Markets On Edge, Follow Every USDJPY Tick

Tyler Durden's picture

It is still all about the Yen carry which overnight tumbled to the lowest level since November, dragging the Nikkei down by 4.8% which halted its plunge at just overf 14,000, only to stage a modest rebound and carry US equity futures with it, even if it hasn't helped the Dax much which moments ago dropped to session lows and broke its 100 DMA, where carmakers are being especially punished following a downgrade by HSBC of the entire sector.

Also overnight the Hang Seng entered an official correction phase (following on from the Nikkei 225 doing the same yesterday) amid global growth concerns and has filtered through to European trade with equities mostly red across the board. Markets have shrugged off news that ECB's Draghi is seeking German support in the bond sterilization debate, something which we forecast would happen a few weeks ago when we pointed out the relentless pace of SMP sterilization failures, with analysts playing down the news as the move would only add a nominal amount of almost EUR 180bln to the Euro-Area financial system. Elsewhere, disappointing earnings from KPN (-4.3%) and ARM holdings (-2.5%) are assisting the downward momentum for their respective sectors.

In FX markets, GBP has seen gains following the latest impressive release from the UK which showed the highest UK Construction PMI reading since August 2007 and helped retrace some of yesterday's heavy losses. Elsewhere, AUD has seen broad based strength after the RBA decided to keep rates on hold and drop their easing bias, saying that the most prudent course is a period of rate stability. Fixed income products are trading steady with Gilts seeing modest downside following the UK data release, with Gilts unreactive to this morning's auction. Elsewhere, Bunds trade with minor gains alongside the move lower in equities.

Turning to the day ahead, the data calendar in Europe is fairly light with Spanish unemployment and Italian CPI. The focus in the US is factory orders and IBD/TIPP economic optimism index. The Congressional Budget Office will release its annual Budget and Economic Outlook, which will provide an official update of the projected budget deficit for fiscal year 2014. The Fed’s Lacker and Evans will be speaking today which may be one of the more interesting things to follow given the recent poor data and EM stress.

Overnight bulletin headlines from Bloomberg and RanSquawk

  • Negative sentiment in Asia-Pacific trade which saw the Hang Seng index enter an official correction phase amid global growth concerns has guided European equities into slight negative territory, with volumes remaining light ahead of upcoming key risk events.
  • GBP has seen outperformance this morning following the UK Construction PMI reading printing the highest figure since Aug. 2007.
  • Looking ahead for the session, later sees the release of US Durable Goods Revisions, with Fed's Evans and Lacker due to speak. Markets are set to remain quiet with position squaring ahead of key risk events including BOE and ECB rate decision and NFP.
  • Treasuries decline as EMFX recover some of recent steep losses; 10Y yields 2.602%, near early November lows, and near 200-DMA at 2.489%.
  • Russia canceled a bond auction for a second consecutive week; the Finance Ministry cited market conditions in a statement on its web site
  • Draghi would only consider ending sterilization of crisis-era bond purchases if he’s openly backed by Bundesbank, two euro-area central bank officials said; ECB meets Thursday
  • Bank of America cut the bonus pool for interest-rate traders by 15% to 20%  as revenue fell, said two people with direct knowledge of the matter
  • Australia’s central bank signaled the end of a two-year easing cycle and foreshadowed stronger economic growth, sending the nation’s currency higher
  • U.K. construction expanded at the fastest pace since August 2007 last month as residential activity led a pickup in all areas of building
  • Companies from banks and technology firms to energy suppliers are set to face EU swaps rules, amid warnings from some businesses that they may not have all the systems in place to meet this month’s deadline
  • Snow will start falling across the Northeastern U.S. again later today, according to the National Weather Service said; freezing rain and sleet will join the mix later tomorrow, according to AccuWeather Inc.
  • Sovereign yields mostly higher. EU peripheral spreads widen. Asian and European stocks slide, U.S. stock-index futures gain. WTI crude and copper higher; gold falls

US Event Calendar

  • 8:30am: Fed’s Lacker speaks in Winchester, Va.
  • 9:45am: ISM New York, Jan. (prior 63.8)
  • 10:00am: Factory Orders, Dec., est. -1.8% (prior 1.8%)
  • 10:00am: IBD/TIPP Economic Optimism, Feb., est. 44.5 (prior 45.2)
  • 12:30pm: Fed’s Evans speaks in Detroit Supply
  • POMO - Fed to purchase $2.25b-$2.75b in 2021-2023 sector

Asian Headlines

BoJ Governor Kuroda said Japan is likely to eye 2% inflation around the latter half of fiscal 2014 and through early fiscal 2015. Kuroda also commented that the BoJ can conduct appropriate exit policy as needed and that it is too early now to mention specifically how BoJ will exits its ultra easy monetary policy. (BBG) This follows 2013 being the first year in half a decade to post positive inflation.

