Futures Lower? Blame It On The Snow (And The Carry Trade)

Tyler Durden's picture

It's snowing in New York so the market must be down. Just kidding - everyone know the only thing that matters for the state of global risk is the level of USDJPY and it is this that nearly caused a bump in the night after pushing the Nikkei as low as 13,995, before the Japanese PPT intervened and rammed the carry trade higher, and thus the Japanese index higher by 1.23% before the close of Japan trading. However, since then the USDJPY has failed to levitate as it usually does overnight and at last check was fluctuating within dangerous territory of 101.000, below which there be tigers. The earlier report of European retail sales tumbling by 1.6% on expectations of a modest 0.6% drop from a downward revised 0.9% only confirmed that the last traces of last year's illusionary European recovery have long gone. Then again, it's all the cold weather's fault. In Europe, not in the US that is.

Elsewhere, while US futures found a lift with the European open, in addition to weak retail sales, the January Euro area Final Composite PMI also disappointed, coming in at 52.9, down 0.3pt from the preliminary estimate as a downward revision to services outweighed the small upward revision in manufacturing. Relative to December, the index rose 0.8pt. There was a significant improvement in the Spanish PMI, which reached its highest level since July 2007, offset by a drop in the German Services PMI which slid from 53.6 to 53.1, while France remained in contraction territory. And while the PMI in Europe was not as disappointing as in the US  - it must not have snowed on the continent? -a result of some weaker than expected prints, more firms (BNP) have joined Deutsche Bank in expecting the ECB to cut rates at its meeting tomorrow, with the deposit rate going negative - because there is nothing like paying a bank for the privilege of funding it.

In other news, credit spreads tightened and financials outperformed on the sector break down as market participants positioned for what is widely expected to be a very dovish press conference by Draghi tomorrow. London listed RSA Insurance Group was the notable outperformer, gaining 5%, after the company announced that it hired ex-RBS boss Hester as CEO and was also raised to equal-weight from under-weight by analysts at Barclays. At the same time, health care related stocks fared well, with Bunds also better bid as sentiment remained cautious amid a slew of major risk events over the coming two days.

Looking elsewhere, the release of weaker than expected UK Services PMI data, which follows on from the release of weaker than expected Manufacturing PMI earlier this week meant that GBP has underperformed its major counterpart EUR, with the pair testing the 100DMA level to the downside. In terms of EU related data, Spanish Services PMI data came in at its highest since July 2007 and the employment index rose above the key 50 level for the first time since February 2008. However, in spite of broadly positive macroeconomic data releases, expectations of more policy easing by the ECB also ensured that EUR/USD failed to move into positive territory.

In the US we will have ADP employment change which will be watched closely with Friday’s payrolls figure fast approaching. Consensus is expecting a +187k  number. Today will also see the US ISM non-manufacturing composite number which will likely be more closely watched this week coming as it does after Monday’s disappointing manufacturing number. Consensus is expecting 53.7, a slight rise from December’s 53. In terms of Fed speak we will have Fed President’s Plosser and Lockhart talking today on the economic outlook whilst Governor Tarullo will testify on the Volker Rule before the House Financial Services Committee.

