This page has been archived and commenting is disabled.

Post-Payrolls Euphoria Shifts To Modest Hangover

Tyler Durden's picture




 

After Friday's surge fest on weaker than expected news - perhaps expecting a tapering of the taper despite everyone screaming from the rooftops the Fed will never adjust monetary policy based on snowfall levels - overnight the carry trade drifted lower and pulled the correlated US equity markets down with it. Why? Who knows - after Friday's choreographed performance it is once again clear there is no connection between newsflow, fundamentals and what various algos decide to do.

So (lack of) reasons aside, following a mainly positive close in Asia which was simply catching up to the US exuberance from Friday, European equities have followed suit and traded higher from the get-go with the consumer goods sector leading the way after being boosted by Nestle and L'Oreal shares who were seen higher after reports that Nestle is looking at ways to reduce its USD 30bln stake in L'Oreal. The tech sector is also seeing outperformance following reports that Nokia and HTC have signed a patent and technology pact; all patent litigation between companies is dismissed. Elsewhere, the utilities sector is being put under pressure after reports that UK Energy Secretary Ed Davey urged industry watchdog Ofgem to examine the profits being made by  the big six energy companies through supplying gas, saying that Centrica's British Gas arm is too profitable.

FX markets remain relatively muted amid light newsflow with EUR/USD failing to break above its 50DMA seen at 1.3655. Whilst AUD/USD also made a failed attempt to break below its 50DMA at 0.8912. In fixed income products, there is a lack of major supply for today, however, in terms of corporate issuance hedge positioning has been noted in the belly of the curve where the 7-10y has seen a slightly better receiving bias. Alongside this, attention turns to Portugal, who are seeing underperformance with the PO/GE spread widening amid expectations that Portugal are to syndicate their 10y benchmark EUR bond this week.

There are virtually no macro events on todays US calendar with Mortgage Delinquencies, 4Q (prior 6.41%) and Mortgage Foreclosures, 4Q (prior 3.08%) due out today. Notably, there will be a POMO of $2.25b-$2.75 billion. Perhaps more importantly, there are no POMOs on Tuesday and Thursday.

In terms of the rest of the week ahead, much of this week’s focus will be on Yellen’s Hmphrey Hawkins testimony as the US data flow is pretty thin, which is typical of a post-payrolls week. The data docket is highlighted by Tuesday’s JOLTs job openings and Thursday’s retail sales and initial jobless claims. Friday’s industrial production numbers for January and February consumer sentiment data could provide more detail on the effect of the recent weather on economic activity. President Obama hosts France’s Francois Hollande this week in talks that will include discussion of the EU-US free trade agreement (amongst other topics).

Overnight Bulletin summary from Bloomberg and RanSquawk

  • European stocks trade flat despite Nestle and L'Oreal providing the consumer goods sector with outperformance.
  • FX markets remain quiet ahead of key risk events, with EUR/USD failing to break above its 50DMA.
  • The PO/GE spread has widened following talk that Portugal are to syndicate their 10y benchmark bond this week.
  • Treasuries higher, led by 5Y-10Y sector in continuation of rally seen Friday after weaker than forecast payrolls; focus on 3Y/10Y/30Y auctions, Yellen’s first testimony before Congress, with both beginning tomorrow.
  • Yellen won’t be swayed by Jan. jobs report into backing away     from support for $10b/meeting tapering pace, economists say
  • China’s banking regulator ordered some of the nation’s smaller lenders to set aside more funds to avoid a cash shortfall, three people with knowledge of the matter said, signaling rising concern that defaults may climb
  • China’s central bank signaled that volatility in money-market rates will persist and borrowing costs will rise, underscoring the risk of defaults that could weigh on confidence and drag down growth
  • Almost 12 years after opening borders to EU expatriates, Swiss citizens recoiled, backing an initiative to impose limits on immigration; the government has three years to impose new rules, which will primarily affect workers from the EU, many of them highly qualified
  • Comments by the leaders of Japan and the Philippines drawing parallels between China’s growing assertiveness in the region and events in pre-war Europe are “not helpful,” said the commander of U.S. air forces in the Pacific
  • Sovereign yields mostly higher. EU peripheral spreads widen. Asian, European stocks mostly higher, U.S. stock-index futures decline. WTI crude lower, copper little changed, gold higher

