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Yen Carry Slide Drags Futures To Lows

Tyler Durden's picture




 

The perfectly expected if completely irrational overnight ramp in various Yen carry pairs tried, and failed, and both the USDJPY and EURJPY were tumbling to overnight lows as we go to print. This is happening despite a rout in India in which Narendra Modi's opposition block is poised for the biggest Indian election win in 30 years, with his BJP party currently leading in 332 of 543 seat - an outcome that is seen as very pro business (and seemingly pro asset bubbles: the INR soared and the Sensex was up as much as 6% in intraday trading before paring virtually all gains following what many say was RBI intervention). And while the Nikkei (down 200 points) did not help the mood this move was mostly in response to yesterday's US selling, which means as usual the culprit for lack of algo risk-taking overnight has been the Yen carry, which moments ago hit intraday lows, and is increasingly flirting with the 101 level (after which double digits, and Abe's second resignation, come very quickly).

Europe has traded confused in both bonds and stocks. After printing fresh contract high earlier this morning at 146.76, German Bunds have since come off on touted profit taking having rallied for 3 days in a row (biggest 3 day gain in 468 trading days). At the same time, touted buying by domestic accounts saw SP/GE 10y bond yield spread tighten by around 10bps and IT/GE 10y spread tightened by 6bps.

Stocks in Europe swung between gains and losses this morning, as bargain hunting following the recent selloff and expiration of various equity options led to volatile price action. Nevertheless, in focus peripheral equity indices outperformed since the open and heading into the North American cross over, Italian FTSE-MIB and the Spanish benchmark index IBEX-35 remain in the green.

In Asia much of the focus is on India where the election results are imminent. According to Bloomberg The Bharatiya Janata Party and its allies lead in 332 of 543 seats up for grabs, more than the 272 needed for a majority. A Congress spokeswoman conceded defeat with the party-led bloc leading in 59 seats, which would be the worst ever for a party that has governed India for most of the time since independence in 1947. Smaller regional parties were ahead in 152 seats, according to NDTV television station. “India has won,” Modi, 63, said in a Twitter message as the results came in. Television images showed him in his home state of Gujarat touching the feet of his mother as she applied a streak of sacred vermilion powder on his forehead, a traditional blessing in India.

The results boosted stocks the most in five years and lifted the rupee to an 11-month high as investors bet a stable government would make changes needed to bolster growth in the world’s largest democracy. While Modi’s opponents accused him of inflaming tensions between Hindus and a Muslim minority that stem from the country’s founding in 1947, on the campaign trail he offered a message of economic development.

On today's US calendar, we get housing starts (est.980K) and permits (est 1.01MM), UMich confidence (est 84.5), and a speech by the Fed's Bullard.

 

Bulletin headline summary from Bloomberg and RanSquawk

  • A quiet day for European market, with a lack of tier 1 data, as peripheral bond markets tighten amid bargain hunting and domestic buying, with SP/GE 10y spread tighter by 10bps and IT/GE 10y spread tighter by 6bps
  • Global indices see various May '14 options and futures expiring for both the US and European markets through the session
  • Looking ahead, participants await US Housing Starts, Building Permits and University of Michigan Confidence, ECB's Coeure (Dove) and Fed's Bullard (Non-Voter, Neutral)
  • Treasuries head for weekly gain, with 10Y yield falling the most since the week of March 14 amid weakness in equity indexes, short positioning, growth/inflation outlook.
  • 10Y yield yesterday fell below 38.2% retracement of last year’s selloff at 2.502% for first time since October; 5Y yield closed below its 200-DMA for first time in a year
  • Draghi should buy from a EU490b pool of debt issued by agencies including the EFSF and the ESM, according to the Bruegel institute’s Guntram Wolff, a frequent contributor to closed-door meetings of euro-area finance ministers
  • The top U.S. and U.K. diplomats vowed to punish Russia with industrywide sanctions if this month’s Ukrainian presidential election is undermined as the Kiev government’s forces moved to flush out separatists in the east
  • Portugal, whose EU214b debt load is the euro region’s third highest, exits its international bailout program tomorrow, regaining the economic sovereignty it lost after the European debt crisis erupted
  • Greece’s finance ministry recalled a directive related to capital gains taxation on transactions in Greek government bonds by foreign investors
  • Narendra Modi’s opposition bloc is poised for the biggest Indian election win in 30 years, giving him a mandate to overhaul Asia’s third-biggest economy
  • Sovereign yields mostly higher. Nikkei -1.4%, Shanghai little changed. European equity markets mixed, U.S. stock futures fall. WTI crude and copper little   changed, gold lower

