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Davos And Polar Vortex 2 Unleashed As Hilsenrath Says "More Taper" - The Complete Overnight Preview

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One of the bigger stories overnight is Hilsenrath's latest communication from the Fed which once again simply paraphrases the status quo opinion, namely which is that the Fed will taper by another $10 billion on January 29, reducing the total monthly flow to $65 billion. "The Federal Reserve is on track to trim its bond-buying program for the second time in six weeks as a lackluster December jobs report failed to diminish the central bank's expectations for solid U.S. economic growth this year, according to interviews with officials and their public comments." Of course, should the Fed not do that, as the Hilsenrath turned to Hilsen-wrath after all those Taper rumors in September ended up being one giant dud, one can once and for all completely ignore the WSJ reporter, who will have lost all his Fed sources and is now merely an echo chamber of consensus. What is notable is that the result of the latest mouthpiece effort, the USD is stronger, which means USDJPY is higher, which means US equity futures are flying.... on less QE to be announced. We eagerly await for this particular correlation pair to finally flip.

The other big story, of course, is the already noted well-telegraphed in advance PBOC liquidity injection ahead of the Chinese Lunar New Year, and ahead of a potential January 31 Trust default which will certainly shake the foundations of the Chinese shadow banking system to the core. Not helping nerves was last night's announcement by Zhang Ming, a researcher and director of the international investment department at the Chinese Academy of Social Sciences, that "trusts and shadow banking will see defaults this year, and this is a good thing." Let's circle back in 6 months to see just how good it is.

Still, the PBOC's liquidity was a welcome addition to a market suddenly on the ropes about where new money will come from, sending the USDJPY soaring, the Nikkei higher by 1%, the Shanghai Composite higher by 0.86% back over 2000 and the S&P futures about 8 points higher. This happened despite Europe once again issuing warning signs of a slowdown when the January German ZEW Survey missed expectations of an increase to 64.0, and instead declined from 62.0 to 61.7.

The end results is that heading into the North American open stocks in Europe are seen broadly higher, albeit marginally, with USTs under pressure and USD index supported by the latest WSJ's Hilsenrath article. He also added that the Fed could cut purchases to USD 65bln/month, adding that the Fed is comfortable with rate expectations in the market. Furthermore for USTs it is worth noting that there is unconfirmed market talk that they have been put under pressure by a large block sale by a large Japanese bank. Financials were among the best performing sectors, supported by actions by the PBOC overnight, after the central bank injected CNY 180bln via 21-day reverse repos and CNY 75bln via 7-day reverse repos, which was the first injection into the interbank market since December 23rd. At the same time, market participants used yesterday’s Deutsche Bank’s profit warning inspired sell off to reinstate longs. Brent Crude futures also trade higher this morning following the aforementioned liquidity injection by the PBOC.

Oh yeah, that epic boondoggle Davos, where fawning, wannabe access journalists meet wannabe world saver superheroes, officially begins today.

In the absence of any material macro news in the US, which may be shivering in freezing cold as the second Polar Vortex, aka cold winter weather and, gasp, snow, grips the nation, Verizon Communications, IBM and Johnson & Johnson may dictate the tone in the absence of other major data releases. Today's POMO is $1.00 - $1.50 billion in the 02/15/2036 - 11/15/2043 bucket.

Market snapshot

  • S&P 500 futures up 0.3% to 1839.5
  • Stoxx 600 up 0.4% to 336.8
  • US 10Yr yield up 4bps to 2.86%
  • German 10Yr yield up 2bps to 1.76%
  • MSCI Asia Pacific down 0.1% to 139.2
  • Gold spot down 0.5% to $1248.9/oz

Asian Headlines

PBoC injected CNY 180bln via 21-day reverse repos and CNY 75bln via 7-day reverse repos, which was the first injection into the interbank market since December 23rd. (BBG) The central bank has been providing shortterm liquidity in order to shore up cash demand ahead of the upcoming Lunar New Year holiday in China.

