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Futures Prepare To Take Out Dow Jones 17,000

Tyler Durden's picture




 

We could focus on whatever events took place in the overnight session or the seasonally-adjusted economic data avalanche that will dominate US newsflow over the next two days (ADP, ISM New York, Factory Orders, Services ISM, Yellen Speaking, and of course Nonfarm payrolls tomorrow), or we could ignore all of that as it is absolutely meaningless and all very much bullish, and use a phrase from Standard Chartered which said that "the dollars Yellen is removing could be compensated for by cheap euros from the ECB; result may be enough cash sloshing around to underpin this year’s run-up in risk assets even if  the Fed begins mulling higher interest rates too." In other words, the bubble will go on, as the Fed passes the baton to the ECB, if not so much the BOJ which is drowning in its own imported inflation. Case in point: two of the three HY deals priced yesterday were PIK, and the $1 billion in proceeds was quickly used to pay back equity sponsors. The credit bubble has never been bigger.

For those who care, here is the market snapshot: European shares rise, close to intraday highs, with the autos and retail sectors outperforming and telcos, chemicals underperforming. The Italian and Swedish markets are the best-performing larger bourses, French the worst. The euro is weaker against the dollar. Spanish 10yr bond yields rise; Irish yields increase. Commodities decline, with Brent crude, corn  underperforming and soybeans outperforming.

Taking a look at Asia today, markets are having a relatively buoyant 2nd day of Q3 helped by the record closes on Wall Street. Gains are being led by the Hang Seng (+0.95%) which is playing catch up after being closed for holidays yesterday, while gains are also being posted on the ASX200 (+1.1%) and the Nikkei (+0.3%). The AUD (-0.5%) has lost some ground against the greenback today following disappointing May trade data, though it’s still near eight-month highs. In Japan, the BoJ’s tankan inflation survey suggested that firms expect consumer price inflation of 1.5% in the year ahead, unchanged from last quarter’s survey. Inflation projections 3yrs and 5yrs from now are only 1.6% and 1.7% respectively, which is down to unchanged versus the last quarterly survey and still short of the BoJ’s goal.

As DB's Jim Reid notes, in an otherwise quiet week for Fed policymakers, Yellen’s lecture at the IMF today (11am) will take much of the limelight. The exact topic of her speech is not yet known though as it is simply being billed as a Central Bank lecture, followed by a Q&A conversation with IMF Managing Director Christine Lagarde. If Yellen does discuss current monetary policy, we can probably expect more of the same overall tone that we saw from her post-FOMC press conference. Recall also that at that press conference, Yellen mentioned that “high yield bonds have certainly caught our attention”, so it will be interesting to see whether she elaborates on this topic given the IMF appears to have become more vocal about the issue of financial stability lately. DB’s Joe Lavorgna notes that Yellen will not have the employment data at the time of her talk. Traditionally, the Fed Chair does not get these figures until the early evening of the night before their release.

Turning to the day ahead, on the US docket we have US ISM New York, factory orders, mortgage applications, ADP employment change.

