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Futures Soar 40 Points In Hours On Hopes Of Futher Economic Weakness

Tyler Durden's picture




 

We summarized yesterday's both better and worse than expected Chinese GDP data as follows: "a substantial deterioration of the economy, one which was to be expected yet one which can be spun as either bullish thanks to the GDP "beat", and negatively if the purpose is to make a case for more PBOC stimulus." Sure enough here are the headlines that "explain" the latest overnight futures surge which has once again brought the S&P into the green on the year - a 40 point Spoo move in hours since yesterday's bottom when the Nikkei "leaked" Japan's economy is on the ropes :

  • Stocks Rise on China Stimulus Speculation

Here one should of course add the comment that launched yesterday's rebound, namely the Japanese warning that its economy is about to contract, adding to calls for more BOJ stimulus, and finally this other Bloomberg headline:

  • The Strengthening Case for ECB Easing

And there you have it - goodbye "fundamental" case; welcome back "central banks will once again bail everyone out" case. Hopefully today's news are absolutely abysmal to add "US economic contraction fear renew calls for untapering" to the list of headlines that should send the S&P to all time highs by the end of today.

What else is going on: stocks in Europe partially shrugged off mounting concerns over Ukraine and remained in the green, benefiting from a positive close over on Wall Street which consequently filtered over into the Asian session (Nikkei 225 +3.0%).

GBP rallied across the board and Short-Sterling curve bear-steepened after UK unemployment rate fell to 6.9%, below the 7% threshold as advocated by the BoE. Britain’s unemployment rate dropped to a five-year low in February, underscoring the strength of the economic recovery and raising the prospect of a debate among Bank of England officials about whether to raise interest rates

Looking at the day ahead, though we may run into some pre-Easter pockets of illiquidity, there’s still plenty of data and Fed speak ahead today for the markets to mull. Ahead of the four-party EU/US/Russia/Ukraine summit in Geneva on Thursday, it will be worth watching what political leaders have to say today on the prospect of sanctions. European data will be centred on the final Euroarea CPI for March, UK unemployment and Spanish trade. Across the Atlantic, Yellen’s speech to the Economic Club of NY is scheduled for around 5:25pm London time, but the text of her speech may be made available shortly before that. The Fed’s Stein and Lockhart will be speaking at the Atlanta Fed’s financial market conference while the Dallas Fed’s Fisher speaks in Texas shortly after Yellen. In terms of US data, housing starts, building permits and industrial production are the key releases. The Fed Beige Book may provide more anecdotal commentary on how activity is recovering post-winter. BofA and Google report earnings today.

Bulletin headline summary from Bloomberg and RanSquawk

  • Treasuries decline within ranges seen since Friday as stocks in Asia and Europe and commodities rebound from recent losses; trading may slow before Yellen’s speech in New York, long holiday weekend.
  • China’s GDP rose 7.4% in 1Q, weakest pace in six quarters; industrial production and fixed-asset investment trailed     projections while property construction plunged
  • Offshore yuan traded near a 14-month low after the PBOC weakened the currency’s reference rate for a third day
  • The euro area’s core inflation rate fell more than initially estimated in March, keeping pressure on the ECB to take action to boost prices
  • Ukraine accused Russia of fueling “terrorism” in its eastern provinces as government troops pressed on with an offensive to rein in separatist unrest
  • Japan’s government may downgrade its economic assessment for the first time since November 2012 amid a drop in consumption after this month’s sales-tax increase, the Nikkei newspaper reported, without citing anyone
  • Chinese investors demanding their money back from a troubled 973 million-yuan ($156 million) high-yield product in Shanxi province were confronted by police in front of a China Construction Bank Corp. branch
  • Sovereign yields mostly higher. Asian stocks gain, Nikkei +3%, Shanghai +0.2%. European equity markets, U.S. stock futures gain. WTI crude and copper higher, gold lower

