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USDJPY 102 Tractor Beam Overrides All Overnight Economic Disappointment

Tyler Durden's picture




 

After learning that it snowed in China this winter following the release of the abysmal February Flash HSBC PMI numbers, we found out that there had also been snow in Europe, following misses across virtually all key French, German and composite PMIs with the exception of the German Services PMI which was the sole "beater" out of 6. To wit:

  • Eurozone PMI Manufacturing (Feb A) M/M 53.0 vs Exp. 54.0 (Prev. 54.0); Eurozone PMI Services (Feb A) M/M 51.7 vs Exp. 51.9 (Prev. 51.6)
  • German Manufacturing PMI (Feb A) M/M 54.7 vs. Exp. 56.3 (Prev. 56.5); German PMI Services (Feb A) M/M 55.4 vs Exp. 53.4 (Prev. 53.1)
  • French PMI Manufacturing (Feb P) M/M 48.5 vs. Exp. 49.6 (Prev. 49.3); French PMI Services (Feb P) M/M 46.9 vs. Exp. 49.4 (Prev. 48.9)

Of course, economic data is the last thing that matters in a manipulated market. Instead, all that does matter is what the USDJPY does overnight, and as we forecast yesterday, the USDJPY 102 tractor beam is alive and well and managed to pull equity futures from a -10 drop overnight to nearly unchanged, despite the now traditional pattern of USDJPY selling during the overnight session and buying during the US session.

Today we get the latest US CPI and weekly jobs report, as well as the Philly Fed business outlook and DoE data.

Headline Bulletin from RanSquawk and Bloomberg

  • Risk off sentiment dominated the session in reaction to somewhat hawkish FOMC minutes and worse than expected PMI data from China, Germany and France.
  • EUR under broad based selling pressure, with EUR/USD below 1.3700 level, amid a firmer USD and GBP supportive M&A related flow (Vodafone/Verizon).
  • Going forward, market participants will get to digest the release of the latest US CPI and weekly jobs report, as well as the Philly Fed business outlook and DoE data.
  • Treasuries gain, reversing move seen after Fed minutes which showed participants agreed that tapering will continue, some said “it would soon be appropriate” to change forward guidance, given unemployment rate nearing 6.5%.
  • A Chinese manufacturing index fell to the lowest level in seven months, adding to challenges for Communist Party officials grappling with risks to the financial system from trust defaults and soured loans
  • Japan’s trade deficit widened to a record in January as surging import costs weigh on Prime Minister Shinzo Abe’s campaign to drive a sustained recovery
  • Tepco, operator of the crisis-ridden Fukushima Dai-Ichi nuclear power plant, said it found a new leak near the tanks holding contaminated water
  • German manufacturing may expand at a slower pace this month, according to a survey of purchasing managers released today by Markit; an advance reading of the index fell to 54.7 from 56.5 in January
  • The factory gauge for the euro region unexpectedly slipped to 53 from 54 in January, while the services measure rose less than estimated to 51.7 from 51.6, Markit said today
  • At least seven people died in a new wave of deadly clashes in the Ukrainian capital as a truce declared last night by President Viktor Yanukovych and opposition leaders fell apar
  • Markets from Hungary to Poland and Russia are suffering contagion from the violence rocking Ukraine’s capital, sending bond yields higher and currencies lower as the turbulence afflicting developing nations deepens
  • Venezuelan protests turned violent again as President Nicolas Maduro addressed the nation and opposition chief Leopoldo Lopez awaited arraignment at military prison for his  role in protest that began last week
  • Matteo Renzi, Italy’s prime minister-designate, won over the leaders of a divided parliament by coaxing some rivals into cooperation and keeping his cool under a barrage of insults from others
  • Sovereign yields mostly higher. EU peripheral spreads wider. Asian stocks fall, led by Nikkei -2.15%. European stocks, U.S. stock-index futures decline. WTI crude and copper lower, gold higher

Market summary

Heading into the North American open stocks in Europe are seen lower across the board, albeit off the worst levels of the session, as the release of weaker than expected French, German and Chinese PMIs, as well as somewhat hawkish FOMC minutes dampened demand for riskier assets. Nevertheless, the initial bid tone by Bunds was not sustained and the uptick observed in the first few hours of trade was gradually pared amid the absorption of supply from France and Spain. Still, worse than expected macroeconomic data from Eurozone weighed on EUR across the board, which also saw the major pair move below the key 1.3700 level.

