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Futures Meander Ahead Of Today's Surge On Bad Economic News

Tyler Durden's picture




 

Following yesterday's S&P surge on the worst hard economic data (not some fluffy survey conducted by a conflicted firm whose parent just IPOed and is thus in desperate need to perpetuate the market euphoria) in five years, there is little one can comment on how "markets" react to news. Good news, bad news... whatever - as long as it is flashing red, the HFT algos will send momentum higher. The only hope of some normalization is that following the latest revelation of just how rigged the market is due to various HFT firms, something will finally change. Alas, as we have said since the flash crash, there won't be any real attempts at fixing the broken market structure until the next, and far more vicious flash crash - one from which not even the NY Fed-Citadel PPT JV will be able to recover. For now, keep an eye on the USDJPY - as has been the case lately, the overnight USDJPY trading team has taken it lower ahead of the traditional US day session rebound which also pushes the S&P higher with it. For now the surge is missing but it won't be for longer - expect the traditional USDJPY ramp just before or as US stocks open for trading.

Newsflow overnight has been quiet, and as for today's volume - fughetabout it. Just around noon, when the Germany-US game begins, it will be a dead zone for hours, especially if the US loses.

FX markets trade little changed, with NZD slightly outperforming and approaching May’s best levels, buoyed by strong equity markets in New Zealand alongside a resumption in the antipodean carry trade in AUD/NZD. Elsewhere, a move lower in EUR/GBP below the 0.8000 handle saw GBP gain against its major counterparts with GBP/USD breaching back above 1.7000.

US 10yr yields trade just above 2.55% ahead of the CBOT open, recovering from multi-month lows printed in the wake of the GDP figures yesterday. Near-term focus now shifts to the USD 29bln 7yr note auction today.

European stocks are little changed after paring earlier gains, while the dollar falls on speculation the Federal Reserve will keep interest rates lower for longer. Asian stocks advance, while U.S. futures are little changed. Gold falls from a two-month high, natural gas outperforms.

Asia-Pacific equity markets took their lead from the positive close on Wall Street as the Nikkei 225 rose 0.3% on light domestic newsflow. Chinese and Hong Kong equity markets rallied, with the Shanghai Composite up 0.7% and the Hang Seng Index up 1.5% as demand for the latest wave of IPOs is strong, with some share sales over 120 times oversubscribed. What bubble? Elsewhere in the commodities world, there is potentially further fallout from China’s ongoing commodity collateral-financing  investigations, with a government audit office finding that 25 gold processing companies secured around US$15bn of loans backed by falsified gold transactions. Remember: "gold isn't money... it is a paper deliverable that somehow never exists."

U.S. jobless claims, continuing claims, Bloomberg consumer comfort, Kansas City Fed index, personal income, personal spending, due later.

Market Wrap

  • S&P 500 futures down 0.1% to 1948.2
  • Stoxx 600 little changed at 342
  • US 10Yr yield down 1bps to 2.55%
  • German 10Yr yield little changed at 1.26%
  • MSCI Asia Pacific up 0.7% to 145.4
  • Gold spot down 0.6% to $1311.6/oz

EUROPE

  • 11/19 Stoxx 600 secors rise, led by financial services, miners
  • 47.2% of Stoxx 600 members gain, 50% decline
  • Eurostoxx 50 -0.1%, FTSE 100 +0%, CAC 40 -0%, DAX -0%, IBEX +0.1%, FTSEMIB +0.1%, SMI -0.2%

ASIA

  • Asia Pacific stocks rise, with Chinese and Australian shares outperforming.
  • MSCI Asia Pacific up 0.7% to 145.4
  • Nikkei 225 up 0.3%, Hang Seng up 1.4%, Kospi up 0.7%, Shanghai Composite up 0.7%, ASX up 1.2%, Sensex down 0.7%
  • All 10 sectors rise, led by telcos

ASIAN HEADLINES

Asia-Pacific equity markets took their lead from the positive close on Wall Street as the Nikkei 225 rose 0.3% on light domestic newsflow. Chinese and Hong Kong equity markets rallied, with the Shanghai Composite up 0.7% and the Hang Seng Index up 1.5% as demand for the latest wave of IPOs is strong, with some share sales over 120 times oversubscribed.