Bulletin headline summary from Bloomberg and RanSquawk

  • Treasuries 7Y and longer gain, curve spreads flatten, as markets await ECB/Draghi and nonfarm payrolls tomorrow; Yellen due to speak at IMF 11am ET.
  • Stocks in Europe traded broadly higher (Eurostoxx 50, +0.08%), benefiting from yet another record high close over on Wall Street yesterday, which saw the DJIA come within 2 points of 17,000.
  • GBP/USD rose to its highest level since October 2008 following better than expected UK Construction PMI and Nationwide housing survey
  • The dollars Yellen is removing could be compensated for by cheap euros from the ECB; result may be enough cash sloshing around to underpin this year’s run-up in risk assets even if  the Fed begins mulling higher interest rates too, according to Standard Chartered Plc in Dubai
  • Foreign ministers from Ukraine, Russia, Germany and France meet in Berlin this afternoon for talks intended to “try and reduce the tensions,” according to a Russian Foreign Ministry spokeswoman, as Ukraine ended a cease-fire and vowed to retake territory from separatists in the violence-torn east
  • A second batch of used Russian Sukhoi combat jets arrived in Baghdad to help Iraqi forces fight an al-Qaeda breakaway group threatening to fracture the country
  • The State Department has told lawmakers informally that Obama wants to sell Iraq more than 4,000 additional Hellfire missiles for the government’s fight against Islamic insurgents, according to people familiar with the plan
  • Belgium overcame a World Cup-record 16 saves by goalie Tim Howard and defeated the U.S. 2-1 in extra time to set up a quarterfinal soccer match against Argentina, which won 1-0 against Switzerland
  • Stock investors have found a new hero in Japan’s JPY128.6t ($1.3t) retirement fund, SocGen said; the Topix rebounded 5% in 2Q as the GPIF moved closer to an asset  overhaul that’s expected to pour JPY3.6t into Japan’s equities
  • Jamie Dimon said he’ll start treatment for throat cancer, raising new questions about succession plans at the biggest U.S. bank
  • Sovereign yields mixed. EU peripheral spreads widen. Asian and European stocks, U.S. stock futures gain. WTI crude falls,  gold and copper little changed

US Event Calendar

  • 7:00am: MBA Mortgage Applications, June 27 (prior -1.0%)
  • 7:30am: Challenger Job Cuts y/y, June (prior 45.5%)
  • 7:30am: RBC Consumer Outlook Index, July (prior 51)
  • 8:15am: ADP Employment Change, June., est. 205k (prior 179k)
  • 9:45am: ISM New York, June (prior 55.3)
  • 10:00am: Factory Orders, May, est. -0.3% (prior 0.7%) Central Banks
  • 11:00am: Fed’s Yellen speaks in Washington
  • 2:00pm: Fed board discusses semiannual monetary policy report to Congress, board oversight and assessment of reserve bank
  • 8:00pm: Reserve Bank of Australia’s Stevens speaks in Hobart
  • No POMO today or the rest of this week

Market Wrap

  • S&P 500 futures up 0% to 1966.7
  • Stoxx 600 up 0.4% to 346.2
  • US 10Yr yield down 1bps to 2.55%
  • German 10Yr yield down 0bps to 1.24%
  • MSCI Asia Pacific up 1% to 147.7
  • Gold spot up 0.1% to $1327.1/oz
  • 16 out of 19 Stoxx 600 sectors rise; 67% of Stoxx 600 members gain, 31.2% decline
  • Eurostoxx 50 +0.1%, FTSE 100 +0.3%, CAC 40 -0%, DAX +0.2%, IBEX +0.1%, FTSEMIB +0.8%, SMI +0.3%
  • Asian stocks rise  with the Hang Seng outperforming and the Nikkei underperforming.
  • MSCI Asia Pacific up 1% to 147.7

EUROPE NEWS

There was little in terms of tier-1 macroeconomic releases in Europe this morning, but another round of better than expected macroeconomic data out of the UK (UK Construction PMI and Nationwide) resulted in further steepening of the Short-Sterling curve, while the Euribor curve was little changed.

Absorption of supply out of Germany (2019 auction), together with cash payment related flow (where as an estimated EUR 13bln of gross supply is outweighed by EUR 11.4bln of coupons and EUR 25bln of redemptions for Bunds) meant that in spite of stocks trading broadly higher, Bunds also remained bid.

EQUITIES

The positive sentiment stemming from yet another record high close over on Wall Street yesterday, which saw the DJIA come within 2 points of 17,000 yesterday, filtered over into the European session, with stocks in Europe (Eurostoxx 50, +0.08%) seen broadly higher this morning. However telecommunications sector underperformed since the get-go, with Orange shares down over 3% after the company scrapped plans for a potential M&A in France.

FX

GBP/USD touched on its highest level since October 2008 following the release of better than expected UK Construction PMI, which rose to its highest level since February. The pair was also supported by the latest UK Nationwide house price survey which showed that annual rise in house prices jumped from 11.1% to 11.8% in June and London seeing the sharpest rise, with prices up almost 26% in the three months to the end of June compared with the same period last year. Elsewhere, AUD/USD reversed much of yesterday’s RBA inspired gains, as Australia’s trade deficit ballooned to AUD 1.9bln, with exports falling 5%, led by a collapse in metal ore and mineral sales (-9%).