US Event Calendar

  • 7:00am: MBA Mortgage Applications, April 11 (prior -1.6%)
  • 8:30am: Housing Starts, March, est. 970k (prior 907k)
  • Housing Starts m/m, March, est. 7% (prior -0.2%)
    Building Permits, March., est. 1.010m (prior 1.018m, revised  1.014m)
  • Building Permits m/m, March, est. -0.4% (prior 7.7%, revised 7.3%)
  • 9:15pm: Industrial Production m/m, March, est. 0.5% (prior 0.6%)
  • Capacity Utilization, March, 78.7% (prior 78.8%, revised 78.4%)

Fed action

  • 8:30am: Fed’s Stein speaks on QE at Atlanta Fed conference at Stone Mountain, Ga.
  • 12:00pm: Fed’s Lockhart speaks at Stone Mountain
  • 12:25pm: Fed’s Yellen speaks to Economic Club of New York
  • 1:25pm: Fed’s Fisher speaks in Austin, Texas
  • 2:00pm: Federal Reserve releases Beige Book
  • 8:30pm: Bank of Japan’s Kuroda speaks at branch managers meeting
  • 11:00am POMO: Fed to purchase $900m-$1.15b in 2036-2044 sector

Asian Headlines

Asia-Pacific focus was on the Chinese GDP: (Q1) Y/Y 7.4% vs. Exp. 7.3% (Prev. 7.7%), which supported gains in equity markets overnight. However, Chinese equities slightly underperformed as quarterly figures showed the slowest growth since late 2012. Other data releases included softer industrial production (8.8% vs. Exp. 9.0%) and weaker quarterly growth (1.4% vs. Exp. 1.5%).

EU & UK Headlines

Concerns over the instability in Ukraine failed to support safe-have assets, with both Gilts and Bunds trading sharply lower after the release of the latest UK jobs report, which revealed that the unemployment rate is now below the BoE's 7% threshold and stands at its lowest since 3 months to February 2009. This in turn prompted aggressive bear-steepening of the Short-Sterling curve as market participants contemplated of an earlier tightening move by the BoE.

However analysts at UBS suggested that inflation matters more than UK jobs and believe that GBP is stretched, adding that the BoE will try to emphasize soft inflation in context of policy and spare capacity, and may disappoint those looking for early tightening.

The release of the latest EU CPI data which Y/Y core at 0.7% vs. Exp. 0.8% and Y/Y at 0.5% vs. Exp. 0.5% acted as a reminder of potential emergence of deflation in the joint-currency bloc. On that note, analysts at Bank of America believe that the ECB needs EUR 1trl in QE for measures to be effective, adding that the ECB will have to purchase government bonds as well as private sector assets in event of QE and that at least EUR 75bln (EUR 40bln in govt bonds) per month would be necessary.

US Headlines

Intel Corp and Yahoo! shares traded sharply higher after the closing bell on Wall Street yesterday after reporting consensus beating earnings. In terms of earnings, focus will be on Google, IBM, Bank of America and also American Express.

Equities

Equities in Europe, initially buoyed by a positive close over on Wall Street and the consequent risk on sentiment over in Asia, failed to hold onto the best levels of the session as concerns over the growing instability in Ukraine weighed on sentiment. Nevertheless, heading into the North American open, stocks are seen higher across the board, with consumer services as the outperforming sector as Tesco shares surged over 5% following earnings pre-market.

FX

The release of better than expected UK jobs report saw GBP rally across the board, with GBP/USD advancing to its highest level since Feb, while EUR/GBP tested April lows. At the same time, the USD failed to benefit from the risk averse sentiment amid the uncertainty surrounding direct implications of further sanctions on Russia and its appetite for the global reserve currency. As a result, in spite of lower EUR/GBP, EUR/USD remained better bid.

