmation that QE was working and thus PMs can finally be consigned to old ladies and coin collectors (and impoverished Indian farmers). Its all downhill for here.

Thu, 12/19/2013 - 15:25 | Link to Comment Seer
Seer's picture

Probably more to go on the downside.  They sure as hell did a number on Bitcoin...

Thu, 12/19/2013 - 16:25 | Link to Comment FieldingMellish
FieldingMellish's picture

You'll have the next decade to enjoy lower PM prices...

Thu, 12/19/2013 - 21:01 | Link to Comment mkkby
mkkby's picture

What the hell are you talking about???  Taper is a LOOSENING and not a TIGHTENING.  Have you guys lost it?

Thu, 12/19/2013 - 15:24 | Link to Comment Seer
Seer's picture

a global backdrop where US growth accelerates

I just stopped reading right there...

Thu, 12/19/2013 - 15:33 | Link to Comment Obama_4_Dictator
Obama_4_Dictator's picture

I have to give the criminal banking elite, tratarious politicians, and the Bernake much credit.....thier crimnal gusto knows no bounds and they have been very succesful at keeping the american sheep asleep in the barn and keeping these ficticious marktes from unwinding....it's very frustrating as a real American and patriot - my gut tells me it's fake but the system tells me it's real - almost want to just give up, but I know from a business perspective that persitance and patience always pays off in the end.  I will never capitualte!

Thu, 12/19/2013 - 16:11 | Link to Comment Spastica Rex
Spastica Rex's picture

Everyone capitulates, in the end. It's called "dead."

 

Thu, 12/19/2013 - 16:25 | Link to Comment Obama_4_Dictator
Obama_4_Dictator's picture

LOL, fine while I'm breathing then.  

Thu, 12/19/2013 - 15:42 | Link to Comment Callz d Ballz
Callz d Ballz's picture

So let me get this straight, the Fed began buying $45 billion a month of MBS when production was around $40 billion a month in the refi market, now buying $35 billion/month with current production at less than $20 billion....

Riiiiiiiiiiiiiiiiiiiiiiiiiggggggggggggggggggghhhhhhhhhhhhhhhhhhhht....

Thu, 12/19/2013 - 15:51 | Link to Comment fijisailor
fijisailor's picture

link?

Thu, 12/19/2013 - 16:06 | Link to Comment NIHILIST CIPHER
NIHILIST CIPHER's picture

ALL markets are manipulated, therefore all market indicators are BS..............that is all.

Thu, 12/19/2013 - 16:18 | Link to Comment dcj98gst
dcj98gst's picture

If 10 yr goes above 3.5% they will tank the equity markets to bring it back down.  

Thu, 12/19/2013 - 16:27 | Link to Comment Obama_4_Dictator
Obama_4_Dictator's picture

Fingers crossed!!

Thu, 12/19/2013 - 16:59 | Link to Comment rp1
rp1's picture

They won't do anything.  All those seniors the Fed forced into stocks will sell to buy bonds.  It's guaranteed income.  But I think they'll want more than 3.5%.

Thu, 12/19/2013 - 17:37 | Link to Comment Spungo
Spungo's picture

Which might create another sub-prime (junk bond) lending bubble. Oh wait, 

Thu, 12/19/2013 - 20:28 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

I wouldn't be surprised if the entire yield curve was rigged. After LIBOR, is there any doubt that the ones who have the power won't abuse it? Especially if a certain Federal Reserve needed rates on the ten year below 3%...

Thu, 12/19/2013 - 16:24 | Link to Comment delivered
delivered's picture

Need to show a good deal of patience with PMs right now as I firmly believe continued assults will occur moving into 2014. I'm not really going to comment on whether PM prices are manipulated or not as you could make this arguement just about any asset class. Rather, my focus is on a number of critical data points that will relay the real stress in the market including 10yr T-Bond rates (rising), Shibor rates (reflecting stress in China's credit markets), GOFO rates (again, negative), bullish indicator for equities (I believe above 85% now), and bearish indicator for PMs (must be close to an all time high). Further, the real strenght of the consumer will be better understood in January when final retail sales figures are reported but don't get tricked with sales figures, rather focus on retailer gross margins and inventory levels/builds (as this will tell the real story).

The trend right now in paper PMs is momo trading on the weakness combined with the fact that no real investor trusts paper gold (but will look to own physical and possibly the miners as well). This may be wishful thinking but I could feasibly see gold breaking $1k in the first half of 2014 which would most likely lead an assult to the $800 range (based on just how robust the US recovery is). Wishful thinking from the standpoint of being able to load up at a price point which will most likely never be witnessed again and with bearish views probably in excess of 90% at that point. My view may be overly negative but all markets need to reach extreme positions before reality finally sets in. Gold at $800 and the Dow at 20k is not out of the question given how extreme markets move these days.