Asian Headlines

The JGB curve has flattened up to 10s in quiet trading ahead of tomorrow's public holiday. However, dipped in the mid- to ultra long-term sector and outperformed superlong bonds which remained weaker due to the poor results of last week's 30y auction. It is worth noting that the Nikkei 225 finished higher by 1.77%.  (RANsquawk/IFR)

EU & UK Headlines

Greece doesn't need a third aid program and Greece is meeting its goal within the second aid program according to Greek PM Samaras. (Bild-Zeitung)

Head of the Single Supervisory Mechanism Nouy said some of the Eurozone's lenders should be allowed to fail, adding that banks must hold capital against their sovereign assets. (FT)

The ECB Governing Council discussed the Executive Board proposal on planned publication of minutes and agreed not to disclose individual voting behaviour and will not publish exact wording of debates in council. (Die Welt)

Goldman Sachs analysts see the ECB focusing on unifying the region's banking system to facilitate the flow of funds and seeking to support the market for asset-backed securities. Saying policy makers aren't likely to cut benchmark rates from the low of 0.25% unless a run-up in the EUR or rising yields force their hand. (BBG)

UK Gilts are seeing a minor selling bias in longer maturity products as market participants position ahead of the 2042 tap, which is expected to benefit from institutional demand and pension fund accounts.

US Headlines

Newsflow from the US remains light as market participants look ahead to Janet Yellen delivering her first semi-annual Humphrey Hawkins testimony

Equities

Barclays who were due to report their 2013 results on Feb. 11 have reported adj. pretax profit for 2013 of GBP 5.2bln and statutory pretax of GBP 2.9bln. The Co. were expected to report pre-tax profits of GBP 5.8bln and net income for the year was expected to be GBP 3.93bln. Elsewhere, Peugeot shares are seen lower following  news that Dongfeng says has not entered into an agreement in relation to potential transactions. Smaller European banks have also been put under pressure following reports that the Head of the Single Supervisory Mechanism Nouy said some of the Eurozone's lenders should be allowed to fail, adding that banks must hold capital against their sovereign assets. (FT)

FX

Other than the minor technical moves in EUR/USD and AUD/USD, markets trade steady ahead of key risk events in the form of the Janet Yellen delivering her first semi-annual Humphrey Hawkins testimony and the Quarterly Inflation report from the BoE. However, despite the Nikkei 225 closing with gains of 1.77%, USD/JPY is seen lower but has found support at its 10 DMA, which resides at 102.07.

Commodities

China Gold Association says China 2013 gold consumption estimated at 1176.4MT and said that China's 2013 gold consumption rose 41%, to from a year ago and output rose 6.2% Y/Y. (BBG)

Speculators cut gold length by 1,265 lots to 59,408 in the latest week, net long silver positions have dropped by 1,845 to switch the market to a net short position of 353 contracts. (RTRS)

Iran are seeking investment to develop its oil and gas deposits and plan to offer foreign energy companies more attractive contracts from neighbouring Iraq, according to an Oil Ministry adviser. (BBG)

Iran has admitted that they may have worked on designing nuclear weapons. (Jerusalem Post) This comes alongside the IAEA starting their investigation on possible military dimension of Iran's nuclear program, which Iran have agreed to cooperate with. (RTRS)

* * *

We conclude, as is tradition, with the overnight summary by DB's Jim Reid

On Friday morning we wondered whether having the payroll number in advance would have helped you much. The reality was that it probably wouldn’t have done. We did perhaps think it was too early for bad to equal good news given recent nervousness but the weak employment report on Friday (113k vs 180k expected) added to the recent re-pricing of Fed Fund Futures contracts which must have helped push risk higher. The S&P 500 closed +1.33%, Crossover -10bp with the June 2016 Fed Funds contract falling (-7.5bps) to the lowest implied level since early December and at 1.02% within 11bp of its lowest level of 2013. In early September before the non-taper, this contract was implying Fed Funds over 2% by June 2016. In mid-Jan it was around the 1.40% level. So a big re-pricing.