COMMODITIES

In terms of precious metals, spot gold traded sideways overnight and in Europe this morning, off its 3-month highs printed yesterday, even though SPDR gold holdings showed its biggest two day gain since 2011. Looking elsewhere, WTI and Brent crude futures traded lower, failing to benefit from a drawdown in API crude oil inventories and instead coming off on absence of geopolitical related news flow, as well as reports of the Libyan Es Sider port re-opening.

API Crude Oil Inventories (June 27) W/W -876k vs. Prev. 4000k
API Cushing Crude Oil Inventories (June 27) W/W -1300k vs. Prev. 424k
API Gasoline Inventories (June 27) W/W -407k vs. Prev. 2200k
API Distillate Inventories (June 27) W/W 4400K vs. Prev. -253k

We conclude with the overnight musings of DB's Jim Reid

Following on from H1's near universal asset price climb, the S&P 500 (+0.67%) hit fresh highs again yesterday. In spite of this fresh high and H1's near universal rally I would have to say that this is a fairly miserable synchronised bull market. There's not a lot of happiness and a lot of nervousness with markets at the moment. It’s tough to say whether this is mainly because bond yields have surprised the vast majority, or because the economic recovery still generally disappoints, or because trading liquidity is very low, or that regulation hurting certain markets, or fears that the Fed is soon to become more hawkish, or that liquidity not fundamentals are the main drivers of markets, valuations are becoming more stretched in many markets, or finally simply that there is little in the way of volatility. In truth all of these factors are preventing the champagne corks from popping at the moment. Maybe it’s better for markets to feel like this rather than be euphoric and complacent but it’s fair to say that we continue to live in fairly unique financial markets with a lot of uncertainty.

Tuesday’s US data docket was probably supportive of the theme that the economic recovery is a slow and steady one. Case in point was the US ISM which was basically unchanged at 55.3 for the month of June (vs 55.4 prior month). This was one of the higher readings of the last few years, but was below expectations of 55.9. The prices paid subcomponent printed at 58.0 which is broadly in the same range as it has been over the last six months. Consistent with the neither-hawkish-or-dovish feel of the ISM, construction spending growth of +0.1% was below expectations of +0.5% but this was offset by large upward revisions to April’s data. One of the stronger data points came from US vehicle sales for June which beat consensus across GM, Ford, Chrysler and Nissan. The total rate of sales increased to 16.98m (vs 16.70m previous and 16.38m expected) and this marked a post financial crisis high, despite a lower number of selling days this June compared to a year earlier. This prompted a sharp rally in GM stock yesterday (+3.35%). 10yr UST yields closed about 3.5bp higher at 2.565%, though most of that move occurred before the data flow.

In an otherwise quiet week for Fed policymakers, Yellen’s lecture at the IMF today (4pm London) will take much of the limelight. The exact topic of her speech is not yet known though as it is simply being billed as a Central Bank lecture, followed by a Q&A conversation with IMF Managing Director Christine Lagarde. If Yellen does discuss current monetary policy, we can probably expect more of the same overall tone that we saw from her post-FOMC press conference. Recall also that at that press conference, Yellen mentioned that “high yield bonds have certainly caught our attention”, so it will be interesting to see whether she elaborates on this topic given the IMF appears to have become more vocal about the issue of financial stability lately. DB’s Joe Lavorgna notes that Yellen will not have the employment data at the time of her talk. Traditionally, the Fed Chair does not get these figures until the early evening of the night before their release.

Taking a look at Asia today, markets are having a relatively buoyant 2nd day of Q3 helped by the record closes on Wall Street. Gains are being led by the Hang Seng (+0.95%) which is playing catch up after being closed for holidays yesterday, while gains are also being posted on the ASX200 (+1.1%) and the Nikkei (+0.5%). The AUD (-0.5%) has lost some ground against the greenback today following disappointing May trade data, though it’s still near eight-month highs. In Japan, the BoJ’s tankan inflation survey suggested that firms expect consumer price inflation of 1.5% in the year ahead, unchanged from last quarter’s survey. Inflation projections 3yrs and 5yrs from now are only 1.6% and 1.7% respectively, which is down to unchanged versus the last quarterly survey and still short of the BoJ’s goal.