Commodities

WTI and Brent crude futures remain higher, with Brent at early March highs and above USD 110/bbl as markets remain nervy over Ukrainian tensions. The energy complex has been on the front foot following the original headlines of APCs defecting from the Ukrainian army to fly the Russian flag and move into Slavyansk ahead of potential anti-terror operations directed by President Turchynov. The continued mobilisation of military units has heightened market expectations of further conflict in the area after fatalities were reported yesterday.

Yesterday's API inventory data is as follows:
- US API Crude Oil Inventories (Apr 12) W/W 7640k vs. Prev. 7080k
- Cushing Crude Inventories (Apr 12) W/W -640k vs. Prev. 204k
- Gasoline Inventories (Apr 12) W/W -499k vs. Prev. -3650k
- Distillate Inventories (Apr 12) W/W -1110k vs. Prev. 293k

* * *

Jim Reid's overnight recap concludes this summary

China’s Q1 statistical update was released earlier this morning and it was met with a mixture of relief and pessimism which will only heighten the market's confusion as to the state of the domestic economy. Starting with GDP, growth in Q1 was measured at 7.4% y/y which marginally beat median market expectations of 7.3% but was consistent with DB’s estimates. There is some relief that growth beat consensus but Q1’s growth rate was still below 4Q13’s growth of 7.7%. The other negatives are that Q1’s y/y growth is a cyclical low and the annualised Q/Q GDP number works out to be just 5.7%. Retail sales grew 12.2% YoY in Q1 which again was just ahead of estimates of 12.1% but substantially below 4Q13’s 13.6%. Industrial production missed estimates at 8.8% (vs 9.0% consensus and 9.7% recorded in Q4). Finally, fixed asset investment grew 17.6% YTD YoY which was below expectations of 18.0%. So all in all, evidence of slowing growth and activity which is consistent with recent PMIs, but perhaps not as bad as the market had feared from an overall GDP growth point of view. To add to the confusion there’s also a sense that the numbers were not bad enough to prompt a sudden easing of policy from the  Chinese authorities. Something for both the bears and the bulls here this morning.

Unsurprisingly the reaction to the data has been mixed. The Nikkei and S&P 500 futures rallied into the data releases, and though some of the gains have been pared since, both are still sitting on healthy gains this morning. There are some heightened expectations that the BoJ will ease further in the coming months as the Nikkei reported that the Japanese cabinet may downgrade its economic outlook when it issues its monthly assessment tomorrow. This would be the first downgrade since late 2012. The reaction to the data from Chinese equities was more negative and we saw the Shanghai Composite shed 0.9% in the minutes after – however it too is now trading in positive territory. Shanghai copper is up 0.2% and the AUDUSD is steady at 0.935. Despite the negative headlines emanating from Ukraine yesterday, Asian EM is having a decent run today helped by firmer US treasuries. Asian EM equity bourses are generally firmer today and Asian credit is flat to a couple of basis points tighter on the day.

The story of yesterday was the large intra-day swings in markets with the S&P 500 (+0.68%) covering more than 27 points from it’s early peak, down to its
the intraday low and retracement up to the closing highs. All day it appeared that markets were playing out a tug of war between the headwinds of geopolitical headlines versus the tailwinds of strong US corporate results. On the geopolitical side, events in the Ukraine took a turn for the worse as Putin described Ukraine as being on the brink of a civil war as clashes were recorded in a number of eastern Ukraine flashpoint cities. The Ukrainian government claimed that Russia’s 45th airborne division had crossed the border into its territory. It seems that Thursday’s four-party EU/Russia/US/Ukraine summit in Geneva will be a pivotal event heading into the long weekend. The probability of further sanctions against Russia appears to be growing and the yield on Russian government bonds gapped out by 16bp, slightly less than spreads on Russian banks which gapped out more than 20bp. Sberbank of Russia’s US ADR’s were down 3.6% in US trading.

