Equity Futures Unchanged Ahead Of Today's Quad-Witch

Tyler Durden's picture

As of this moment, US equity futures are perfectly unchanged despite what has been an almost comical reactivation of the 102.000 USDJPY tractor beam. Considering the pair has been trading within a 75 pips of the 102.000 level for the past month, one has to wonder when and what the next BOJ Yen equilibrium level will be reset to. Oddly enough, even as the USDJPY is very much unchanged, the Nikkei continues to rise suggesting that, as Nikkei reported, the GPIF is already investing Japanese pension funds in stocks. Which is great for the Nikkei catching up with the global bond bubble, what is not so great is what happens when the market realizes that the largest holder (excluding the BOJ) of JGBs is dumping, and the world's most illiquid major sovereign bond market rushes for the exits. Just recall the daily halts of Japanese bond trading from the summer of 2013 - we give it 3-6 months before it returns with a vengeance.

In other news, there have been no material geopolitical updates, which added with the fact that it is Friday, means there will be a now traditional VIX slam into the last minutes of trading to close stocks out at the day's, and a new record, highs. Unfortunately for the NY Fed (in conjunction with Citadel) trading team, the VIX will enter single digits soon: how much lower it can be pushed from there becomes a critical issue. Under normal (as in not centrally planned) circumstances today's quad witching and S&P rebalance would mean volatility would rise as would volume. Which likely means that both vol and volume will tumble, thanks to aunt Janet, converting the market into something only a central-planner/banker could love.

Asian equities trade weaker paced by the KOSPI (-1.1%) and ASX200 (-0.4%). The Nikkei (+0.3%) is outperforming and has continued its strong run, led by reflation favourites such as real estate (+1.7%) and consumer services (+1.7%) stocks. Dollar-yen was largely unchanged for much of the session, then ground higher as the 102 tractor beam was activated. The Nikkei newspaper notes that Japanese stock prices have been rising while USDJPY remains within a narrow band around 102, fuelling chatter that the GPIF’s funds are already flowing into domestic equities as a part of early portfolio rebalancing. On the topic of reflation, the same newspaper reported that the number of Japanese millionaires surged by over 20% in 2013, nearly five times the annualised growth in the previous six years, citing the latest World Wealth Report.

European shares mixed with the basic resources and health care sectors outperforming and banks, telcos underperforming. The Swiss market is the best-performing larger bourse, Italian the worst. Swedish, Finnish markets closed for Midsummer holiday. The euro is little changed against the dollar. German 10yr bond yields rise; U.K. yields increase.

Commodities little changed, with gold, soybeans underperforming and zinc outperforming.

There is nothing on today's US event calendar, no POMO either.

Market Summary

  • S&P 500 futures up 0.1% to 1951.5
  • Stoxx 600 up 0.2% to 348.8
  • US 10Yr yield up 0bps to 2.62%
  • German 10Yr yield up 2bps to 1.34%
  • MSCI Asia Pacific down 0.4% to 144.8
  • Gold spot down 0.7% to $1311.2/oz