US Event Calendar

  • 8:30am: CPI m/m, Jan., est. 0.1% (prior 0.3%); CPI Ex Food and Energy m/m, Jan., est. 0.1% (prior 0.1%);
  • 8:30am: Initial Jobless Claims, Feb. 15, est. 335k (prior 339k); Continuing Claims, Feb. 8, est. 2.970m (prior 2.953m)
  • 8:58am: Markit US PMI Preliminary, Feb., est. 53.6
  • 9:45am: Bloomberg Economic Expectations, Feb. (prior -5); Bloomberg Consumer Comfort, Feb. 16 (prior -30.7)
  • 10:00am: Philadelphia Fed Business Outlook, Feb., est. 8.0 (prior 9.4)
  • 10:00am: Index of Leading Economic Indicators, Jan., est. 0.4% (prior 0.1%)
  • 10:00am: Mortgage Delinquencies, 4Q (prior 6.41%) MBA Mortgage Foreclosures, 4Q (prior 3.08%)
  • 11:00am: POMO - Fed to purchase $2.25b-$2.75b in 2021-2024 sector

Asian Headlines

Chinese HSBC Flash Manufacturing PMI (Feb) M/M 48.3 vs. Exp. 49.5 (Prev. 49.5); 7 month low. (BBG)
- Employment sub index 46.9, lowest since February 2009.

HSBC said the building up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening. (RTRS)

Japanese Trade Balance (JPY)(Jan) M/M -2790.0bln vs. Exp. -2487.0bln (Prev. -1302.1bln, Rev. -1304.2bln) (BBG)
- Exports (Jan) Y/Y 9.5 vs. Exp. 12.7 (Prev. 15.3)
- Imports (Jan) Y/Y 25.0 vs. Exp. 22.7 (Prev. 24.7)

EU & UK Headlines

Eurozone PMI Manufacturing (Feb A) M/M 53.0 vs Exp. 54.0 (Prev. 54.0)
- Eurozone PMI Services (Feb A) M/M 51.7 vs Exp. 51.9 (Prev. 51.6)

German Manufacturing PMI (Feb A) M/M 54.7 vs. Exp. 56.3 (Prev. 56.5)
- German PMI Services (Feb A) M/M 55.4 vs Exp. 53.4 (Prev. 53.1)

French PMI Manufacturing (Feb P) M/M 48.5 vs. Exp. 49.6 (Prev. 49.3)
- French PMI Services (Feb P) M/M 46.9 vs. Exp. 49.4 (Prev. 48.9)

Even though Bund futures have come off the best levels of the session following the absorption of supply from Spain (EUR 5.018bln vs. Exp. EUR 4-5nln) and France (EUR 7.983bln vs. Exp. EUR 7-8bln), peripheral bond yield spreads remained wider, with SP/GE 10s underperforming amid somewhat lacklustre bidding.

According to the UK Chancellor Osborne, Britain's economic recovery is not secure because it is too dependent on the consumer. Osborne adds that businesses are not investing or exporting enough. (Telegraph) The comments come ahead of the UK Budget next month, where Osborne is now expected to reaffirm his commitment to cut the UK deficit despite recent figures showing better than expected growth.

US Headlines

Fed's Williams (Non-Voter, Dove) said he would prefer more verbal guidance over 6.5% unemployment threshold. Williams added that the economy is looking "really solid" for this year and "hurdle is pretty high" for changing taper pace this year. Williams added he expects Fed funds rate to stay at zero well into 2015 and that policy needs to
remain highly accommodative. (BBG)

Equities

Reversal by Bunds following the absorption of supply from France and Spain also supported the recovery in European equities this morning, which remain lower after coming under pressure in reaction to the release of weaker PMI from China and somewhat hawkish FOMC minutes. In terms of notable movers, London listed BAE Systems (-8.7%) is among the worst performing stocks after forecasting lower 2014 earnings pre-market.

In terms of US specific commentary, Facebook announced that it is to buy mobile message app WhatsApp for USD 19bln. According to reports, WhatsApp stock is to be cancelled in exchange for USD 12bln Facebook stock and USD 4bln cash.

FX

EUR came under broad based selling pressure following the release of weaker than expected PMI data from France and Germany, with EUR/GBP also weighed on by touted M&A related flow (Vodafone/Verizon). At the same time, despite the risk off sentiment, USD/JPY and EUR/CHF managed to recover off the lowest levels of the session, which indicates that there is scope for the sentiment to reverse. Looking elsewhere, spot RUB, EUR/HUF and EUR/PLN remain bid amid ongoing unrest in Ukraine, which risks causing capital flight in other neighbouring Eastern European states.

Commodities

Iran and the P5+1 group have reached an agreement on an agenda for negotiations over Iran's nuclear programme and will meet for further discussions next month in Austria, according to Iranian officials. (RTRS)

Should these reports be confirmed by Western powers, it would indicate another step forward in solving the trade disputes with Iran, despite the US previously warning that a final agreement may not be possible.

Analysts at UBS hiked its forecast for average gold and silver prices, citing a shift in investor sentiment for the short term. The banks' forecast for gold was raised 8.3% to USD 1,300 per oz in 2014, whilst leaving its 2015 forecast unchanged. Silver average price estimates were raised to USD 22.30 per oz, up from USD 20.50.