Risk recovered as US participants started their day, spurred by some solid premarket results from Johnson & Johnson and Coca-cola. Coke’s management was relatively upbeat on its outlook and it said that Coke was enjoying revenue growth in EM including China (+12%), Brazil (+4%) and Russia (+6%). After  the closing bell, Intel reported EPS above consensus on the back of better gross margins (Q1 59.7% vs 59.1% expected) and was also positive on the outlook of Q2 margins. Intel was relatively upbeat in its forecast for Q2 saying that business PC upgrades are set to pick up. However the broader macro implications of this might be limited given that upgrades are occurring based on Microsoft ceasing support for its Windows XP operating system. Intel’s stock was up 3.5% in aftermarket trading. Yahoo! Inc also reported strong results and the stock surged 9% in afterhours trading.

US treasuries started the overnight session firmer on Ukraine fears but gave up most of those gains after the release of a stronger than consensus US CPI report. 10yr yields closed 2bp firmer (2.63%) but the shorter end of the curve underperformed with 5yr yields up nearly 1bp. Both headline and core US CPI printed at +0.2% in March (vs expectations of +0.1% for both). This had the effect of lifting the YoY rate in the headline to +1.5% from +1.1% previously (1.4% exp); and the core moved up to +1.7% from +1.6% previously. In other data, the NY Empire state manufacturing index for April fell to +1.3 (vs.  +5.6), the lowest level since November 2013 (+0.8). However the six month outlook on capital expenditures (+23.5 vs. +16.5) rose to one of its strongest  levels in many months. DB’s economists have maintained their forecast for this Thursday’s Philly Fed survey (+10.0 forecast vs. +9.0 previously). Elsewhere the US Homebuilders’ sentiment index rose 1 point to 47 (vs 49 expected) due entirely to a 4 point increase in the six-month outlook (57 vs. 53).

Yellen’s brief remarks at the Atlanta Fed’s financial markets conference were mostly related to the issue of financial stability. In a short speech, Yellen urged further action to strengthen liquidity regulations for banks and she spoke in firm support of the Basel Committee’s Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) measures. In addition to that she said that the Fed is considering additional measures to strengthen liquidity requirements  in the financial markets via minimum margin requirements for repos and other security financing transactions which could apply on a market-wide basis. Though she steered clear of talking about monetary policy, we’re likely going to hear more on this topic when the Fed Chair speaks at the Economic Club of NY today.

With many in the market talking about next steps for the Bank of Japan, there are a couple of interesting economic headlines this morning. The country’s finance minister made some vague comments in parliament that the Government Pension Investment Fund “will make a move” in the stock market in June, perhaps hinting at imminent asset allocation changes. In terms of the impact of the country’s recent 3% sales tax hike, the Nikkei says that anecdotal evidence suggests that the effect hasn’t been all bad, which were echoed by the Japanese PM earlier this morning. According to the Nikkei, supermarkets and electronics stores, which saw sales dip right after the tax increase, are now saying the slump is tapering off. Aeon Retail, which runs large general merchandise stores, reported that over the second weekend of April, same-store sales recovered to about the same level seen the previous year. Department stores, on the other hand, are having a lot of trouble moving luxury products with little recovery one the second weekend of April. The Nikkei says that two Isetan Mitsukoshi stores, sales of such products are down 50% on the year. The article suggests that perhaps the demand for larger ticket items was disproportionately pulled forward ahead of the tax hike.

Looking at the day ahead, though we may run into some pre-Easter pockets of illiquidity, there’s still plenty of data and Fed speak ahead today for the markets to mull. Ahead of the four-party EU/US/Russia/Ukraine summit in Geneva on Thursday, it will be worth watching what political leaders have to say today on the prospect of sanctions. European data will be centred on the final Euroarea CPI for March, UK unemployment and Spanish trade. Across the Atlantic, Yellen’s speech to the Economic Club of NY is scheduled for around 5:25pm London time, but the text of her speech may be made available shortly before that. The Fed’s Stein and Lockhart will be speaking at the Atlanta Fed’s financial market conference while the Dallas Fed’s Fisher speaks in Texas shortly after Yellen. In terms of US data, housing starts, building permits and industrial production are the key releases. The Fed Beige Book may provide more anecdotal commentary on how activity is recovering post-winter. BofA and Google report earnings today.