Hang Seng index preliminary close, down 2.90% at 21,397.77 and entered an official correction phase after declining 10% since Dec 3rd high.

EU & UK Headlines

UK PMI Construction (Jan) M/M 64.6 vs Exp. 61.5 (Prev. 62.1) - Highest since Aug. 2007.

ECB's Draghi is seeking German support in the bond sterilization debate, according to sources. The sources say the move could add almost EUR 180bln to the Euro-area financial system, but add that Draghi would only consider ending the sterilization of crisis-era bond purchases if he's openly backed by the Bundesbank. (BBG) It is strongly suggested that the Bundesbank would support an end to the ECB's sterilization tool, as source comments last week suggested this would be the preferred measure over and above other policy tools.

ECB allots EUR 95.146bln in regular 7-day MRO, 116 bidders. This means that we will see a reduction in excess liquidity of EUR 20.5bln on Wednesday in addition to the EUR 0.6bln related to 3y LTRO repayments that was announced on Friday.

US Headlines

Newsflow from the US remains light with market participants positioning ahead of key risk events including tomorrow's US ADP Employment Change and Nonfarm Payrolls release on Friday.


Negative sentiment in Asia-Pacific trade which saw the Hang Seng index enter an official correction phase amid global growth concerns has guided European equities into negative territory. This move lower was exacerbated by disappointing earnings from Arm Holdings and KPN and has consequently put pressure on the tech and telecoms sector. One of the stand-out performers for the session has UBS following their pre-market earnings release which has seen their shares higher by over 5% and led the financials sector into the green.


GBP outperformed its major counterparts this morning, supported by the release of much better than expected Construction PMI data, while EUR/GBP which was buoyed yesterday by touted residual month-end buying also traded lower. Elsewhere, AUD gained across the board overnight after the RBA kept rates on hold at 2.50% and dropped its easing bias. The central bank also said that policy is appropriately configured to foster growth and that the most prudent course is period of rate stability. In spite of the sell off by Asian equity markets overnight, touted buying by real-money accounts saw USD/JPY recover losses posted overnight and edge into positive territory.


Morgan Stanley says WTI crude is a backwardation ‘boon’ for investors and new pipelines moving crude out of US oilstorage center, will ‘leave the hub structurally short of crude oil’. (BBG)

Better weather is allowing the opening of Libya's Mellitah, Zawiya Bouri, Jurf, and Brega ports, however Es Sider, Ras Lanouf, Zueitina, Hariga ports are closed amid protests, according to NOC. (BBG)

India is unlikely to cut gold import duties to the original level of 4% and the rollback is likely to happen in tranches according an official source. (Hindustan Times)

* * *

We conclude as usual with Jim Reid's overnight recap

Fascinating markets at the moment as the strong selling pressure extends into the Asian session. It'll be interesting to see how far this needs to go before the market chatter switches towards debating whether the Fed will pause from tapering in March. If they are data dependant then there has been some reasons for them to doubt their baseline view over the past few weeks although as you'll see below, the FOMC's Fisher (speaking yesterday) suggests the Fed has so far been unmoved by recent events. Nevertheless Friday's payrolls certainly looks set to be another pivotal release. The problem is clearly trying to understand how much the polar vortex has been impacting activity and also whether the mini-EM crisis has legs and influence. There's certainly a lot going on at the moment.

Looking at the Asian session the Nikkei (-3.7%) and TOPIX (-4.2%) are once again in focus particularly with dollar-yen getting closer to the 100 mark (100.9 as we type). Japanese automakers (-5.2%) are leading the losses after some disappointing US auto sales numbers released yesterday (more below). Some soothing words from the BoJ’s Kuroda helped Japanese equities stem the losses earlier in the session, with the governor saying that Japan is likely to move to 2% inflation around the end of 2014/start of 2015. Including today’s moves, the Nikkei is down more than 13% in the year-to-date in local currency terms, and a slightly more mild 10% on a USD basis. Markets in Hong Kong have reopened post CNY holidays with the Hang Seng falling 2.2% and HSCEI shedding 3% as they “catch down” to market moves over the last couple of days. On a YTD basis, the EM selloff has certainly impacted Asian equities and its difficult to find a country which has not suffered a >6% fall in their equity market. Elsewhere The AUDUSD is up more than 1% today, trading at 0.887, after the RBA left rates unchanged and said that current policy settings were “appropriately configured” to foster growth –removing the Bank’s previous easing bias. 10yr UST yields are unchanged at three month lows of 2.58%.