Morgan Stanley said the cost to fill US gas stores have been overestimated and gas should trend lower, possibly falling under USD 4 in Q3. (BBG)

Analysts at SocGen see moderate downside risk to its 2014 crude forecasts. (BBG)

 

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Thu, 02/20/2014 - 08:22 | 4456622 GetZeeGold
GetZeeGold's picture

 

 

Scotty, I need full power....we've got to break out of this!

 

Dammit Jim........Scotty's full of nails. I'm calling it suicide.

 

Bones, you're a freakin idiot.....get down to engineering.

Thu, 02/20/2014 - 08:28 | 4456641 Uber Vandal
Uber Vandal's picture

Captain, The Dilithim Crystals were rehypothecated to the Ferengies who used them as collateral to the Romulans who then loaned them to the Cardassians, who then sold them on the black market to the Klingons, and I think were assimilated by the Borg.

No, Captain, the note was lost, after Linda Green had an unfortunate accident with Scotty's nail gun, too. She was klutzy.

 

Thu, 02/20/2014 - 08:28 | 4456643 negative rates
negative rates's picture

You know you really can't get out of here, said Barney after locking himself in the jail cell.

Thu, 02/20/2014 - 08:34 | 4456652 Millivanilli
Millivanilli's picture

Piss on their backs and tell them it'a rain.- the overlords.

Thu, 02/20/2014 - 08:22 | 4456631 stocktivity
stocktivity's picture

"HSBC said the building up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening. (RTRS)"

 

That's all you have to know. The rest is all Bullshit!!  With electric and gas bills sky high the next 2 months will equal less spending. Stores will cut prices and have mega sales....and the consumer still won't be buying as much.  Car lots are already loaded. What the Fed feared most - Deflation - is coming.

Thu, 02/20/2014 - 08:25 | 4456638 madbraz
madbraz's picture

All it takes is one big hedge fund or two to exit Japan and we have the trigger for the 3rd global market crash since 2000

 

Yen goes below 100, Nikkei goes back to sub 10,000, Japan institutional fixed income investors cash out of Europe periphery sovereign bonds, Spain and Italy yields go up 100 bps, Euro drops below 1.30,  European stock markets break, emerging markets break to the downside (steeply), safe haven treasuries rally and US stock markets go back to their 3 year moving average some 20%+ below current levels.

 

It will take a lot of "bad weather" to keep this turd afloat in the next 6 months.

 

If you are a big hedge fund "invested" in Japan, how on earth do you not cash out?  

Thu, 02/20/2014 - 08:33 | 4456653 fonzannoon
fonzannoon's picture

"All it takes is one big hedge fund or two to exit Japan and we have the trigger for the 3rd global market crash since 2000"

That's probably true. I think the worlds CB's handled that when they treated Lehman and BS like these two guys.

http://www.youtube.com/watch?v=8t9x_y3vFic

That's why you don't cash out.

Thu, 02/20/2014 - 10:48 | 4457150 madbraz
madbraz's picture

Either you cash out first or you roundtrip and erase all gains and then some...

Unless you think it's different this time

Thu, 02/20/2014 - 08:28 | 4456644 AdvancingTime
AdvancingTime's picture

As money leaves Japan some of it is due to find its way to America. As 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.

Japan will face major economic problems as debt service soars and the weak yen means higher import cost. 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. More on why Japan is about to fold in the post below.

http://brucewilds.blogspot.com/2013/08/japans-economy-going-forward.html

Thu, 02/20/2014 - 08:46 | 4456689 Cannon Fodder
Cannon Fodder's picture

Please help educate me as there is something I don't understand about the USFJPY carry trade thesis....

If I understand it, the thesis is that the US "stawk" market keeps going up in part due to the carry trade in which people borrow free money from Japan and put it into the US market.

But that seems like it should only be able to happen for so long. I mean it is one thing to borrow a million dollars but it is another to borrow a million dollars every day. So how far out on the limb are these people going who are doing the carry trade? Doesn't that imply that if/when things go bad they go REALLY bad as these people are going to have very large amounts of money they have to put back into the yen? That they will have to sell MASSIVE amounts of US stocks to cover the trade?

Thanks...

Thu, 02/20/2014 - 08:52 | 4456702 negative rates
negative rates's picture

Yea I noticed when I stand out on a tree limb with a heavy weight, the limb breaks more often than when I don't. 

Thu, 02/20/2014 - 08:54 | 4456710 weburke
weburke's picture

(fed)Williams added he expects Fed funds rate to stay at zero well into 2015 and that policy needs to
remain highly accommodative. (BBG)  "well into 2015" means around sept 2015, which will be market collapse time. 2001-2008-2015.

Thu, 02/20/2014 - 10:12 | 4456985 Orly
Orly's picture

Today could be the day the U/J longs take it on the chin.  The set-up is perfect and they are trying to ramp it off the Weekly Pivot.  (~102...).

The upside push is looking weak and the equity markets are starting to weigh heavily.  Look for the pair to break below the rising trendline (H4...) and touch the first Weekly Support @~ 101.34.

Best of luck to everyone!

:D

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