There were some positives in the report with unemployment falling (6.7% to 6.6%) alongside the participation rate seeing a rare increase in recent times. There were also upward revisions to the prior months’ data which lifted December by 1k and November by 33k. One would also expect there to have been some weather impact in January’s numbers even if the BLS downplayed it. However even the bulls would struggle to say it was an encouraging report. So with a disappointing payrolls number, with a declining unemployment rate close to the Fed’s 6.5% threshold and with weather confusing matters, this week’s debut testimony from Yellen will be the key focal point of the week. She speaks before the House Financial Services Committee (tomorrow) and the Senate Banking Committee (Thursday). Her comments are on behalf of a committee that has tended to be a bit on the hawkish side in their comments of late so it will be interesting if she brings a little of her prior dovish bias back to the table. She’ll need to discuss asset purchases and the Fed’s now out of date guidance on the unemployment rate. It will be difficult for her to argue yet for a deviation in the $10bn tapering per meeting consensus view but she may remind everyone that it’s still data dependant and importantly she may discuss the low level of current inflation. We don’t think this gets nearly enough focus at the moment.

Taking a look at overnight markets, Asian equities have started the week on the front foot, buoyed by the performance of US equities on Friday. Chinese stocks are leading the gains (CSI300 +2.2%) after the Ministry of Commerce revealed that national retail and catering enterprises revenues rose 13.3% year on year during the Chinese new year holidays. There are also solid gains being recorded by the Nikkei (+1.4%) and ASX200 (+1.1%). Elsewhere in China, the PBOC said in its quarterly report published over the weekend that it will use a variety of tools including the reserve-requirement ratio, open market operations, standing lending facility (SLF), etc. to manage banking liquidity. But the central bank also said that reasonable volatility in money market interest rates must be tolerated as it manages liquidity in the country’s financial system to rein in credit growth and speculative lending. Chinese money market rates are up between 15-20bp today and there is talk that much of the PBoC’s pre-CNY liquidity measures will begin maturing over the next few days. USDJPY is unchanged at 102.4 after data showed that Japan’s trade deficit widened to a record JPY639bn in December (-JPY686bn consensus). The result was driven by import growth.

While much of this week’s focus will be on Yellen’s testimony we should also highlight that the Bank of England is widely expected to update its forward guidance this week when they publish their quarterly inflation report on Wednesday. Carney hinted last month at Davos that the BoE’s policy will need to “evolve” with changing circumstances, and there is a growing chorus of those expecting that guidance will be tweaked to take into account a broader range of factors outside of unemployment including wages and the output gap (Sunday Times). The other options reportedly on the table include a lowering of the unemployment threshold or a “do nothing” approach.

Looking at the weekend news flow, aside from the usual post-payrolls dissection, there was also a fair bit of weekend commentary on Friday’s German Constitutional Court’s decision to refer the OMT to the European Court of Justice. Our economists think this is more positive than it appears. First, in their opinion the ECJ will view the OMT as compliant with the EU Treaty. Second, the ECJ decision is binding on the German Court. In the meantime, the ECB is still free to operate the OMT, if necessary. Politically, however, the ECB role in euro crisis management is still not resolved and will likely remain an issue within the German public policy debate. The FT’s Wolfgang Münchau views the ruling as a win for eurosceptics given “the court concludes that OMT violates the German constitution. It accuses the ECB of making a power grab by extending its own mandate. It says the scheme endangers the underpinnings of the eurozone rescue programmes.....Were it to be used, it would deprive the German parliament of its fiscal sovereignty by forcing it to accept any losses the scheme generated” (Financial Times). The FT also carried an interview with the new head of the Eurozone’s Single Supervisory Mechanism banking regulator, Daniele Nuoy. Nuoy echoed the thoughts of Draghi in saying that some banks will need to fail. She also stated that “We have to let some (banks) disappear in an orderly fashion, and not necessarily try to merge them with other institutions”. The reality is that in this highly indebted world where bondholders are constantly needed to refi something important, such a course of action will be difficult to achieve without contagion.

Speaking of banks, there was a report that China Development Bank, one of the country’s main policy banks, has begun asking some international clients to postpone drawing down previously committed credit lines, in a potential sign that tight domestic liquidity conditions are starting to reverberate abroad (FT). Two Indian companies – an infrastructure developer and a shipping group – were among those told to wait before accessing promised credit lines, the individuals said.