So the debate about the weather impact on US growth looks set to continue and it seems likely that wintry conditions will also have a bearing on February’s macro data as well judging by conditions in the US north east on Monday. Forecasts suggest another round of wintry weather is in store for much of the area this week and there is also talk of a bigger storm over the weekend lasting into early next week. Meanwhile, there is talk that continental Europe will be warmer than average in February as it experiences the flip side of the polar vortex that has been affecting the weather State-side (Bloomberg).

Inclement weather was once again blamed for yesterday’s disappointing January ISM manufacturing report (51.3 vs 56.0 consensus, 57.0 previous) which printed at a nine-month low. Markets reacted poorly to the data as investors began adding DM growth to their litany of worries in emerging markets, but the reality is that risk assets had already begun selling off in advance of the ISM. The day ended with the S&P500 (-2.28%) breaking through its 100 day moving average on its way to its worst performance since June with talk of stop losses being triggered late in the US session. Just nine stocks in the S&P500 closed in positive territory, and only 1 in the Dow Jones, so it’s fair to say that the selling was broad based.

Looking more closely at the ISM report, DB’s Joe Lavorgna highlights that there was broad-based weakness in new orders (51.2 vs. 64.4 previous), production (54.8 vs. 61.7) and employment (52.3 vs. 55.8). This was the lowest reading on the survey since last May (50.0) and stands in stark contrast to the relatively sturdy results in the main regional surveys (New York Fed Empire, Philadelphia Fed and Chicago PMI). One small positive from the report was that new export orders (54.5 vs. 55.0) were largely unchanged on the month. The ISM’s survey chairman noted that weather impacted the survey results this month but this didn't stop the selling. There was some positive news from the Fed’s senior loan officer survey which suggested a further easing of credit standards in January as demand for credit increased. Despite the surprisingly disappointing ISM, Dallas Fed President Richard Fisher stated that it was not enough to affect Fed policy, and neither was the drop in EM stock markets cause for the Fed to pause tapering. Fisher suggested that the Fed was more focused on the fixed income markets, noting the recent rally in seven and ten year bonds.

While we debate whether the recent US data disappointments were indeed weather-related or not, the auto industry provided some anecdotal evidence that perhaps things are slowing down in some sectors. The latest US auto sales numbers indicated that January sales fell for Ford (down 7% yoy), General Motors (down 12%), Toyota (down 7%), Honda (down 2%) and Volkswagen (down 19%). Ford and GM both blamed the polar vortex with a representative from Ford suggesting that sales had actually improved after the first polar vortex struck at the start of January, but deteriorated again when another Arctic blast hit later in the month. But there was also evidence that lower discounts during the month may have deterred some would-be buyers, rather than the weather, particularly given that a number of manufacturers were able to record sales growth in January including Chrysler (+8%) and Nissan (+12%).

Though it may seem strange, there was some comfort in the relative calm of the emerging market world yesterday given what was going on elsewhere. Though the tranquility may well be shortlived, yesterday saw the MSCI EM equity index fall only 1.05% versus larger falls in both the S&P500 and Stoxx600. The CDX EM index widened by 6bp which was a slightly firmer performance relative to the European Crossover (+9bp) and European subordinated financials index (+14bp). The latter was affected by an announcement from ISDA that it would be postponing the rollout of 2014 Credit Definitions until the September contract roll (from March). LATAM USD government bonds were largely unchanged even as Brazil announced its biggest monthly trade deficit in history in January as the depreciation of the Real has yet to translate into an improvement in exports.

Turning to the day ahead, the data calendar in Europe is fairly light with Spanish unemployment and Italian CPI. The focus in the US is factory orders and IBD/TIPP economic optimism index. The Congressional Budget Office will release its annual Budget and Economic Outlook, which will provide an official update of the projected budget deficit for fiscal year 2014. The Fed’s Lacker and Evans will be speaking today which may be one of the more interesting things to follow given the recent poor data and EM stress.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Headbanger's picture

Yep..  You ain't seen nothin yet!  And don't turn around to look!