EU & UK Headlines

German ZEW Survey Expectations (Jan) M/M 61.7 vs Exp. 64.0 (Prev. 62.0)
- German ZEW Survey Current Situation (Jan) M/M 41.2 vs Exp. 35.0 (Prev. 32.4)
- ZEW said this months survey's improved current conditions and confirms expectations of economic upswing with
investor sentiment decreasing only marginally. (RTRS)

ECB's Nowotny has said he sees better chance of Euro-Zone growth being revised rather than lowered and expects neither inflation nor deflation in the Euro-Zone with policy to stay accommodative. (BBG)

Eurogroup Head Dijsselbloem has said Greece did not meet all conditions for Q4 payments and it is unclear when the Greece Troika mission is to be resumed. (BBG)

The ECB alloted EUR 116.3bln to 212 bidders in their 7-day MRO operation vs. Exp. EUR 105bln. (RTRS) At 1200GMT the ECB will aim to drain EUR 177.5bln which will lead to volatile price action in the short-end, should the Central Bank fail to sterilise its purchases.

US Headlines

Fed Watcher John Hilsenrath has said the Fed are on track to trim their QE program at the January meeting, and could cut purchases to USD 65bln/month, adding that the Fed is comfortable with rate expectations in the market. (DJN)

US Weather Service issued a winter storm warning for New York from 12pm January 21st through 6am January 22nd and added that NYC may get 6-10 inches of snow and strong winds. (BBG) Adverse weather conditions on the east coast of the US can keep volumes light as traders are kept away from their desks.

Equities

Stocks traded higher in Europe this morning, with financials outperforming as credit spreads tightened after the ECB injected liquidity via the MRO op, also supported by actions by the PBOC overnight. French listed Alstom shares fell over 10% at the open after the company cut margin and cash flow outlook. Elsewhere, outlook update by SAP, where the company pushed back its profitability target by two years, weighed on other technology related names and heading into the North American open, technology is the worst performing sector.

FX

Worse than expected German ZEW survey, firmer USD, which rose to its highest level since November, with the 200DMA line seen at 81.47, ensured that both EUR and GBP pairs trended lower. While a combination of favourable interest rate differential flows, together with a better bid USD saw USD/JPY advance to its highest since 16th Jan. Elsewhere, USD/CAD has reached 1.1000 for first time since 2009 and NZD remains strong following following the nations firmer than expected CPI reading.

Commodities

HSBC analysts forecast 2014 gold prices at USD 1292/Oz. (CNBC)

Chinese gold imports look set to fall from last year's record levels, adding further pressure on gold and causing analysts to forecast a price decline for a second year. (RTRS)

OPEC crude output rose 310,000 bpd to 29.82mln bpd in December, according to IEA's monthly oil market report. (BBG)

IEA raises forecast for 2014 global oil demand forecast by 90,000 bpd and sees 2014 oil demand rising 1.3mln bpd to 92.5mln bpd. (BBG)

Importers of Iranian crude kept purchases little changed in December, the month after world powers agreed to relax some sanctions against the Persian Gulf state as part of an accord to curb its nuclear program, reports the IEA. (BBG)

Traders book most tankers for Libya crude since September according to a fixtures timetable. (BBG) This follows the El Sharara refinery returning to normal operations following recent protests.

China's December crude oil output up 0.93% Y/Y at 17.90mln tonnes and gasoline exports rise 32% to 325,990 Mt from
December 2012. (BBG)

 

Deutsche concludes the overnight recap

Though European markets felt fairly directionless yesterday, there has been plenty of debate on China’s growth numbers after the release of Q4 GDP data yesterday. The prevailing sentiment is a bit firmer this morning thanks to the Peoples’ Bank of China’s actions today and yesterday to shore up liquidity into the domestic banking system. According to Reuters, the PBoC has conducted a total of CNY180bn in 21- day reverse repos and another CNY75bn in 7-day reverse repos to provide short term funds to banks today. This comes after the PBoC announced that it had provided liquidity to larger banks through its Standing Lending Facility yesterday, but the total amount provided was not disclosed. In addition to that, the PBoC is expanding the facility to small-medium sized banks in 10 regions for a trial period of 14 days (concluding after Lunar New Year). As part of the trial, smaller banks can seek funding before the month-end Lunar New Year holiday via the SLF when the overnight, 7-day and 14-day repo rate exceed 5%, 7% and 8% respectively.
Approximately US$20bn has been set aside for the trial.