In terms of the rest of the week ahead, the US data flow is pretty thin, as is typical of a post-payrolls week. The data docket is highlighted by Tuesday’s JOLTs job openings and Thursday’s retail sales and initial jobless claims. Friday’s industrial production numbers for January and February consumer sentiment data could provide more detail on the effect of the recent weather on economic activity. President Obama hosts France’s Francois Hollande this week in talks that will include discussion of the EU-US free trade agreement (amongst other topics).

In Europe, the flash estimate for Q4 GDP in the Eurozone, Germany, France and Italy on Friday will be a key release to watch. That aside, other notable releases include France’s industrial production on Monday and the Eurozone’s industrial production on Wednesday. 74 of Stoxx600 companies will be reporting earnings this week (accounting for 15% of index market cap) including Barclays and BNP Paribas.

In EM, the most important data is perhaps the Chinese trade report on Wednesday and inflation on Friday. It’s a busy week for India, with trade, inflation, and industrial production data to be released throughout the week. Elsewhere in EM, the South Korean, Indonesia and Russian central banks will be meeting but all three are expected to remain on hold.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 02/10/2014 - 08:17 | 4419338 The Axe
The Axe's picture

Typical  day....a little selling at the opening(volume)  After Europe closes a slow steady--no volume stock market rise....again and again...  

Mon, 02/10/2014 - 08:43 | 4419374 Headbanger
Headbanger's picture

That's what she said!... Just before the Titanic broke in half and went under....

Mon, 02/10/2014 - 08:50 | 4419387 Mister Kitty
Mister Kitty's picture

Everything seems to hinge on tapering.  The markets fear it.  If the central banks stop printing, the house of cards collapses.  The whole thing is a ponzi scheme.

Mon, 02/10/2014 - 09:04 | 4419405 Headbanger
Headbanger's picture

No shit!?  You're just figuring that out now?

Mon, 02/10/2014 - 08:15 | 4419339 negative rates
negative rates's picture

No shortage of design production though.

Mon, 02/10/2014 - 08:17 | 4419342 Sudden Debt
Sudden Debt's picture

gold up

silver up

I'm good!

So far my market analyzes.

Have a great day all!

Mon, 02/10/2014 - 08:27 | 4419354 GetZeeGold
GetZeeGold's picture

 

 

Over the dreaded $1270 level.....are all the central bankers asleep this morning?

 

Did one of the printers break down or something?

Mon, 02/10/2014 - 08:30 | 4419357 Sudden Debt
Sudden Debt's picture

and silver near 20.5

Mon, 02/10/2014 - 08:45 | 4419379 Ghordius
Ghordius's picture

so you guys are bullish? I think I will wait for the February COMEX delivery. yes, PMs are at bargain prices if you plan to hold them for the next 10 years, yet this is all, for the moment, imho

Mon, 02/10/2014 - 08:56 | 4419383 GetZeeGold
GetZeeGold's picture

 

 

I wonder what the debt level will be in 10 years?

It's hard to imagine the immense scope of it.

 

Will the dollar even be around then? They don't call it exponential for nothing.

Mon, 02/10/2014 - 09:00 | 4419397 Ghordius
Ghordius's picture

the US debt level in 10 years? for sure high. yet I'm not holding PMs because of their dollar prices, and most buyers of physical are also quite uninterested in the future USD price

near term, the only interesting thing is if the COMEX breaks or not

Mon, 02/10/2014 - 09:02 | 4419406 GetZeeGold
GetZeeGold's picture

 

 

the only interesting thing is if the COMEX breaks or not

 

Crap....I didn't even think of that.

Now I'm going to have nightmares.

Mon, 02/10/2014 - 09:09 | 4419413 Ghordius
Ghordius's picture

the event is - like USD Hyperinflation - a probability. like "5% chance of rain". of course last year there were 60-80 tickets for one raincoat and now there are 120

Mon, 02/10/2014 - 09:31 | 4419484 gatorengineer
gatorengineer's picture

What is the best way to buy $1 US bullion coins.  I live in an area without a decent dealer, is ebay a decent way to avoid taxes on the sales?

Mon, 02/10/2014 - 08:24 | 4419346 Ghordius
Ghordius's picture

"there was also a fair bit of weekend commentary on Friday’s German Constitutional Court’s decision to refer the OMT to the European Court of Justice. Our economists think this is more positive than it appears.

First, in their opinion the ECJ will view the OMT as compliant with the EU Treaty."