GetZeeGold's picture



Watching the two pieces of crap duke it out is mesmerizing.


It's like watching a couple of 90 year old hookers in a cat fight.

new game's picture


hope i live to be eighty and can get it up.

dried prunes in a sandbox with catshit.

GetZeeGold's picture



I can hook you up with some medicare and disability right now if you'd'll feel like you're eighty.

aVileRat's picture

Will be interesting to see who follows the dead cat today going into Thursday.

Remember Tues/Wed are pomo days, with overnight heavy speakers/reportings.


stant's picture

i believe you are correct sir

25or6to4's picture

Yes, otherwise you would be turned into a pillar of salt.

firstdivision's picture

Morgan Stanley, screwing their customers out of their money.  The planned increasing of capacity is to the storage facilities, not away from them.  The manipulation in $NG prices is hitting epic proportions, so those trying to move the price higher might want to back off a bit as the Fed doesn't like competition.  Short NG, long fresh water.

new game's picture

so the coyote is at the edge. my bet has to be with roadrunner. that muthertfucker is fast...

new game's picture

breaking bad ass mo fo fast-from the markets like an avalanche of snow about to bury you sad ass 20 ft under.

what a way to die- frozen suffacation of life...

Al Capowned's picture

Is there any information that explains why the USDJPY is so important in relation to US indicies.

This is new to me I am just tryingto work out the relationship between currency pairings and there influence.

Any info would be appreicated...


satoshi911's picture

 My lifespan here seems to be a 1/2 life of 2 weeks, but that's ok, I'm a scientist, so I can blow it off. Physic's not biological science.


Let's cut the BS here there are TWO country's printing FIAT to INFINITE JAPAN&USA, JAPAN has a lead of 5-15 years ahead of the USA.

Watching JAPAN closely as a BELLWETHER about where this pulling FIAT out of your ass takes a nation, the ENTIRE fucking world is watching JAPAN.


Ok, get it? Satoshi doens't believe in obfuscation or complex bullshit, my goal is to reduce economic thought so that even a retard or village idiot can understand what is going down. Compeche?


satoshi911's picture

The others are on the side-lines, watching and waiting to follow through.

'currency wars' not yet, ...

Somebody asked "why watched JAPAN" I just answered the question, its a bellwether, ... if you don't know what the means, ... then go google, but I'm sure you do... /sarc & /snide lives fine, here on ZH I wish for a week the ZH trolls here could go without /sarc & /snide for just 3-5 days...


It is working what the fuck are you talking about? JPY is UP

Ahhhh maybe you worried about the NIKEI like I always say 'FUCK THE STOCK MARKET' this is the paradox of printing to INFINITE, nobody said you WIN, anything for that matter,.... where it take you nobody knows, will the stock-markets go UP, ... that is largely a JOB of selling to fools, ... the trouble is now all the BIG GUYS get the 'free FIAT', ...

That's why I always say "FUCK THE STOCK MARKET", its a new game,

The entire stock market, paper wealth racket is about fucking fools, but now only those close to GUBMINTS have INFINITE CASH,... are they putting that money into the MARKET? Fuck No, ... they're putting that money into prisons, guns, and cop's.

Where will this end? I think we all saw this show before ... some 60 years ago.

satoshi911's picture

The US government hasn't existed for years, the US debt is a PONZI never to be paid

It's print to INFINITE, as long as the world fears USA  hegemony,

How long can the respect last?

Well they lost SYRIAN, now they lost UKRAINE, a few more losses and the paper ponzi could very well implode.


The US congress is for show, the NSA/CIA are unbridled. The USA went BK in 1972, post 2001 they went QE to infinity to cover the 911 losses, and now its a viscious collapse into oblivion.

Wait What's picture

i'm no expert, but i'm guessing it has something to do with liquidity, carry trade, and Abenomics... with a dash of QE3 to boot.

satoshi911's picture

100 Billion a month isn't even an issue, the real issue is 500Billion or a trillion a month,

Also its not what's on the books, its how much the FED is transferring to CHINA, EUROPE,... How much the CIA/NSA is printing,... How much is being sent to DHS/FEMA under the table.


I don't care about the QE-n shit, and you shouldn't  either,... the real shit is all secret transfer to EUROPE & CHINA ...