US Event Calendar

  • 8:30am: Housing Starts, April, est. 980k (prior 946k)
    • Housing Starts m/m, April, est. 3.6% (prior 2.8%)
    • Building Permits, April, est. 1.010m (prior 990k, revised  997k)
  • 9:55am: UMich Confidence, May prelim, est. 84.5 (prior 84.1) Central Banks
  • 12:20pm: Fed’s Bullard speaks in Little Rock, Ark.
  • 11:00am: U.S. to announce plans for auction of 3M/6M bills, 10Y TIPS
  • 11:00am POMO: Fed buys bonds in the 02/15/2036 - 05/15/2044 range for a total amount of $0.85 - $1.10 billion

 

EU & UK Headlines

After printing fresh contract high earlier this morning at 146.76, German Bunds have since come off on touted profit taking having rallied for 3 days in a row (biggest 3 day gain in 468 trading days). At the same time, touted buying by domestic accounts saw SP/GE 10y bond yield spread tighten by around 10bps and IT/GE 10y spread tightened by 6bps.

Equities

Stocks in Europe swung between gains and losses this morning, as bargain hunting following the recent selloff and expiration of various equity options led to volatile price action. Nevertheless, in focus peripheral equity indices outperformed since the open and heading into the North American cross over, Italian FTSE-MIB and the Spanish benchmark index IBEX-35 remain in the green.

M&A related flow supported Bouygues (+3.8%) in early trade, after the Co. and Orange said they were exploring a potential consolidation. On a sector breakdown Oil & Gas is the top performer, however Industrials are the biggest laggard with Intertek down 6% following disappointing earnings.

FX

Lack of tier 1 macroeconomic releases, together with complete absence of any central bank speakers this morning meant that EUR/USD and GBP/USD traded steady. Nevertheless, the divergence in the outlook for monetary policies between the ECB and the BoE resulted in GBP outperforming EUR, albeit marginally.

Commodities

Gold traded range bound overnight despite the news out of India that Modi looks likely to be forming the next government, solidifying losses retained yesterday. Crude futures are within yesterday's trading range amid light volumes overnight as traders look to book gains of USD 1.50 on the week. Relatively light news flow has been seen as traders attention turns to US data out later today.

* * *

DB's Jim Reid completes this overnight summary

As regular readers will know we're fully paid up members of the 'secular stagnation', 'new normal', long-drawn out post crisis workout club. It’s something we discussed at length in last year's "A Nominal Problem" report. Given this view, we continue to think yields stay low for some time yet even if it’s hard to find value in real terms at these levels. However we do expect decent strength in the US economy this quarter post the weather distortions so it might not be all one-way in terms of bond yields over the next few weeks. However for now US data has been more mixed than expected post the weather shocks, and doesn't seem to be quite strong enough to persuade investors that the recovery is about to step up into a new gear. Meanwhile China is looking shaky, and yesterday saw surprisingly weak Euro GDP numbers. When you throw all this together the YTD bond market rally has seen a major boost over the last couple of days. However yesterday the periphery cracked as Italian GDP (-0.1% vs +0.2% expected) finally broke the seemingly one-way good news trade in Southern Europe. This puts some pressure on Prime Minister Renzi, whose government has forecast GDP growth of 0.8% this year. Italian 10 year yields rose 19bp (the worse day since June 2013) on a day when Bunds rallied 6bp and are now only 14bps off their all time lows. Italian equities also reacted badly to the GDP print, shedding 3.61%, taking the index to 8% off the YTD highs.