US Event Calendar

  • Nothing
  • No POMO

Bulletin Headine Summary from RanSquawk and Bloomberg

  • Profit taking related flow following yesterday’s FOMC inspired gains dominated the price action in Europe this morning.
  • Gold remains above USD 1,300 level, with analysts at UBS noting that yesterday’s surge was short-term trend.
  • No tier-1 data releases on tap later, but today marks the quadruple witching day and the S&P rebalance.
  • Treasury yields little changed; FX, bond and stocks volatility remain near FOMC inspired lows, supporting higher-yielding assets; no U.S. data due today.
  • U.S. is sending as many as 300 special operations personnel as well as reconnaissance planes to help repel Sunni insurgency in Iraq for at least several weeks, giving country’s Shiite leaders time to form a new government that can command support across sectarian lines
  • Fighting between Ukrainian troops and insurgents cast a pall over government efforts to declare a cease-fire in the east as NATO condemned Russia for once again massing soldiers on the two nations’ border; Russia said it’s strengthening border security, not building up troops
  • Russia central bank chairman said economic slowdown is structural, cannot be solved by monetary policy; spent >$40b in 1H on intervention vs $27b total last year
  • China’s Premier Li, on a visit to Greece, says country opposes behaviors that disturb peace on sea
  • A second Chinese oil rig is due to arrive at a location closer to Vietnam today, two days after the end of high- level talks aimed at defusing tensions between the two countries over a current drilling operation
  • U.K. budget deficit was little changed in May compared with a year earlier, when figures were flattered by a tax payment related to a deal with Switzerland; net borrowing was GBP13.3b vs GBP12.6b a year ago; excl. Swiss tax deal, gap narrowed by GBP200m; median est. was for GBP12.2b
  • BOE’s Haldane said BOE is not under pressure to raise rates
  • BOJ’s Kuroda sees CPI gains picking up in 2H2014, will keep policy easy until inflation stable at 2%; adjust  as needed
  • Japan cabinet office raises view on consumption, maintains overall assessment of “moderate recovery trend” in June economic report
  • Bank of America Corp. must face the DOJ’s lawsuit accusing  it of misleading investors about the quality of loans tied to $850m in RMBS, judge ruled
  • The swift Republican election of a  new U.S. House leadership team won’t heal the party’s divisions though lawmakers say it does provide insulation from a challenge to Speaker John Boehner after the midterm election
  • German and Dutch finance ministers said more information was needed on proposed euro-area bank levy; E.U. finance ministers agreed on closing a tax loophole but delayed talks on a more general anti-abuse rule
    FDI into E.U. was EU326b in 2013, led by U.S. with EU313b, Eurostat said
  • Sovereign yields mostly higher. EU peripheral spreads little  changed. Chinese stocks gain, while most other Asian stock markets decline; European equity markets, U.S. stock futures higher. WTI crude, copper higher, gold lower after yday’s 3.3% jump


  • 14 out of 19 Stoxx 600 sectors rise; basic resources, health care outperform, banks, telcos underperform; index up 0.5% this week
  • 58.2% of Stoxx 600 members gain, 38.8% decline
  • Eurostoxx 50 +0.1%, FTSE 100 +0.3%, CAC 40 +0.1%, DAX +0.3%, IBEX -0.1%, FTSEMIB -0.5%, SMI +0.3%


  • Asian stocks fall with the Shanghai Composite outperforming and the Kospi underperforming.
  • MSCI Asia Pacific down 0.4% to 144.8
  • Nikkei 225 down 0.1%, Hang Seng up 0.1%, Kospi down 1.2%, Shanghai Composite up 0.1%, ASX down 0.9%, Sensex down 0.4%
  • 0 out of 10 sectors rise with utilities, consumer  outperforming and materials, tech underperforming


With little in terms of tier 1 macroeconomic releases, meant that profit taking related flow following yesterday’s FOMC inspired gains dominated the price action in Europe this morning. At the same time, policy divergence between the BoE and the ECB ensured that Gilts underperformed Bunds, with 10y UK/GE bond yield spread touching on its widest level since mid-1997.


Stocks recovered off the lowest levels of the session, but remain mixed, with financials among the worst performing sector. Italian banks are in focus this morning, with Banca Monte dei Paschi shares under pressure as it is last day of trading for the company's rights issue. In terms of other equity specific news, Shire shares surged in London after AbbVie confirmed that it made an indicative offer to the Co. of GBP 46.26/Shire Shr. Although it was subsequently confirmed by Shire that it rejected the offer and that talks between the two companies are off.

Of note, today marks the quadruple witching day and the S&P rebalance as well as EU index changes and expiries.


Police divergence between the BoE and the ECB ensured that GBP outperformed EUR. Elsewhere, USD/JPY moved above the 102.00 level, which was also yesterday’s high but the upside was not sustained and instead the price action was capped by good sized option expiries at 102.00 level.