The PBoC’s actions have provided a boost to Asian equities this morning. S&P500 futures are up 0.4% and Asian bourses are up between 0.5 and 1 percent. China’s 14-day repo rate has declined by more than 300bp and this has helped Chinese Ashares stem recent losses (Shanghai Comp +0.7%). Nonetheless, the Shanghai Composite (-5.2% YTD) remains one of the worst performing equity indices in the Asia region (and indeed the world), exceeding even the poor YTD performance of Brazil’s Bovespa (-4.7%) in USD terms. Outside of equities there has been a flow of investors looking to buy credit protection via the Australian sovereign 5yr CDS and China sovereign 5yr CDS, which have widened by as much as 4-5bp apiece in the last 24 hours, but the PBoC’s injection has provided some relief today. In Japan, a 0.5% move higher in USDJPY is underpinning the bid for Japanese equities (Nikkei +1.4%) though flows remain on the subdued side.

Outside of China, there was little news flow to drive markets either way with US markets closed for the Martin Luther King Jr holiday. The Stoxx600 (-0.1%) consolidated at YTD highs, but likely would have finished in positive territory were it not for the stark underperformance of European banks (-0.95%). One of the outperforming banks (on a relative basis) was Standard Chartered (-0.15%) who continue to be the subject of takeover reports by various financial commentators - including the Financial Times who wrote that the bank looks attractive on a relative value basis after falling 30% since Q1 last year. In fixed income, the new year rip tighter in peripheral bond yields continued yesterday and 10yr Spanish yields (-2bp) reached seven year lows. The Irish 10yr firmed by 20bp, after Moody’s upgraded the sovereign to investment grade late last Friday. Ireland’s NTMA said that it will be widening its marketing scope to potentially market bonds in Asia and Middle East. Gilts were largely unchanged as markets wait in anticipation for tomorrow’s UK employment report and BoE minutes.

In an otherwise quiet week for data, we should point out that delegates attending the World Economic Forum will begin arriving at Davos today for the annual meeting. This year’s  theme is “The Reshaping of the World: Consequences for Society, Politics and Business”. There are a number dignitaries will be attending the conference including the UK, Japanese, Brazilian and Italian prime ministers/presidents, central bank heads such as Carney, Kuroda and Draghi; together with the likes of Jacob Lew (US treasury secretary), Ban-Ki Moon (UN), Christine Lagarde (IMF) and Jim Yong Kim (World Bank). Expect plenty of soundbites from these leaders over the next couple of days.

Elsewhere in the day ahead, the latest German ZEW survey is the highlight on the data docket. Earnings from Unilever, Verizon Communications, IBM and Johnson & Johnson may dictate the tone in the absence of other major data releases. In EM, the focus will be on the central bank policy decisions in Turkey and Hungary.

 


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Tue, 01/21/2014 - 08:07 | Link to Comment dirtyfiles
dirtyfiles's picture

lets the financial vortex begin ;

Tue, 01/21/2014 - 08:10 | Link to Comment Notarocketscientist
Notarocketscientist's picture

I wouldnt be surprised if they tapered - becasue the tapering is pusing on a string now - retail is collapsing - job market is collapsing and not even creating part time jobs now.

The flies are in the shit now.

Tue, 01/21/2014 - 08:19 | Link to Comment Obchelli
Obchelli's picture

Prolly they will Taper Taper

And market should make up for lost up day. So todays upside should be double of average

Tue, 01/21/2014 - 09:04 | Link to Comment Headbanger
Headbanger's picture

You mean "QE is pushing on a string" . 

The message here again is the big banks are covering their ass(ets) now that The Chosen One has become a political pariah.

And they're warning us so they can say "we told you so!" when the market implodes.