Remember that the vast majority of traders live, thrive, and get "juiced" by ever more risk taking and extremes. Like any addict, the rush needs to constantly get higher and higher before the big crash, reset, and rush into the next drug of flavor. I believe we're not there yet and won't be until some wildly excessive positions are taken that eventually implode.

Just my thoughts and I understand being patient with positions in PMs is sometimes very difficult. But if there was ever a better insurance hedge or product against the instability and systemic risk in the financial markets, PMs are it.

Thu, 12/19/2013 - 16:30 | Link to Comment Obama_4_Dictator
Obama_4_Dictator's picture

I think I got too much "insurance"....should I call my agent?

Thu, 12/19/2013 - 17:08 | Link to Comment rp1
rp1's picture

Gold is dead.  What are you going to do, watch them destroy the currency so you can trade some yellow rocks?  Fuck that.  If you want a piece of the future, you should be in cash.  Bullshit is going down as interest rates go up.

Thu, 12/19/2013 - 17:54 | Link to Comment A. Magnus
A. Magnus's picture

Who the fuck are you, and why the fuck should we care about your pro-government bullshit? You sound like a stool pigeon motherfucker from the Treasury department trying to pitch bullshit paper to stupid fucking people...

Thu, 12/19/2013 - 19:20 | Link to Comment delivered
delivered's picture

Let me explain how your thesis holds water for only a short period of time. Sure, sell whatever you have and hold cash as interest rates increase. Of course this will damage the economy across multiple asset classes including bonds, real estate, and eventually, equities (as the value of equities is a function of interest rates). So as rates rise, these asset classes decrease in value of if you like, deflate. So if assets are deflating and people are holding cash, the economy will move from an inflationary environment (last decade) to dis-inflation (currently being experienced) to outright deflation (which Japan has fought for 20+ years). As we know, deflation benefits savers and destroys borrowers as it takes more USDs to repay debt as the economy deflates. 

For the short-term, your position of holding cash makes sense as it's value would increase relative to goods, services, assets, etc. The problem is that eventually the weight of deflation implodes on borrowers as the ability to service the debt, interest and principal payments, will become strained. For the world's largest debtor, the US government, this would be a real problem as the tax base would begin to erode, deficits increase (even if cuts are made in personnel which of course accelerates the deflation cycle), and the % of debt to GDP explode higher. Eventually, this would lead to a default in one fashion or another on the US debt which then would destroy the value of held in cash. Whether you hold the cash in Yen, Euros, or USDs, it doesn't matter as all of these regions are heavily indebted and would experience extreme pain with servicing the debt. Look to Argentina for an example of how a deflation cycle developed and worked through to a debt crisis and then an eventual currency crisis. And BTW, just think of the damage to the banks/finance companies as cash flows contract, asset (i.e., collateral values) decrease, and NPA's spike (wiping out the equity in the banks).

So your strategy isn't completely unsound for the short-term but if you stay in cash too long, be prepared to pay dearly as don't think for a moment that a currency crisis couldn't eventually hit the USD. If history has taught us anything is that it almost certainly repeats itself. 

And finally, I don't have to watch them destroy the currency at all as they've already achieved this. With $17 trillion of stated debt and another $100 trillion plus of obligations that the US Government does not have to report (as they seem to think generally accepted accounting procedures don't apply), what we're dealing with here is just a matter of time and pressure. 

Thu, 12/19/2013 - 19:45 | Link to Comment Seer
Seer's picture

No problems following the logic, seems perfectly sane/viable to me...

"For the world's largest debtor, the US government"

The curveball here is that just about every other govt is also fucked.  And then there's that (for the time being anyway) "reserve currency" thing...

Those with physical resources (mostly of the consumable variety), not being over-leveraged/over-scaled that is, are the ones sitting in the best position, as it's physical resources that are essentail.  This is why I'm long the U.S., Canada and Russia: not that I expect any boom, rather, it is these countries that have something to cushion the fall.

Thu, 12/19/2013 - 16:50 | Link to Comment Took Red Pill
Took Red Pill's picture

Gold's now at $1194! Well below cash cost. Time to do some Christmas shopping for myself!

http://www.zerohedge.com/news/2013-12-02/gold-tumbles-towards-marginal-production-costs

Thu, 12/19/2013 - 16:58 | Link to Comment rp1
rp1's picture

This is seriously a waste of fucking money, unless you want to show off, in which case, waste your money.

Thu, 12/19/2013 - 20:00 | Link to Comment Seer
Seer's picture

Seems that wasting oxygen is also a bad thing, something that you ought to perhaps consider equally as perilous. (really, how many posts are you going to hammer the same opinion with?)

Do NOT follow this link or you will be banned from the site!