Looking at other headlines, the FT reports that the ECB has yet to make any firm decisions or progress on how it intends to revive the loan-backed ABS market since last month’s ECB meeting where Draghi pledge to “intensify preparatory work” on a QE-like programme. Reportedly, one of the issues faced is the small size of the market with just EUR13.6bn of European securities issued in Q1 of 2014 and EUR181bn between 2012 and 2013. This is not surprising given the low amount of underlying SME loan origination volumes amongst European banks during this time. European banks themselves actually had a strong session yesterday led by Banco Espirito Santo (+13.8%) which recouped most of its losses from Monday after concerns over corporate governance issues arose. BNP (+3.6%) also rallied after the bank affirmed its long term dividend plans and said that it doesn’t plan to raise capital following the fine from the US authorities. European banks (+1.88%) were one of the key outperformers on the Stoxx 600 (+0.89%). It was also a strong performance in terms of European bank credit where both the senior and subordinated financials indices rallied sharply yesterday (-5bp and -8bp respectively).

Turning to the day ahead, the focus will again be on the US data with ADP employment (205k consensus) allowing markets to fine tune their estimates ahead of tomorrow's payrolls. Aside from that there is the Challenger US job cuts release and factory orders. Yellen’s IMF lecture is scheduled for 11am Washington time (4pm London). In the UK, the June construction PMI will be released as well as Nationwide house prices. In EM, Brazil will report industrial production.

 

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Wed, 07/02/2014 - 07:12 | 4917003 Sudden Debt
Sudden Debt's picture

Maybe you all missed it... but this is my favorite background pic now:

https://pbs.twimg.com/media/Brgx5PrIAAAA_A8.jpg:large

 

Wed, 07/02/2014 - 07:16 | 4917005 GetZeeGold
GetZeeGold's picture

 

 

Jack up the DOW and maybe no one will notice this....

 

SHOCK POLL: Obama worst president in 70 years...

 

Why stop at 17?

Wed, 07/02/2014 - 07:17 | 4917008 Ghordius
Ghordius's picture

is there a ranking for vice-presidents? if yes, where is Dick?

Wed, 07/02/2014 - 08:11 | 4917104 negative rates
negative rates's picture

Drink the kool-aid, you will be richer for doing it.

Wed, 07/02/2014 - 10:15 | 4917591 disabledvet
disabledvet's picture

"Richest ever." Ironically he should have counseled restraint as a consequence of dealing with kicking off the biggest war in US history. (Going on year 13 now!)

"All that wealth blinded him to the threat to the American economy." We still have recovery thanks to this clown...and all those that have followed him I might as "even the Democrats have now been sucked into the expansionist vortex."

Wed, 07/02/2014 - 07:16 | 4917006 Ghordius
Ghordius's picture

Belgium beating the USA?

Wed, 07/02/2014 - 07:25 | 4917015 Sudden Debt
Sudden Debt's picture

beating is such a weird word...

WE PULVERIZED THEM!!!

What a match :) I almost got a hart attack a few times over :)

Wed, 07/02/2014 - 07:34 | 4917031 zerocash
zerocash's picture

Savor the moment, you will be sent home by the Argies next Saturday. Then they take out your northern neighbor and Brazil beats them in the finals.

 

 

Wed, 07/02/2014 - 07:38 | 4917042 Sudden Debt
Sudden Debt's picture

I still think we have the best team in the WK. And whatever happens, Brazil is not allowed to win.

Wed, 07/02/2014 - 07:28 | 4917023 JohninMK
JohninMK's picture

Its a parable picture, Russia/USA

Wed, 07/02/2014 - 07:26 | 4917019 nink
nink's picture

And to celebrate the win lets buy another 200 billion in US treasuries.

Wed, 07/02/2014 - 07:33 | 4917030 GetZeeGold
GetZeeGold's picture

 

 

Word is Laos is gonna step up to the plate today.