Headline bulletin from RanSquawk and Bloomberg

  • Cautious sentiment continues to play a crucial role across markets ahead of upcoming key risk events.
  • Despite posting a reading of 58.3, the UK Services PMI fell short of expectations and consequently put further pressure on GBP after this week's equally disappointing Manufacturing PMI.
  • Going forward, market participants will get to digest the release of the latest ADP Employment Change and ISM Non-Manufacturing Composite reports, as well as the weekly DoE data
  • Treasuries steady, 10Y yields holding near early Nov. lows, before report from ADP forecast to show U.S. economy added 185k jobs in Jan.; focus on Friday’s nonfarm payrolls, est. +184k, unemployment rate at 6.7%.
  • The next handout to Greece may include extending the maturity on rescue loans to 50 years and cutting the interest rate on some previous aid by 50 basis points, according to two officials with knowledge of discussions
  • Obamacare will reduce the hours Americans work by the equivalent of 2 million full-time jobs in 2017, the CBO said, with the reduction, about twice the agency’s estimates in 2010, due “almost entirely” to low-wage employees who may choose to give up extra hours of work
  • Euro zone retail sales fell 1.6% in Dec., more than -0.7% median estimate in Bloomberg survey
  • U.K. services grew at the slowest pace in seven months in January as new business cooled and wet weather soaked the country
  • Japan’s base wages adjusted for inflation last year matched a 16-year low in 2009 when the world was gripped by recession, posing a risk to consumer spending as the nation girds for a higher consumption tax
  • Pimco’s  Bill Gross said the pace of economic growth in China is among the biggest questions in developing nations and the largest risks for markets
  • A second winter storm this week swept into the U.S. Northeast, grounding more than 2,000 planes, closing schools and threatening power lines. A third system is expected in about four days
  • Sovereign yields lower. EU peripheral spreads tighten. Asian and European stocks higher, U.S. stock-index futures decline. WTI crude, gold and copper higher

Asian Headlines

JPY swaps bull-flattened marginally as JGBs ended firmer extending yesterday's gains amid lack of sellers even ahead of tomorrow's 30yr auction, in spite of the fact that the Nikkei 225 closed with gains of 1.23% at 14180.38. (IFR/ RANsquawk)

EU & UK Headlines

UK Services PMI (Jan) M/M 58.3 vs. Exp. 59.0 (Prev. 58.8)
Eurozone PMI Service (Jan F) M/M 51.6 vs. Exp. 51.9 (Prev. 51.9)
- EU PMI Composite (Jan F) M/M 52.9 vs. Exp. 53.2 (Prev. 53.2)

Eurozone Retail Sales (Dec) M/M -1.6% vs Exp. -0.7% (Prev. 1.4%, Rev. 0.9%)
- Eurozone Retail Sales (Dec) Y/Y -1.0% vs Exp. 1.5% (Prev. 1.6%, Rev. 1.3%)

ECB sources said the central bank shows varying concerns over deflation. They went on to say that unanimity of the governing council was no longer required for approval of policy changes and indicated that ECB's Draghi's position would be key to whether or not the ECB makes any policy decision move this week or next month. (MNI)

Of note, disruptions to London underground travel is expected to result in lower than usual trade volumes. The strike is expected to last for 48 hours.

US Headlines

Fitch has said the US debt limit deadline is back in focus and will be a key driver for resolving the RWN assigned by Fitch to the 'AAA' US sovereign rating on 15th October 2013. Fitch expects the debt ceiling will be raised, or suspended, before the Treasury exhausts it borrowing capacity and says if the debt ceiling is not raised or suspended again from the 8th February then the Treasury would have to deploy extraordinary measures to access new funding. However, these would only buy limited time before the borrowing capacity would run out again.

Elsewhere, Newsflow remains light from the US ahead of key risk events, with market participants today being presented with the ADP Employment Change figure.


The OMX in Sweden has been the notable outperformer for European equities after being led by positive earnings reports with Alfa Laval shares up 6.0%. Elsewhere, Hargreaves Lansdown shares are seen lower by over 6% and Sygenta trade with losses of over 3.5% following their disappointing pre-market earnings reports.


As already mentioned GBP is the notable underperformer for the session after the underwhelming UK Services PMI release from the UK. Looking elsewhere, JPY is firmer across the board and leading both USD/JPY and EUR/JPY lower, with EUR failing to halt the downward momentum despite positive macroeconomic release from the area, as caution continues to dictate the state of play across markets.