 

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Wed, 04/16/2014 - 07:03 | 4664379 stocktivity
stocktivity's picture

It's all Bullshit!!!  Rally on!  Go back to bed.

Wed, 04/16/2014 - 07:09 | 4664386 GetZeeGold
GetZeeGold's picture

 

 

The fire insurance should pay off nicely.

Wed, 04/16/2014 - 07:13 | 4664397 Headbanger
Headbanger's picture

Plus we're paying ransom money to Putin so he doesn't annex Ukraine and Cuba next!

We've become a nation of "money solves everything" bunch of fucking wankers, or bankers, same thing!

Wed, 04/16/2014 - 07:27 | 4664427 negative rates
negative rates's picture

Stay right where you are, that was not a torpedo which hit the ship. Is wall street on lockdown or am I the only one who can't find the knucklers this morning?

Wed, 04/16/2014 - 08:11 | 4664506 max2205
max2205's picture

ZH, where Sarc becomes fact....

Wed, 04/16/2014 - 07:20 | 4664413 Sudden Debt
Sudden Debt's picture

would that be the ObamaFireInsurance?...

Wed, 04/16/2014 - 07:49 | 4664469 Jannn
Jannn's picture

Total gold reserves China likely exceed 14000 mt.

 

http://www.ingoldwetrust.ch/sge-withdrawals-equal-chinese-gold-demand-pa...

Wed, 04/16/2014 - 08:13 | 4664511 BandGap
BandGap's picture

Sucking cock for corporate food stamps.

So, who kicks off the printing race to the bottom? US? EU? Japan? China?

Wed, 04/16/2014 - 07:04 | 4664382 Cognitive Dissonance
Cognitive Dissonance's picture

The 'high' the crack addict gets from the anticipation of moar drugs is almost as good as the drug itself.

<Can I just get a shot of dopamine to go please?>

Wed, 04/16/2014 - 07:29 | 4664431 negative rates
negative rates's picture

The waiting is the hardest part, then it's all gravy.

Wed, 04/16/2014 - 08:20 | 4664524 intric8
intric8's picture

I want to fucking puke. You know what guys? Just go long already. The yellen put might go down as the best ever

Wed, 04/16/2014 - 07:06 | 4664384 dirtyfiles
dirtyfiles's picture

mareket  fund/mental correction

Wed, 04/16/2014 - 07:07 | 4664387 JustObserving
JustObserving's picture

Good news is good news, bad news is good news and no news is good news.

As Sherlock Holmes would put it, "Elementary, my dear Watson. The markets are massively manipulated to prop up a faltering economy."

Wed, 04/16/2014 - 07:08 | 4664388 fonzannoon
fonzannoon's picture

I am sure I am wrong but this follow through rally looks weak. I expected a much bigger pop this am. I think we barf again today.

Wed, 04/16/2014 - 07:13 | 4664396 dirtyfiles
dirtyfiles's picture

the so called "smart money" if they realy are not participating any more?

Wed, 04/16/2014 - 07:36 | 4664446 Dr. Engali
Dr. Engali's picture

The market wants to barf, but the not-so-invisible hand if the fed saves it. It seems like they are defending s&p 1815 while popping the momo trade at the same time.

Wed, 04/16/2014 - 07:44 | 4664460 fonzannoon
fonzannoon's picture

yeah....nevermind what I said. we just have to btfd. all the time. always. question nothing. 

Wed, 04/16/2014 - 09:47 | 4664764 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

1850 should be then ext 1815

Wed, 04/16/2014 - 07:17 | 4664399 Sudden Debt
Sudden Debt's picture

MOTHER F!