Gold prices declined today after rallying over 3% yesterday on touted short-covering, with silver prices also lower having advanced 5% yesterday following somewhat dovish FOMC decision late Wednesday. Elsewhere, WTI and Brent crude futures reside in minor negative territory, with little related news flow to guide price action and no notable updates from Iraq.

* * *

DB's Jim Reid concludes the overnight recap

As European markets played catch up with the post-FOMC gains yesterday, the tone of the US session was largely dictated by the strength of the US data. Indeed, the release of the Philly Fed manufacturing survey pretty much marked the session low for treasury yields. From there yields increased almost 6bp which effectively unwound all of the gains post-FOMC on Wednesday. The UST curve steepened led by 2s/30s (+5bp) and there was talk that a dovish Fed today would lead to higher rates down the track. The S&P500 managed a small gain of 0.13% but spent most of the day within a 3pt trading range. Gold added 3.35% with Reuters saying that there was “frantic short covering” after the Fed but it’s also fair to say that geopolitical headlines contributed to the rally. Spot gold managed to close above $1300/oz for the first time in a month. Looking more closely at the data, the US Philly Fed index for June rose +2.4pts to +17.8 (against 14.0 expected), which is the highest reading since September 2013. There were several interesting aspects to this month’s report. Notably, there was a sizeable increase in the price paid subindex which rose to 35.0 in June from 23.0 in May. In addition, the outlook for capital expenditures (+31.0 vs. +24.4) picked up significantly, and is near its post-recession high of 33.3 reached in March 2011. The six-month outlook increased +14.6 points to +52.0 — the highest level since last October. A number of other components such as new orders (+16.8 vs. +10.5 prev), shipments (+15.5 vs. +14.2 prev), order backlogs (+11.5 vs. -2.5 prev) and employment (+11.9 vs. +7.8 prev) all improved.

So the Philly Fed report indicated that perhaps there was pickup in capex during the month of June. More broadly the issue of capital investment is becoming increasingly topical and Yellen has been making a point including at this week’s FOMC that a “diminished contribution from capital formation” has been something that has been holding back US growth. In DB’s latest Global Economic Perspectives our economists including Chief Economist Peter Hooper write that questions about the potential pace of Fed exit increasingly focus on whether business fixed investment (BFI) will begin to contribute substantially to the expansion of demand. They think that BFI growth has slowed and its share of GDP remains well below levels consistent with this stage of the recovery. They write that prospects appear good for a rebound: Survey indicators of business spending, along with orders for capital goods, have picked up nicely. From a top-down perspective, factors such as the aging of the existing capital stock, rising capacity utilization, the ample funding available in the corporate sector, and reduced uncertainty about economic policy and macro growth prospects all point to a healthy climate for increased BFI. They conclude that BFI spending is likely to accelerate in the near term, helping to drive a solid upturn in GDP growth, though not a booming one. Because the pickup in BFI they envision would tend to confirm that the recovery has reached a self-sustaining stage, they believe that it will help move the Fed toward signalling a more hawkish policy stance later this year.

At least up until recently however, US corporates appeared happy to return excess cash to shareholders and we noted yesterday that data to the end of March showed that the level of share buybacks and dividends reached a new record in Q1 2014.

Taking a look at overnight markets, UST yields are basically unchanged at around 2.65% while Asian equities trade weaker paced by the KOSPI (-1.1%) and ASX200 (-0.4%). The Nikkei (+0.3%) is outperforming and has continued its strong run, led by reflation favourites such as real estate (+1.7%) and consumer services (+1.7%) stocks. Dollar-yen is unchanged however. The Nikkei newspaper notes that Japanese stock prices have been rising while USDJPY remains within a narrow band around 102, fuelling chatter that the GPIF’s funds are already flowing into domestic equities as a part of early portfolio rebalancing. On the topic of reflation, the same newspaper reported that the number of Japanese millionaires surged by over 20% in 2013, nearly five times the annualised growth in the previous six years, citing the latest World Wealth Report.