Wed, 07/02/2014 - 07:28 | 4917025 fonzannoon
fonzannoon's picture

Whatever SD I mean let's put it in perspective a bit. The U.S does not even have a soccer team (football, whatever) and does not play once against anyone in between world cups. We just get some jamaican bobsled version of some rag tag players and show up wherever every 4 years. So I'd say we did pretty damn good.

I actually shut the game off when Belgium scored the first goal in extra play. Over here that is known as overtime and once a team scores the game is over. So that is the way it should be with everything.

Wed, 07/02/2014 - 07:37 | 4917032 Sudden Debt
Sudden Debt's picture

In perspective, the US spend 3 billion dollars on that soccer team. They even created a institute to develop the strategies for the WK. That makes it as expensive as the Spanish team!!

 

But I like the way you change the rules to make you feel better :)

 

You lost. We won.

 

But you really had a good goaly. Without him it would have been 16-1

 

Wed, 07/02/2014 - 07:44 | 4917045 fonzannoon
fonzannoon's picture

What? Link please. As far as I know we have no soccer team. I played when I was young and was considering trying out for this years team but I had a lot going on in May when they had tryouts. And if our goalie was so good he would have scored a goal.

By the way I hope the U.S team shows up for the finals flanked by the military and announces to everyone there that they would really like to play. 

Wed, 07/02/2014 - 10:19 | 4917606 disabledvet
disabledvet's picture

Americans only show up to play soccer with people's heads now.

When they show up to a sports stadium it's to find out who was giving them all that bullshit when they came in to help.

Wed, 07/02/2014 - 07:38 | 4917041 GetZeeGold
GetZeeGold's picture

 

 

The U.S does not even have a soccer team

 

Yeah, not a very good one anyway.....most kids in America are interested in other sports. It's not a very good recruiting environment....I'd say with little league give it about 20 years.

Wed, 07/02/2014 - 07:43 | 4917047 fonzannoon
fonzannoon's picture

I liked it when they handed out the orange slices at halftime when I was 7. Once the orange slices stopped I moved onto baseball because of the hot dogs with the relish and mustard. For Americans sports is about food. Everything is about food.

Wed, 07/02/2014 - 07:46 | 4917053 GetZeeGold
GetZeeGold's picture

 

 

Yeah...we call the Superbowl winners the world champions. We don't really care if no one else in the world is playing the damn game.

Wed, 07/02/2014 - 08:33 | 4917187 zerocash
zerocash's picture

Just like with the World Series. Never mind that the only other country that plays professional baseball is Japan. It's still the WORLD series bitchez!

Wed, 07/02/2014 - 07:17 | 4917009 BiteMeBO
BiteMeBO's picture

I can see Yellen's house from here.

Wed, 07/02/2014 - 07:21 | 4917014 fiboman
fiboman's picture

SPX is getting ready for a deep correction towards 1750
http://goldenopportunitytrading.blogspot.co.uk/

Wed, 07/02/2014 - 07:35 | 4917034 Headbanger
Headbanger's picture

I agree but expect to get down arrows for advertizing your blog here.

Wed, 07/02/2014 - 07:46 | 4917054 AdvancingTime
AdvancingTime's picture

Its hard to think that 1750 might be considered a deep correction.

Wed, 07/02/2014 - 07:56 | 4917068 fiboman
fiboman's picture

Not from the ZH audience for sure...but what about Marketwatch audience (http://www.zerohedge.com/news/2014-07-01/wondering-why-you%E2%80%99re-st...) :)))

Wed, 07/02/2014 - 08:24 | 4917148 Bernoulli
Bernoulli's picture

And the bloomberg audience (see my post below)...

Wed, 07/02/2014 - 07:24 | 4917016 agent default
agent default's picture

And when Dow Jones makes contact with reality, it will take out the whole system and a lot more.

Wed, 07/02/2014 - 07:43 | 4917048 Bemused Observer
Bemused Observer's picture

There IS a chance that reaching the 17,000 mark could be a psychological tipping point downward. There has been a lot of talk about reaching that number. But most everyone also thinks we are overdue for a drop. People COULD get nervous enough to start pulling out once it hits the target, figuring the odds are too good for a correction.