RBA's Edwards said the AUD fall is not necessarily over and an abrupt AUD fall would be serious for economy. Furthermore, the Impact of AUD fall on inflation is swifter than expected and marked AUD fall risks more inflation pressure to come. (DJN)


US API Crude Oil Inventories (Jan 31) W/W 384k vs. Prev. 4750k
- Cushing Crude Inventories (Jan 31) W/W -1600k vs. Prev. 221k
- Gasoline Inventories (Jan 31) W/W -1200k vs. Prev. 363k
- Distillate Inventories (Jan 31) W/W -1500k vs. Prev. -1790k

BofA sees Brent crude dropping towards WTI price for 2020 futures and sees long-term oil prices faltering on stronger USD and slow demand. (BBG)

Gazprom says gas output to grow 5% this year vs. 4.3% in 2013.

CME raised NYMEX speculator natural gas margin by 9.9% to USD 5,500. (BBG)

* * *

Finally, here is Jim Reid's overnight recap

A little bit of calm has broken out ahead of the key US employment data today and Friday, the global services PMIs today and the ECB meeting tomorrow. The bounce though has been relatively shallow so far with markets seemingly waiting for a bit more confidence. Asian markets have been stronger overnight with the Nikkei rising off its YTD lows and gaining +1.6% and the KOSPI up +0.5%. The Hang Seng though is slightly lower perhaps in sympathy with the Hang Seng China Enterprises Index which after opening higher has fallen by around -0.9% as we type. It'll be interesting to see how China trades when it fully returns from the New Year celebrations after what have been a busy couple of weeks of newsflow. The fairly quiet Asian session follows on from DM calm yesterday with European equity markets flat to slightly negative whilst US markets posted solid gains. The Eurostoxx ended the day basically flat as Core European market losses were offset by Periphery gains. In the US the S&P rose 0.76% after Monday’s large drops. This came on the back of some positive economic news coming out of the US with the New York ISM rising to 64.4 from 63.8 and Factory Orders for December declining less than expected (-1.5% vs. -1.8% consensus expectation). The CBO's budget deficit forecasts were also lower than expected. DM credit performed with indices tightening across the board with Main and IG CDX tightening by 2.6bps and 1.8bps respectively whilst Xover and CDX HY tightened by 7bps and 8bps respectively.

EM showed some signs of improvement yesterday with USDTRY and USDZAR down –2.2% and –1.7% respectively. DM government bond yields drifted up over the course of the day, with the US 10Y finishing 4bps higher. Whilst EM market’s did show some positive signs yesterday, it was interesting to see that Russia cancelled a bond auction for the second week in a row as the past weeks EM troubles have seen the nation’s bond yields rise to recent era highs, possibly giving a window into some of the real difficulties EM economies may face if interest rates continue to rise.

Turning from our current crisis to a previous one – Alexis Tsipras, head of the Greek radical-left Syriza party which is currently leading in polls for this year’s European elections as well as in opinion polls for any Greek legislative election, said yesterday that Greece would seek to negotiate an international write off of one third of its debt if his party won a general election. He stated that, “Greek creditors want at least part of their money back. That's not possible in the current situation.” Whilst clearly not the story of the moment and one that may include some political grandstanding it is a reminder that politics can get in the way of a recovery story. As we talked about in our 2014 Outlook: The Bubble-Taper Tightrope, May’s European Elections may provide a worrying window into the steady rise of alternative parties in Europe after years of weak growth and austerity. This is probably not a story that will be too problematic for 2014 but one that is bubbling under the surface for future years. With European Sovereigns now in much better shape funding wise the systemic risks now mostly move on to political ones which are much slower moving than funding ones that can bite immediately.