Clearly these Euro GDP numbers where France (0.0% vs +0.2% expected), Italy (-0.1% vs +0.2% exp) and the Netherlands (-1.4% vs 0.0/+0.1% exp) all fell back into stagnation or contraction must surely increase the probability of more aggressive ECB action at their next meeting in 3 weeks. Outside of the major European countries, Finland officially fell back into recession (-0.4% vs - 0.3% previous) and Portugal’s growth also fell back into negative territory (-0.7% vs +0.6% previous). Markets yesterday were less focusing on the liquidity boost of probable ECB action but more on whether they might be behind the curve  already. Indeed the data was enough for our economists to change their call and predict a package of measures to be announced in early June, from full allotment, ending sterilisation to a rate cut including a small negative deposit rate and a targeted LTRO. They are not confident these measures will be sufficient and they continue to expect private asset QE, aimed at boosting bank lending, later this year.

For those who wanted to hear some views on the recent bond market rally, our US rate strategist Dominic Konstam is hosting a conference call today at 10am ET time. Full details at the end. Dominic has also been in the lower yield camp for a long period of time now so his views should be of interest and carry some weight. Indeed, Dominic has been calling for a 2.5% low in US 10yr yields and we just managed to cross that level yesterday (2.489%) so it will be interesting to see where he thinks we go from here. As we mentioned above, the US data has been mixed of late, and though yesterday was no different it seemed that investors preferred to focus on the downside surprises rather than the brighter spots in the data docket. Case in point was the US CPI print for April which continued its recent upward trend (headline 0.3% vs 0.2% previous) albeit in line with Bloomberg consensus. The core CPI increased more than consensus, but in line with DB economists’ expectations, up +0.236%. Also beating market expectations yesterday were the jobless claims and manufacturing survey data.
US jobless claims finally broke through 300k (297k) barrier for the first time since 2007 and was better than the consensus estimates of 320k.The Philly Fed (15.4 vs 14.0 expected) and NY Empire Manufacturing survey (19 vs 6 expected) both topped estimates as well. On the negative side, industrial production contracted 0.6% in April (vs flat expected), as March was revised two-tenths higher to +0.9%. The contraction was due to a 0.4% decline in manufacturing. The NAHB housing index fell to 45 (vs 49 expected). In terms of the equity market reaction, all but one of the S&P500’s ten industry sectors closed weaker yesterday as markets rotated out of risk and into bonds. Cyclicals all underperformed led by materials (-1.47%) and oil & gas (-1.34%). Retail also fell more than 1%, with some investors spooked by the lacklustre Q2 guidance from Wal-Mart (-2.43%).

Turning to Asia, much of the focus is on India where the election results are imminent. As we go to print, Rupee one-month forwards are 1.2% stronger today and the NIFTY is up 4.7%. Counting began at 8am local time, and with votes being tallied by electronic machines, an official result is expected fairly quickly. At the time of writing, the Modi-led BJP coalition was leading in 306 seats of the 543 up for grabs according to Bloomberg. Exit polls have generally predicted anywhere between 270 to 300 seats will be going to the BJP bloc. No exit poll has predicted that the BJP will secure less than 200 seats, while some have predicted that Modi’s party will secure as many as 340 seats (Bloomberg).

As vote counting continues, DB’s Hooper et al note that the market has been increasingly pricing in that the transition to a more effective period of governance, a turn in the investment cycle, and a re-energized growth engine could be around the corner. Indeed they find that GDP growth typically picks up gradually after an election based on an event study of parliamentary elections over the last two decades. However they warn that without a revival in the investment cycle, the new government can’t expect historical trends to simply play out. Areas most affected by investment delays are transportation, electricity production, mining, construction, and steel/oil production. Getting investment going is an important but not the only critical part of the agenda. In addition to that, a sobering fiscal reality awaits the new Finance Minister; stagnant revenues and sticky expenditures will make the job of further consolidation difficult.

Elsewhere in Asia, the weakness in EM that we saw yesterday has translated into a fairly weak Friday for Asian equities. The Hang Seng (-0.6%), HSCEI (-0.85%) and KOSPI (-0.5%) are all set to close more than half a percent lower. Asian EM sovereign credit is a little weaker in spread terms, but the strength of global rates markets is keeping the outright price of sovereign bonds relatively stable this morning (though prices are still down slightly on the day). A number of Asian DM government bonds including Australia and Singapore are trading about 4-5bp firmer.

Turning the day ahead, much of the focus will remain on the rates market. In terms of data, we have a lighter calendar ahead of us today with housing starts, building permits and the University of Michigan preliminary confidence readings. In Europe, Euro area trade and French payrolls are due this morning.