   - That's not a given

"Second, the ECJ decision is binding on the German Court."

   - No, it isn't. The German Court sent for an opinion from the ECJ and will make it's ruling after that

"In the meantime, the ECB is still free to operate the OMT, if necessary."

   - Yes, correct. Yet most commentators forget that the ECB has not operated the OMT. You could be led to think the ECB was in full monetization mode, yet at the moment it's busy shrinking it's balance sheet with the LTRO repayments

"Politically, however, the ECB role in euro crisis management is still not resolved and will likely remain an issue within the German public policy debate. The FT’s Wolfgang Münchau views the ruling as a win for eurosceptics given “the court concludes that OMT violates the German constitution."

   - Wolfgang Münchau is full of shit. Again, the German Constitutional Court has not ruled yet. And this without getting into the treaty's matter

"It accuses the ECB of making a power grab by extending its own mandate."

   - ahhrgh... don't even know where to start...

"It says the scheme endangers the underpinnings of the eurozone rescue programmes.....Were it to be used, it would deprive the German parliament of its fiscal sovereignty by forcing it to accept any losses the scheme generated” (FT)."

   - Again, Wolfgang Münchau... is really just full of shit. A shill of the London-based megabanks. It's incredible how often the FT let's him write comments of this dubious quality. It's a total non sequitur

Mon, 02/10/2014 - 08:27 | 4419353 Peter Pan
Peter Pan's picture

Don't wake me until we start seeing $50 moves in gold and at least 2% swings in the stock market. Until then nothing is really new other than the snail pace movement of a mountain glacier bearing down on us.

Mon, 02/10/2014 - 08:26 | 4419355 Sufiy
Sufiy's picture


Bubble Chronicles: Bitcoin Crashed Down Fast to $500 at Mt. Gox and $102 at BTC-e today.

After all the news about the Mt. Gox and Russia making any transactions with Bitcoin illegal, Bitcoin is crashing fast now with Mt. Gox  quoting below any other exchanges at $530 and Litecoin is down to $15.
  Bitcoin has printed low $500 on Mt Gox and fell as low as $102 at BTC-e today! So much for the crypto-currency reliability as exchange, the "value" of vapour currency can literally evaporate at any moment.

Update:

 
"MtGox have discovered a critical flaw with Bitcoin, that every exchange is now having to deal with. That fault threatens the functioning of the digital currency." http://sufiy.blogspot.co.uk/2014/02/bitcoin-crashing-down-fast-to-530-at...

Mon, 02/10/2014 - 08:44 | 4419373 NoDebt
NoDebt's picture

I read that one, too.  I also read the updated statement from Mt. Gox on the subject.  I like the non-technical explanation:

"Non-technical Explanation:
A bug in the bitcoin software makes it possible for someone to use the Bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when in fact it did occur. Since the transaction appears as if it has not proceeded correctly, the bitcoins may be resent. MtGox is working with the Bitcoin core development team and others to mitigate this issue."

Oops.  I have a feeling this one's not going to be fixed in just a few hours.

Here's the full news release, which a link to it is also available on the Mt. Gox homepage on the right hand side:

https://www.mtgox.com/press_release_20140210.html

Mon, 02/10/2014 - 08:29 | 4419356 Sufiy
Sufiy's picture


Jim Rickards: Gold Set for Massive Rally

  Jim Rickards presents his hew book and talks about the real fundamentals supporting his call for the much higher price of Gold. It is the very good piece to continue our conversation about the state of the Gold market and its ongoing manipulations this weekend.

 

http://sufiy.blogspot.co.uk/2014/02/jim-rickards-gold-set-for-massive-ra...

Mon, 02/10/2014 - 08:35 | 4419363 DirkDiggler11
DirkDiggler11's picture

MARKET FLASH - CNBC RATINGS INCREASE 200 X OVERNIGHT

In a move to increase viewership, CNBC switches to show women's Olympic hockey Monday morning, pre-emoting their normal stream of government written bullshit and propaganda.

Mon, 02/10/2014 - 08:39 | 4419370 GetZeeGold
GetZeeGold's picture

 

 

 

When I think sports.....I think CNBC.

Mon, 02/10/2014 - 08:49 | 4419385 negative rates
negative rates's picture

You better hope the foreigners don't pick up on that, or the MSM is screwed morally and in public.

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