The $85 billion/month to purchase US treasury DEBT is just a drop in the fucking BUCKET of what the FED is doing in TOTAL.

Peter Pan's picture

I gave you an upvote because it is a valid question. Try typing in "importance of USDJPY relationship."

Se also my answer below.

StychoKiller's picture

Draghi:  "C'mon Fraulein, I'll only stick it in a little ways..."

Peter Pan's picture

I suspect that any importance in the relationship between the two will cease when a collapse takes place.

Someone will no doubt give you a good reference for further explanation but my take is that material differentials in interest rates when combined with volatility in currency rates make for a bloodbath when you have borrowed in the other currency.


satoshi911's picture

The tide is turning, in recent months AUD & JPY were down, and now they're UP, and all else is going down.

My feeling is paper is paper, whether its paper-gold or stock, ... I like currency and GOLD, just saying,

I might add that ALL great fortunes in human history were made in Real-Estate.

Of course fortunes now are made in social media aka spying, but only time will tell if that hold's the test of time.

Wait What's picture

is it time for CB 'shock and awe' yet? if Abe's team can't turn the tide on this tsunami, maybe Yellen or Draghi can stop the slide down this glacier?

AdvancingTime's picture

Yes it is all about the yen! If investors in Japan's government bonds begin to believe that Abenomics will be successful in dropping the value of the yen and in bringing back inflation it would be logical for owners of  JGBs to move out of the securities and buy foreign bonds or equities. That would place upward pressure on Japanese bond yields and raise the cost of government to service its massive debt.

With the BOJ  set to absorb half of the government bonds planned for sale this fiscal year, domestic investors have already started venturing overseas for higher yielding assets. If this turns in to a tsunami of  money fleeing Japan it will constitute the end of the line for those holding both JGBs and the yen. The post below looks at Japan and its economy going forward.

Athenian's picture

I read somewhere sometime ago that a good portion of the car sales in the USA were driven (pardon the pun) by very very low interest rates (virtually zero), together with virtually no credit assessment, such that (a) just about anyone could buy a new car, and (b) those buying a brand new car did not have to make any (or minimal) interest repayments.

If that is true and if car sales are now falling as suggested, does this mean that people are not willing to get themselves into a brand new car at a cost which represents only principal repayments and no or virtually no interest payments?

If so, that is quite bad, no?

satoshi911's picture

Well the car's are designed to  fall apart in 3 years, just be patient and the customers will come crawling back.

It's not like you can fix the bitch yourself anymore.


I had a brand new Honda radiator fail just a few years ago, ... fuck they used to go 10+ years,... not anymore,,, and you can't even 'patch' them anymore all plastic, whole fucking radiator has to be replaced, ...

You used to be able to get a solder gun and fix your own radiator forever,...

TPTB_r_TBTF's picture

Planned obsolescence is so much more effective than waiting for windows to break.

thismarketisrigged's picture

looks like the futures market is trying to pump stocks up once again this morning,with the s&p somehow poised to open up 13 pts or so ( when the s&p would have plus 30 pt days last year, the following day we would either be up 5 pts or flat, never sell off dramatically, so god forbid the market continues to fall, must save it at all costs)


will todays open hold, or will we go red again. i fucking hope the latter.

dogmete's picture

yes, hope they crash too. everyone I know who owns stocks is a dirtbag. coincidence ??

TPTB_r_TBTF's picture

that means, the people you know are dirtbags.

No coincidence.  Dirtbags of a feather flock together.

Al Capowned's picture

Thanks for all the information everyone  much appreciated,  I am piecing it all together slowly.


hobopants's picture

"A carry trade is when investors borrow in a low yielding currency, such as the yen, to fund investments in higher yielding assets somewhere else.

The so-called yen carry trade was last in fashion in 2004-2008 and during this period the yen weakened about 20 percent against the dollar. That was before the global financial crisis hit, sapping demand for risk assets and sending investors scurrying into safe-haven assets.

In recent years, the trade has been less popular as monetary easing in the U.S. and Europe kept interest rates for banks artificially low, increasing the appeal of using the dollar and the euro instead of the yen.

A weakening currency is central to the carry trade since it means that investors have less to repay when they cash out of the trade."

Correct me if im wrong but it basically means borrowing something going down in value to buy something going up in value and when you sell you keep the spread because you repay the loan in the deprecating currency. So People using the market as a tool to skim whatever they can off the top of retarded monetary policies of CBs...