I'm shorting here! I'm shorting here!

https://www.youtube.com/watch?v=c412hqucHKw&feature=player_detailpage#t=17

 

 

Wed, 04/16/2014 - 07:18 | 4664411 El Hosel
El Hosel's picture

Its a sure thing, buy the fucking weak data... BTFWD Bitchez.

Wed, 04/16/2014 - 07:36 | 4664443 ParkAveFlasher
ParkAveFlasher's picture

To all, At the very moment I capitulate, the turnaround will occur.  Will let you know when.  All the Best, PAF, (letter-writer and stock picker; both true statements).

Wed, 04/16/2014 - 07:48 | 4664467 Peter Pan
Peter Pan's picture

If they are collecting outstanding debts from the children of dead social security recipients nothing surprises me.

One wonders what effect a subdued dollar had on earnings from overseas.

And with a deficit of over $413 billion for the first half this translates to a deficit of around $1200 per person, $2400 per worker or $4800 per tax paying worker.

Once you annualise these amounts you should be breaking out in a cold sweat.

Wed, 04/16/2014 - 07:42 | 4664455 Peter Pan
Peter Pan's picture

In the words of Dr Darryl Schoon:

"Constant prosperity through credit is no more possible than constant peace through heroin."

I think that just about sums up the schizophrenic clamouring of markets for more stimulus.


Wed, 04/16/2014 - 08:21 | 4664527 AdvancingTime
AdvancingTime's picture

Well said! I feel we been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years. These actions have merely masked over major flaws and problems.

By not demanding the right kind of growth and by throwing money at problems we have only delayed and added to festering issues that face us in the future. In what most of us view as a fast moving world many people have come to think if a financial crisis doesn't occur today or in the next few weeks it is simply not going to happen at all. More about how many investors have become far to complacent in the article below.

http://brucewilds.blogspot.com/2014/01/have-we-been-lulled-into-complacency.html

Wed, 04/16/2014 - 07:43 | 4664457 stant
stant's picture

I got out last July makes me a better smart ass on zh when I am not typing with shaky fingers

Wed, 04/16/2014 - 07:45 | 4664461 john milton
john milton's picture

oh, i love the smell of fresh stimulus money early in the mornings, smells like ath again!!!

Wed, 04/16/2014 - 08:08 | 4664495 AdvancingTime
AdvancingTime's picture

Few people ready understand the economy. The study of economics is often baffling and confusing. Many economic theories exist but many are full of holes and conundrums. Much of how people react to a policy may have to do with timing and perception instead of reality. Economics is full of loops that feed back upon themselves and unexpected pitfalls based on expectations.

All this can become quite abstract. Economist predict events that never tend to unfold as expected or planned. Many of the "modern monetary theories" in use today have not been proven over time, but reflect an attitude that we can control  economic cycles better than in the past. We shall soon see if that is indeed true. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/03/few-people-really-understand-econ...

Wed, 04/16/2014 - 08:13 | 4664512 GrinandBearit
GrinandBearit's picture

This absurdity must ALL end.

Wed, 04/16/2014 - 08:25 | 4664538 intric8
intric8's picture

Someone is manipulating this fucking market, and it smells of fed res. E mini manipulation in a thin market? Blasting it through crucial support so it looks lovely on the charts? All news is bullish? Come now.

Wed, 04/16/2014 - 09:15 | 4664681 youngman
youngman's picture

I understand the rise in stocks...if the printing of fiat keeps going...its just more paper chasing something....PMs have me confused other than I think there is a shortage of the real metal and they are playing the price to get  ahold of some somehow....and why none of this is showing up in inflation....where I sit prices of everything are going up...from fees to taxes...food to toys...clothes and cars....insurance..what ever..its all going up much faster than the 1.6% they quote on the TV...I think its 10% now...and all those bondholder are going to lose their lunch when the interest rates go to the actual rate...

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