 

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Fri, 05/16/2014 - 07:13 | 4765715 GetZeeGold
GetZeeGold's picture

 

 

Yeah...pretty much as expected.

 

Get me Belgium on the phone.

Fri, 05/16/2014 - 07:20 | 4765725 Sudden Debt
Sudden Debt's picture

Well, Friday is happy hour so I don't  really have to much to spare....

By the way: WE OWN YOU BITCHES!!! and we're broke as hell....

Fri, 05/16/2014 - 07:22 | 4765731 negative rates
negative rates's picture

At least you know where you came from, where you are living, and where you are headed, that's half the battle with folks today. Good job.

Fri, 05/16/2014 - 07:41 | 4765762 philipat
philipat's picture

This probably explains why Gold is being capped again. Can't have the plebs thinking they can escape the Fed's clutches now can we?

Fri, 05/16/2014 - 07:41 | 4765765 Haus-Targaryen
Haus-Targaryen's picture

I know this has nothing to do with what is going on, but my lunch was just ruined with a bleary eyed EuroFederalist.  *

So I wanted to take this moment and say quite pubically

FUCK THE EU!  FUCK THE EUR! FUCK MARIO DRAGHI!

Fri, 05/16/2014 - 07:54 | 4765785 Sudden Debt
Sudden Debt's picture

and what did you have for dessert?

Fri, 05/16/2014 - 08:02 | 4765799 Ghordius
Ghordius's picture

SD, you really should comment a bit in your excellent guest-post-why-belgium-can-never-work. congrats, I liked it

Fri, 05/16/2014 - 08:53 | 4765976 Haus-Targaryen
Haus-Targaryen's picture

I am curious Ghordo -- because it was a great article as to why Belgium won't work --

What would you do to solve the situation in Belgium, if you had the power to do so?

Fri, 05/16/2014 - 07:43 | 4765768 XAU XAG
XAU XAG's picture

GetZeeGold

Get me Belgium on the phone.

 

NoNo don't want NSA to hear the conversation

 

Send a pigeon!

 

 

 

 

Fri, 05/16/2014 - 07:57 | 4765791 Sudden Debt
Sudden Debt's picture

pigeon message not received...

http://i1.ytimg.com/vi/seh8q4JLtcQ/hqdefault.jpg

don't know what happend...

Fri, 05/16/2014 - 08:01 | 4765797 XAU XAG
XAU XAG's picture

pigeon message not received...

http://i1.ytimg.com/vi/seh8q4JLtcQ/hqdefault.jpg

don't know what happend..

 

pigeon got knocked out by Russian rocket?

 

Or pigeon pie in any country you care to mention becuase of inflation.............food is short don't you know.

 

What did you have for lunch?

Oh No! not the pigeon!

Fri, 05/16/2014 - 08:05 | 4765807 TheFourthStooge-ing
TheFourthStooge-ing's picture

Poor little feller...

Fri, 05/16/2014 - 07:14 | 4765718 fonzannoon
fonzannoon's picture

What about me? No mention of me!

- Ukraine

Fri, 05/16/2014 - 07:21 | 4765727 negative rates
negative rates's picture

You are tearing yourself apart, in spite of you not wanting you too.

Fri, 05/16/2014 - 07:24 | 4765732 GetZeeGold
GetZeeGold's picture

 

 

We're sent an elite team from the Department of Agriculture to Ukraine....they should get there sometime this morning.

You should be able to spot them...they're the ones wearing the pocket protectors.

Fri, 05/16/2014 - 07:40 | 4765760 negative rates
negative rates's picture

I'll put the joint out just before they arrive.

Fri, 05/16/2014 - 07:46 | 4765770 GetZeeGold
GetZeeGold's picture

 

 

Just wear a name tag stating you're official Agenda 21 staff.....and you should be OK.

 

Just try to not look like a hick farmer from Kansas.

Fri, 05/16/2014 - 08:16 | 4765831 negative rates
negative rates's picture

I change my hairstyle so many times now, I don't know what I look like.

Fri, 05/16/2014 - 07:23 | 4765733 Sudden Debt
Sudden Debt's picture

that's some real yoda shit right there man!