EUROPEAN/UK HEADLINES

At the BoE's FPC statement the central bank said they are to cap the bulk of high loan-to-income mortgages and toughen underwriting standards. Since 1005BST gilt futures fell 20 ticks with the short sterling curve seen down 3-5 ticks post announcement as housing and mortgage lending related stocks surge higher in turn lifting the FTSE100. This move came as participants were positioned for further measures to cool the booming UK housing market, however, the lack of any "new" measures announced has been greeted with a sigh of relief.

US HEADLINES

US 10yr yields trade just above 2.55% ahead of the CBOT open, recovering from multi-month lows printed in the wake of the GDP figures yesterday. Near-term focus now shifts to the USD 29bln 7yr note auction today.

Prelim Barclays month end extensions show US Treasury at +0.07y (Prev. +0.12y)

EQUITIES

Core European indices opened with gains (Euro Stoxx 50 currently +0.1%) , lifted by a strong Wall Street session after dismal GDP was shrugged off due to recent data suggesting a return to growth in Q2. This, allied with hopes of a continued dovish Fed, helped assist modest buying in the European morning.

UK bank Barclays shares slumped after the New York Attorney General opened a lawsuit against the bank for its preferential treatment of high frequency traders in its dark pools exchanges, with bankers also providing falsified information for other clients on the dark pools. Further bank news for UK banks followed after Standard Chartered reported a disappointing H1 2014.

FX markets trade little changed, with NZD slightly outperforming and approaching May’s best levels, buoyed by strong equity markets in New Zealand alongside a resumption in the antipodean carry trade in AUD/NZD. Elsewhere, a move lower in EUR/GBP below the 0.8000 handle saw GBP gain against its major counterparts with GBP/USD breaching back above 1.7000.

COMMODITIES

Amid a modest recovery in global equity markets, precious metals have come under pressure, with spot gold pulling back from multi-week highs as physical demand remains lacklustre above USD 1,300/oz. WTI & Brent trade little changed after yesterday’s DoE inventories, with geopolitical focus still on Iraq after the PM Maliki yesterday resisted the calls for a unity government, as his political support crumbles after ISIS gains over the past fortnight.

China has found USD 15bln of loans backed by false gold trades, according to the country’s chief auditor, adding that there are signs of possible fraud in commodities financing deals. (BBG) Goldman Sachs analysts say these deals are worth USD 81bln to USD 160bln, accounting for as much as 31% of the nation's short-term, foreign currency loans.

* * *

We conclude with DB's overnight wrap

As discussed, the main risks as we get closer to YE is that a) the Fed is no longer buying bonds and b) that they become more hawkish. The first one is now almost inevitable and might take some momentum out of markets as we approach 2015 but yesterday's data might have slightly reduced the risk of the latter. However even though we personally continue to be sympathetic to the low growth for longer thesis, it would be hard to read too much into yesterday's shock -2.9% Q1 US GDP revision (from -1.0%, estimate -1.8%). The weather was fairly unique in Q1 and there does seem to be problems measuring healthcare's contribution in recent quarters with all the changes going on. It does however statistically increase the probability of another disappointing FY number relative to earlier expectations. It will take some mighty impressive growth between Q2-Q4 to bring us back into the 2.5-3% FY 2014 range. So will we get another post crisis year where we struggle to get much past 2%? Maybe this is why the S&P 500 rebounded (+0.49%) yesterday as it increased the chance of the Fed treading carefully and not turning more hawkish in 2014.

Our economists note that it is extremely rare for US GDP to contract so sharply in a non-recession period. Indeed since the end of WW2, there have only been two quarters where we have seen similar-sized declines in non-recession periods: Q4 1949 (-3.5%) and Q2 1981 (-2.9%). In the details of yesterday’s GDP report, consumer spending rose +1.0%, as spending on services (due to healthcare) was lowered from +4.3% to +1.5%. As a result, the percentage point contribution from services slipped from +193 bps to +67 bps. Net exports previously subtracted -95 bps from growth and now subtracted -153 bps. Inventories were also weak.