But this market is too messed-up to only worry about the psychology. The structure itself is failing. If it drops hard this time, it won't be because investors are leaving the building, it'll be because the building itself is collapsing.

Wed, 07/02/2014 - 07:28 | 4917020 The Most Intere...
The Most Interesting Frog in the World's picture

Folks, the federal government and state and local police forces have not been ramping up their stash of weapons, ammunition and armored military vehicles for nothing. They know the end game is near. There ain't gonna be no QE next time. They know it doesn't work and will not work long term. Markets will collapse. All of the promises, pensions, Medicare, Social Security, 401 k plans, you name it, all gonna go by by. None of it was ever possible in the first place. People will riot in the US and they will be shot down and killed where they are standing. The days of QE and never ending market and real estate upside will be but a distant memory.

Wed, 07/02/2014 - 07:30 | 4917027 Quinvarius
Quinvarius's picture

A this point, a Zimbabwe stock market is the best case scenerio.  That is pretty much the corner the "central speculators" have backed themselves into.

Wed, 07/02/2014 - 07:35 | 4917035 lemosbrasil
lemosbrasil's picture

I dont believe in this scenario....bytheway....Dow Jones is close to a hard correction, maybe 7-8%...dow jones is walking over a uptrendline

see here: http://pracompraroupravender.blogspot.com.br/2014/07/maxima-do-dow-jones...

 

Wed, 07/02/2014 - 07:42 | 4917046 AdvancingTime
AdvancingTime's picture

To say I'm sick of all this crap is an understatement. 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.

http://brucewilds.blogspot.com/2014/06/stock-markets-and-girls-gone-wild...

Wed, 07/02/2014 - 09:52 | 4917492 moneybots
moneybots's picture

"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."

 

All the easier for the insiders to dump to the bag holders.

Wed, 07/02/2014 - 08:13 | 4917107 booboo
booboo's picture

I'm going short with the whole pot today wish me luck, who said there was no viable retirement strategy
LEROY JENKINS!!!!!!

Wed, 07/02/2014 - 08:19 | 4917130 yogibear
yogibear's picture

Watch out. The Federal Reserve is helping Obama for a huge Wall Street backed win in November.

Wed, 07/02/2014 - 08:33 | 4917189 Bernoulli
Bernoulli's picture

All in.  Way to go. Short that b*tch!

Unfortunately I ran out of cash, bought too much gold and silver. Have no more "all" to go "in" with. Will have to wait til the next pay day.

But good luck, I'll keep my fingers crossed for you (and all other ZH-readers that might be interested in a 50% downward correction).

Wed, 07/02/2014 - 08:18 | 4917123 yogibear
yogibear's picture

All for a Obama prepared democratic win in November.

The libtards are all smiles and say the economy is better, the stock market is hitting new highs and things couldn't be better.

Wed, 07/02/2014 - 08:20 | 4917132 Bernoulli
Bernoulli's picture

"More bullishness to come"?
Just spent some time on bloomberg website. Big mistake.
Why are all of these people getting airtime are so full of shit? It is beyond belief!
Sorry to spoil your morning, guys and girls, but check it out:
http://www.bloomberg.com/video/what-s-driving-u-s-stocks-to-record-highs-aQUBozETSien827KmVfwWg.html
http://www.bloomberg.com/video/dow-17-000-what-s-the-big-deal-IST2TNvPRAeHKLCdGFmjyQ.html
- a word on rigging? What? What's that? I thought that's what they do on sailing boats?
- a word on stock buy backs? Erm, what does that have to do with EPS?
- a word on bubbles? Bubbles? What? But Yellen said there are no bubbles.
- a word on worldwide political developments? Worldwide? What is that? You mean overseas? What does that have to do with us?

Watching this made me feel sick.

Wed, 07/02/2014 - 09:49 | 4917476 moneybots
moneybots's picture

"The credit bubble has never been bigger."

 

Nor the crash that will result from it's future bursting.

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