Fri, 05/16/2014 - 07:34 | 4765730 Sudden Debt
Sudden Debt's picture

blablabla... invasion.... nuke... blablabla...

all heil to your new leaders...

excuse me, I just drank a bottle of wine for lunch and I forgot to eat lunch... I love everybody right now... :)

Fri, 05/16/2014 - 07:34 | 4765747 XAU XAG
XAU XAG's picture

Sudden Debt

 

You could have bought an ounce of silver instead of the wine..........and be hating every body now! LOL

Fri, 05/16/2014 - 07:35 | 4765750 Sudden Debt
Sudden Debt's picture

I love you... :)

Fri, 05/16/2014 - 07:39 | 4765757 XAU XAG
XAU XAG's picture

Sudden Debt

 

And the cheaque is in the post! LOL

Fri, 05/16/2014 - 07:42 | 4765767 negative rates
negative rates's picture

There's a guard posted 24/7 too.

Fri, 05/16/2014 - 07:47 | 4765774 XAU XAG
XAU XAG's picture

fonzannoon

 

you are all Me Me Me Me Me!

 

There is no i in team!

 

 

Fri, 05/16/2014 - 07:50 | 4765777 Sudden Debt
Sudden Debt's picture

YOU'RE RIGHT!!!

NO E IN TEAM!!!

Fri, 05/16/2014 - 07:56 | 4765790 XAU XAG
XAU XAG's picture

@Sudden Debt

 

Holy Feck.............you are pissed!

Fri, 05/16/2014 - 07:29 | 4765736 Dr. Engali
Dr. Engali's picture

Fuck.... Here we go again. Is it too early to start drinking?

Fri, 05/16/2014 - 07:31 | 4765742 GetZeeGold
GetZeeGold's picture

 

 

If you don't ask for permission....no one can tell you no.

Fri, 05/16/2014 - 07:35 | 4765748 Sudden Debt
Sudden Debt's picture

It's always 8 o'clock in the morning somewhere so go ahead...

Fri, 05/16/2014 - 07:38 | 4765752 XAU XAG
XAU XAG's picture

Dr. Engali

 

Fuck.... Here we go again. Is it too early to start drinking?

IT IS 5 (0) Clock some where..............so never to early!
Fri, 05/16/2014 - 07:41 | 4765763 NoDebt
NoDebt's picture

Anothre day, another opprtunity to BTFD.

Fri, 05/16/2014 - 07:46 | 4765772 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Anothre day, another opprtunity to BTFD.

Binge the fucking drinking?

Fri, 05/16/2014 - 07:53 | 4765782 XAU XAG
XAU XAG's picture

@ TheFourthstooge-ing

 

How about

 

Build The Fucking Debt!

 

Then

Binge the fucking drinking?

 

Fri, 05/16/2014 - 07:54 | 4765784 XAU XAG
XAU XAG's picture

OBO

 

You did not build that debt!

 

Right you are

Fri, 05/16/2014 - 07:59 | 4765795 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

How about

Build The Fucking Debt!

Then

Binge the fucking drinking?

...or accomplish both? Binge the fucking drinking, put it on tab.

That's innovation.

Fri, 05/16/2014 - 08:12 | 4765818 XAU XAG
XAU XAG's picture

Ok to put it on the TAB

 

as long as it does not end up with you being on the SLAB because you could not pay the TAB!

Fri, 05/16/2014 - 08:28 | 4765871 TheFourthStooge-ing
TheFourthStooge-ing's picture

But nobody considers paying debt while binge drinking. That kind of crazy talk is better suited for hangovers.

So come on, have one more for the road!

Fri, 05/16/2014 - 08:36 | 4765902 XAU XAG
XAU XAG's picture

I prefer one more for the stairs...........then each step! LOL

 

Yep drink sure does have a way of debt being forgotten ..........................for a while.

Fri, 05/16/2014 - 08:43 | 4765929 jubber
jubber's picture

It's Friday Gold and Silver smashed as usual, US futures red to green, what a surprise.

Fri, 05/16/2014 - 09:13 | 4766040 jubber
jubber's picture

FTSEMIB down 350 now up 350 as ECB scrambles to buy BTP's from falling over a cliff, same move in the Spanish market, huge rip your face US rally coming?  BTP down 100 and up 100 Total joke market

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