With Q1’s growth firmly in negative territory, the argument that there is still significant spare capacity in the US economy is perhaps stronger now. This has potential flow-on impacts for the business capex outlook but yesterday’s evidence on this was mixed. May durable goods orders declined -1.0% on the headline (estimate 0.0%) but this was mainly due to a -7.2% fall in aircraft orders. In contrast, core orders for non-defense capital goods ex-aircraft were up +0.7% vs. -1.1% previous and +0.5% expected. DB’s Joe Lavorgna notes that over the last three months, core orders are up 18% annualized, which is the best three-month performance since June 2013. For some this boosted hopes that business capex will start to contribute meaningfully to growth later this year and might have explained some of the retracement in UST yields following the initial shock of the GDP print. 10yr yields traded down to an intraday low of 2.53% immediately following the GDP and durable goods data, but then pared back most of the move to close at around 2.56% which was around -2bp on the day. The lesser-watched US Markit services PMI printed at 61.2 (vs 58.0 expected) which is the highest reading since the index began. Today’s May PCE data sets the stage for the next hawks versus doves debate. The Fed has said on numerous occasions that its preferred inflation measure is the core PCE deflator so for the Fed this is likely more important than the backward Q1 GDP growth number.

For the record, Bloomberg consensus is expecting the headline PCE deflator to be 1.8% yoy, or about 20bp above April’s 1.6% yoy. Meanwhile the core PCE deflator is expected to print at 1.5% yoy, about 50bp below May’s core CPI of 2.0% yoy (released a week and a half ago). A 1.5% yoy print in core PCE would be seen as relatively benign being only about 10bp above last month’s reading, but anything substantially above that would prompt another resurgence of questions about the path of Fed policy.

Coming back to yesterday, the resilience of risk assets to negative economic data was perhaps best illustrated by the fact that we are only about 3pts away from the record highs in the S&P 500, while the more growth-oriented NASDAQ broke new highs yesterday. We should also note that had it not been the extremely poor performance of US refiners yesterday, on the back of the WSJ’s crude export story the day before, the S&P 500 might have posted even stronger gains on Wednesday. The four worst performing stocks in the index yesterday were Valero (-8.3%), Marathon Petroleum (-6.3%), Phillips 66 (-4.2%) and Tesoro (-4.2%) – all are oil refiners who underperformed on fears that a loosening in US crude export regulations would reduce the amount of volume for domestic refiners. Even a Bloomberg report that Barclays was under investigation for charges related to the bank’s equity trading operations failed to prevent bank stocks from closing near the highs. Barclays CDS underperformed yesterday (+3bp) and the bank postponed its planned US dollar Tier 2 sub-debt deal after the story broke.

The backdrop of lower US yields and potentially a less hawkish Fed painted a supportive environment for carry, most notably for the EM complex. USD LATAM government bonds closed about 4-5bp lower in yield, and Wednesday’s performance means that Brazil and Mexico CDS are now 60bp and 50bp tighter than the YTD wides. The EM sentiment was helped by the retreat in Brent oil prices (-0.4%), with the Iraqi government saying that oil supplies have not been affected by the conflict with ISIS. There was also news that Russia’s parliament had overwhelmingly supported a withdrawal of Presidential authority to take military action in Ukraine, which helped sentiment in eastern Europe.

Taking a look at this morning’s markets, it’s been a positive session for risk assets in Asia led by a 1.1% gain in the HSCEI and a 0.5% gain in the KOSPI. A number of Asia-Pacific currencies are enjoying solid gains against the greenback following yesterday’s GDP data including the KRW (+0.35%), NZD (+0.33%) and MYR (+0.2%). COMEX copper futures are poised to closed higher for the 10th straight session. Elsewhere in the commodities world, there is potentially further fallout from China’s ongoing commodity collateral-financing  investigations, with a government audit office finding that 25 gold processing companies secured around US$15bn of loans backed by falsified gold transactions (Bloomberg).

Turning to the day ahead, in terms of macro data there is French consumer confidence and the US personal consumption expenditures report. At some point over the next day or two, the BoE’s Financial Policy Committee is due to release their policy recommendations from their last meeting and this is widely expected to include measures to restrict mortgage lending. On the micro side, earnings are due from homebuilder Lennar before the US market open, and from Nike after the market close.