Looking to the day ahead we have European January Services PMI’s with readings for Spain, Italy, France, Germany, the UK and Euro zone. Consensus expectation is for PMI’s to broadly continue at their December levels but with Italy and the UK set to improve slightly. In the US we will have ADP employment change which will be watched closely with Friday’s payrolls figure fast approaching. Looking at the ADP employment surveys past forecasts for private payrolls DB’s Joe LaVorgna thinks there is a chance that today’s ADP may under-estimate the BLS private payrolls figure. So certainly a release to watch for surprises. Consensus is expecting a +187k  number whilst Joe is forecasting a 200k number. Today will also see the US ISM non-manufacturing composite number which will likely be more closely watched this week coming as it does after Monday’s disappointing manufacturing number. Consensus is expecting 53.7, a slight rise from December’s 53. In terms of Fed speak we will have Fed President’s Plosser and Lockhart talking today on the economic outlook whilst Governor Tarullo will testify on the Volker Rule before the House Financial Services Committee.

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GetZeeGold's picture



We need tax credits to stop all this snow!


This global snowing is gonna kill us.

CH1's picture

Blaming it on the weather only shows how inherently weak they are.

The Dunce's picture

Perhaps it is the snow.  Tornadoes are also bad.  The plague is no picnic, either.  Bastards.

ifishivote's picture

Qusetion... If the snow has such a huge impact on the economy how in the hell can analyst still expect 180k jobs on Friday.?

Sudden Debt's picture

clearly we'll need to sacrifice 2 rabbits and a chicken or we won't get there.... But it all depends even with the sacrifice on how the moon shines tonight...

grunk's picture

Nothing's changing around here until we offer up some virgins.

Sudden Debt's picture

AND!! It gives muslims a incentive to kill themselves to chase those virgins in the afterlife!

and squish some grappes also... just in case some of them have a different translation of the koran...

talk about killing 2 birds with one stone!


cossack55's picture

Snow removal independant contractors.

BandGap's picture

That's a good qusetion, along the lines where GM and Ford blame the weather for drops in car sales when Chrysler and Mercedes both post significant gains.

Pay no attention to the man behind the curtain.


Sudden Debt's picture

and than there are those solar flares...

and I saw birds flying north this morning which is a bad omen...

nature is against us...


Mister Ponzi's picture

In Western continental Europe we have the warmest winter in years. No single snowflake here so far.

Sudden Debt's picture

that's because of the global cooling...

and in America it snows because of global warming...

and Australia is boiling over because of global cooling...


cossack55's picture


When the JPY dies, where will the carry-trade jump?

BandGap's picture

What is "into the lake?", Alex.

I'll take neofuedal monarchies for $600.

DavrosoftheDaleks's picture

Real Yen don't die because it eventually multiplies.

Winston Churchill's picture

Let the one legged limbo dance commence.

Can't wait for this 'market' to fall on its arse.

mijev's picture

I guess in some ways you have to feel sorry for all of the financial analysts and commentators, who on a daily basis have to suck in all of the rancid bullshit stats being fed to them and then try to relay some equally rancid BS analysis about how "investors looked beyond the quarterly figures, job numbers etc and instead focused on..." Well on what exactly? Seriously, is there anyone out there that believes a single word any more? I guess like most people I've been waiting since 2007 for the powers that be to just say, "Oh fuck it, let's let the markets collapse and see what comes out the other end." I honestly haven't looked at the DOW, SP et al in donkeys years. I heard one analyst say that the dow had to stay above 15000 or the insurance industry would collapse (not sure what the rationale was). And it seems to have stayed above that ever since.

thismarketisrigged's picture

one thing guranteed today is that facefuck will finish in the green as well as good and twtr, because why the fuck not.


also, all bad data will be blamed on the weather.


i really wish one of these fuckers asked if its all the weather, why the fuck did not we not see these putrid numbers when the economy was booming during winter time?


this winter is no different than any other winter

sceptical_economist's picture

The RBA has been crossing fingers and toes hoping for a drop in the AUD to save a non-existent  manufacturing sector. Now there's import led inflation they complain about the speed of the fall of the AUD.

....careful what you wish for... broadcasting that you don't want a quick precipitous fall in the AUD may actualize the event.

Oh and credit goes to the entire forecasting/analyst heard for utterly missing the up-tick in AUD inflation data last week. You guys may yet get a gig on the Comedy Channel.