I think there may also well be a conspiracy of sorts going on here by the more conservative powers that be (read "super rich") who

want to keep what they've pillaged and plundered from us now by making things so much worse for the sheeple and blame it all

on the stupid liberal politics to crush any chance of those tax raising libtards getting into office again!

Again, It's all about the super wealthy KEEPING their wealth now and the hell with saving the rest of us !

Tue, 01/21/2014 - 08:15 | Link to Comment highly debtful
highly debtful's picture

Sooner or later it will all come crashing down. The earthquake took place in 2008, the building was hit at its foundations and the cracks keep on widening all the time. Our sovereign debts are out of control now, so how can this possibly end well?

Tue, 01/21/2014 - 08:15 | Link to Comment Charles Nelson ...
Charles Nelson Reilly's picture

Ha... And gold is down about $11. What sort of retard would be selling gold in this environment?

Tue, 01/21/2014 - 08:32 | Link to Comment TeamDepends
TeamDepends's picture

JPM with an avalanche of paper:  If the stackers be bold, then smack down that gold.

Tue, 01/21/2014 - 08:29 | Link to Comment firstdivision
firstdivision's picture

Can they move the meeting from Davos to the Volgograd train station?

Tue, 01/21/2014 - 08:28 | Link to Comment youngman
youngman's picture

There is going to be some pretty big heating bill hitting the USA this year...that should put a damper on IPhone sales....and  a lot of pipes are going to freeze and will be needing repair...additional costs to a homeowner...unplanned of course..so where will they get the $5000 deductible for their Obamacare?????

Tue, 01/21/2014 - 08:31 | Link to Comment firstdivision
firstdivision's picture

The laughable part is to watch how many suppliers go belly up from signing long-term contacts at too low prices.  Buying $200/MWh and selling it for $65/MWh, doesn't exactly smell like profit.

Tue, 01/21/2014 - 08:51 | Link to Comment negative rates
negative rates's picture

Prevention is the best cure, but since we built way more than we can maintain, I do foresee some people being on the short end of the logic stick this year. 

Tue, 01/21/2014 - 08:34 | Link to Comment jtz5
jtz5's picture

What happened to the market crashing at the first sign of taper? That was the topic of many articles on ZH over the past 18 months. And as the USD goes up, markets go down?

Nothing has been as predicted.

Tue, 01/21/2014 - 08:58 | Link to Comment negative rates
negative rates's picture

That was last years talk, now we have to walk the walk, and it's a different story line.

Tue, 01/21/2014 - 08:49 | Link to Comment disabledvet
disabledvet's picture

QE for everyone! Seriously, the Fed is going to wind down "stimulus" much more quickly than expected...just in time for the rest of the world (read "inflation") to ramp their QD up. Goldman Sachs is heading right back into "securitized debt hell" as interest rates remain at or near zero for a VERY long time. The USA is going to be flooded with finished product from the world as "excess production" becomes the global policy de jure. The rapid build out of a fuel cell economy appears imminent to me now. These thing have almost zero downtime and will be fully automated. Self driving cars are simply a "flip the switch" away. I have no clue where jobs and incomes will be "originating" from here.

Tue, 01/21/2014 - 08:53 | Link to Comment negative rates
negative rates's picture

Neither do we.

Tue, 01/21/2014 - 08:52 | Link to Comment bingaling
bingaling's picture

Remember when "the story" used to be about whether interest rates would be raised or not ? Now it is all about how much of the "money " the fed will buy and what those effects will be on interest rates.

The Fed still has the power to raise rates the old way. They have lost the power to lower them without having to buy the debt themselves.

It is a one way road from here on out.

Tue, 01/21/2014 - 08:57 | Link to Comment negative rates
negative rates's picture

The Fed has already proved it can't raise rates, that was the failed Fed experiment, now today, only the mkts can raise rates, and it's a high volitility mkt I might add.

Tue, 01/21/2014 - 09:11 | Link to Comment gwar5
gwar5's picture

Taper we much.

 

Tue, 01/21/2014 - 11:58 | Link to Comment Yen Cross
Yen Cross's picture

   Hilsenpuke should be coated in honey and staked to the ground in a field full of 'Fire Ant' colonies.

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