 

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Thu, 06/26/2014 - 07:15 | 4897027 Deacon Frost
Deacon Frost's picture

It's what the British refer to as the 'The biscuit tin economy'.

 

Buy a large tin of biscuits. Throw the biscuits away, and keep the tin. Draw all of your cash out of the bank.  Put the cash in the biscuit tin. Put the biscuit tin under the bed.  Take cash from the tin when you need it. Tell the banks to shove it.

Thu, 06/26/2014 - 07:21 | 4897033 max2205
max2205's picture

Ok...I'll expect moar all time highs

Thu, 06/26/2014 - 07:17 | 4897028 Headbanger
Headbanger's picture

Here's a shocker.   Liberal MSM bashing Obamacare now:

http://www.cnbc.com/id/101791342

Cause CNBC knows full well now they're fucked  seeing their shit ratings who and what is really to blame

Thu, 06/26/2014 - 07:27 | 4897034 GetZeeGold
GetZeeGold's picture

 

 

I guess the real question is.....can we be assured of future bad news?

 

If we get some good news.....I have a bad feeling this whole thing is gonna tank.

Thu, 06/26/2014 - 07:34 | 4897050 Headbanger
Headbanger's picture

WTF  question is that!?

Q1 GDP IS FUCKING NEGATIVE 2.9 %!

THE 17TH WORST QUARTERLY DROP EVER!

AND ALL THE WORST 25 GDP DROPS RESULTED IN RECESSION!

 

THE GAME IS OVER, DONE, DEAD, DECEASED, TERMINATED, DELETED!

Thu, 06/26/2014 - 07:44 | 4897056 Eyeroller
Eyeroller's picture

It ain't over till it's over.

The fat lady is gargling with some Listerine, cause when she sings this time, it's gonna bring down the Fed's house of cards.

 

Thu, 06/26/2014 - 08:18 | 4897114 DeadFred
DeadFred's picture

My analysis of options structure says that correctly timing a market-closing flash crash pays off 1000:1, a $100 bet nets 100K. Tyler, just saying that any hints you can give about when the market is particularly vulnerable would be appreciated. Often it's closer to 200K but I assume when things get dicey the odds won't be quite so good. 

Thu, 06/26/2014 - 07:46 | 4897059 GetZeeGold
GetZeeGold's picture

 

 

THE GAME IS OVER, DONE, DEAD, DECEASED, TERMINATED, DELETED!

 

OK........but we have amnesty and we're gonna rename the Washington Redskins.

 

Problem solved........next?

Thu, 06/26/2014 - 07:48 | 4897063 Headbanger
Headbanger's picture

You forgot that Chelsea has also taken a vow of poverty .

 

Thu, 06/26/2014 - 08:05 | 4897091 overmedicatedun...
overmedicatedundersexed's picture

look the game is: the elite need us to go along, keep investing and buying, running a tab up..if we stop and withhold spending to the minimum to preserve life, it all falls down..that is the fear, negative thinking is the terrorist enemy..now who's to say they are keeping it running for the good of many (ben and co doing gods work) or for keeping the elite's heads attached and saving their life style??

Thu, 06/26/2014 - 08:11 | 4897098 Ban KKiller
Ban KKiller's picture

Got my Seahawks super bowl  DVD.

Bullish, right?

Thu, 06/26/2014 - 07:59 | 4897082 stocktivity
stocktivity's picture

Quit yelling!  It's all Bullshit!!!

Thu, 06/26/2014 - 08:11 | 4897095 dontgoforit
dontgoforit's picture

I suggest two shots Jack Daniels and an asprin.  Place your bets on the surest thing and breath easy.  The minons who think they're controlling this beast are going to be eating chicken neckbones, too, just like the rest of us when the beast breaks loose from it's reigns.  Just a matter of time.  Could happen today or two years from now, but by jove, it will happen.