In terms of other headlines, Ukrainian government bonds underperformed briefly yesterday after a Reuters report said that the government was in talks with creditors about a possible debt restructure. However the article clarified that “it was too soon to say whether it would need to change the terms of its debt”, citing an official from IIF. Another article published (WSJ) towards the US market close said that no debt restructuring is planned or being negotiated, but discussions so far “were an exploration to determine what type of bond restructuring might be possible if Ukraine's economic crisis worsened”.

Meanwhile, the Ukraine finance ministry confirmed yesterday that Ukraine had made a $73m coupon payment on Eurobonds issues to Russia in December (BBG). The White House confirmed yesterday that it was sending 300 military advisers to Iraq to assist with the fight against Sunni militants, but it did not rule out further military intervention. Brent prices soared another 0.7% to $115/bbl after reports of fighting between ISIS and the Iraq government for control of the Baiji refinery. The Iraq army released a statement that it had managed to recapture the Baiji refinery from insurgents. The Iraq North Oil Company said that crude oil shipments from Kirkuk to Baiji refinery have been halted this month.

Looking at today’s calendar, there is little in terms of economic data. In Europe, there is German PPI and an update on Euroarea consumer confidence. The ECB’s Mersch speaks at a panel discussion in Brussels. In EM, Colombia’s rates decision is scheduled for today and there are central bank meeting minutes from Mexico and Poland.

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Yen Cross's picture

 I'm long usd/jpy

Headbanger's picture

Any bets on VIX going single digit today?


I think it will cause these Wall Street slugs want to get a laugh showing how much they can fuck with the """markets"""

It's fucking insanity

thisisjustarandomusernameicreatedforzerohedge's picture

Copper still up since yesteday close on  the "China Rehypothecation Ponzi"


...wait, what?

gmak's picture

Rebalance of SPX today. At midnight, SPY gapped down due to this. (apparently) 

agNau's picture

"unfortunately you need to add more euphoria to hold this position."


Sonic the porcupine's picture

I'm long usd/jpy, in terms of gold.

AdvancingTime's picture

 What do stock markets around the world have in common with "girls gone wild" the video of college girls on spring break? The answer is both are crazy out of control. We have grown very complacent as money around the world has continued to flow into intangibles and promises.

Currently the market is all a twitter and locked in a "greed and stupidity loop." The loop can be explained as follows, stocks are rising so why get out, not getting out is causing the stocks to rise. When stocks do pullback it is a buying opportunity. Yes, we are indeed experiencing a double down and let it ride mentality. I don't have to explain the greed part. More about this subject in the article below.


Town Crier's picture

When bulls start lifting up their t-shirts, it's time to get out!

Yen Cross's picture

  If usd/jpy pushes through the neckine from last Thursday then usd might lay some wood.

  I'd not waste my time with VIX. XLF financial short looks tasty. I don't have the time. Also the RUT short looks tasty.


Yen Cross's picture

  If you short RUT today, you'll make $ (don't get greedy) Let the option roll off @10 am ( spike will happen as counterparty covers call spread) wait 5-10 minutes. Then cover your trade.

FlyinHigh's picture

Does all that mean, I'm still screwed?

Cangaroo.TNT's picture

None of this means shit anymore. I don't care if it was dodecaphonic-witching day.

The_Ungrateful_Yid's picture

Fuck the futures, I have to go water my garden now.

Yen Cross's picture

 Here's my usd/jpy trade so you guys know I'm not bull-shitting you.


eclectic syncretist's picture

With yesterdays jump I'll be getting out of some june HL options with a modest profit, after it looked like a wash up until then. 

Watching the tape seems like a waste of time, and beyond frustrating, with the extent of Fed backed intervention going on now.  I'm waiting patiently for a trend-changing catalyst right now, before making any serious move.

SmilinJoeFizzion's picture

I long for the days of those $175 sqaure watermelons