Thu, 06/26/2014 - 07:16 | 4897029 29.5 hours
29.5 hours's picture

 

 

ZH called it yesterday concerning the most likely MSM response to bad GDP numbers. From CNBC this morning:

"Stock markets in Europe and Asia looked past gains by Iraqi militants and poor first-quarter growth in the United States on Thursday, with some investors raising their forecasts for a U.S. economic bounce in coming months."

 

Thu, 06/26/2014 - 07:48 | 4897062 Eyeroller
Eyeroller's picture

Future MSM headlines:

"Stock markets in Europe and Asia looked past the Martian invasion, with some investors raising their forecasts for a US economic bounce in the coming months after President Obama said that the US would enter into negotiations, overlooking the vaporization of New York."

Thu, 06/26/2014 - 07:18 | 4897030 wmbz
wmbz's picture

Checking around the globle I don't notice much other than positive news. Any possible negitive indicators should be considered mere noise. Longer term it's all good.

Party on! MF'ers

Thu, 06/26/2014 - 07:29 | 4897042 Headbanger
Headbanger's picture

Go easy on the crack dude.

Thu, 06/26/2014 - 08:14 | 4897099 dontgoforit
dontgoforit's picture

Government issue Ecstasy.

Thu, 06/26/2014 - 09:04 | 4897239 wmbz
wmbz's picture

Sarcasm dude, sarcasm.

Don't worry, give it another year or two it will all come tumbling down.

Thu, 06/26/2014 - 07:26 | 4897039 intric8
intric8's picture

By the close, sell the open. Dont fight the nonsense, profit from it.

Thu, 06/26/2014 - 07:30 | 4897045 yogibear
yogibear's picture

Thought bad was good and good was great? Market keeps going to new highs on bad news. Bubbles everywhere. Bubbles can get much larger, it becomes much more exciting when they burst.

Thu, 06/26/2014 - 07:39 | 4897054 i_call_you_my_base
i_call_you_my_base's picture

I don't buy the "bad news is good news, etc" stuff. What seems to happen is that whenever there is bad news, like the fed starting or continuing the taper, bad GDP print, etc, the banks, their algos, and the fed jack up the market to control perception. It's not that anyone is thinking this or that, it's pure manipulation.

Thu, 06/26/2014 - 07:59 | 4897084 Eyeroller
Eyeroller's picture

You have a point.  For a long time I too wondered how people can be so stupid to believe the "good news" spin on everything bad, but I've come to the following conclusion:

Individuals understand that the Fed has built up a house of cards, but think everyone else is stupid and have decided to "ride the stupidity elevator".  The individual is aware that the elevator could come crashing down at any moment, but think they are smart enough to get off in time.

Thu, 06/26/2014 - 08:01 | 4897088 stocktivity
stocktivity's picture

Exactly...that's why It's all Bullshit!!!

Thu, 06/26/2014 - 08:16 | 4897109 dontgoforit
dontgoforit's picture

Well, if you got in the S&P at say 800 and have ridden it this far and say it starts to fail at, whatever it is - 1450 - and you bail at 1300, you've still made a pile of money, so yeah, it's a manipulative game and everyone knows it.  But your $50K is now $90K.

Thu, 06/26/2014 - 08:33 | 4897150 IndyPat
IndyPat's picture

Adjust your fiat for post-crash.

Now what's the payout on your pale horse?

Thu, 06/26/2014 - 07:32 | 4897048 Dr Benway
Dr Benway's picture

End of financial year looming, so it's time for the fund manager cartel to window-dress. A last deliberate ramp to create unrealized paper profits for their customers, based upon which the managers charge real cash fees.

Thu, 06/26/2014 - 08:28 | 4897133 thismarketisrigged
thismarketisrigged's picture

futures have already come back from red to now green.

 

new day, same story, its all bullshit

Thu, 06/26/2014 - 08:36 | 4897156 Ban KKiller
Ban KKiller's picture

Sell financials. Sell hedge funds. 

No, the future bull market has no downside. It is all gravy from here.

Do you know where your assets REALLY are? No, not the receipt!

Thu, 06/26/2014 - 08:45 | 4897178 NoIdea
NoIdea's picture

It's only algos trading in this market so volume will be fine - computers don't need to watch the World Cup

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