This page has been archived and commenting is disabled.

S&P 500 To Rise Above 2000 On Hopes Euro Collapse Accelerates, Euro Yields Hit New Records

Tyler Durden's picture




 

It's been one of those days. First, the CME broke for 4 hours due to what some suggested were HFT connectivity issues, then Russia announced it would send a second humanitarian convoy into Ukraine (a big risk off move the first time it was announced, now not even an algo stirred), then Germany reported that the IFO Business Confidence/Climate dropped for the fourth consecutive month to 106.3 from 108.0, below the 107.0 expected, with the IFO chief economist stating that German GDP expectations are likely to be cut to 1.5% from 2.0% later in the year, and finally the French government collapsed due to disagreement over policy between finance minister Valls and economy minister Montebourg. All in all, a typical day in Europe's slow-motion implosion. So why are Spanish and Italian bank stocks soaring and European bond yields reaching new record highs? Simple: following Draghi's speech on Friday at Jackson Hole, which at initial read was hardly as dovish as many had expected, the FT and various other media outlets promptly changed the narrative and made it seem as if the ECB head was about to unleash QE.

European QE that is, of course, assuming Draghi ever goes about revealing either the TLTRO or the ABS plan he revealed months ago. Then again, this being the ECB it is all about speculation and innuendo, with QE almost virtually assured not to happen unless European GDP (adjusted for hookers and blow or otherwise) is in freefall mode and rioting is on the street, well even more than usual.

It will be a quieter week than even usual (keep in mind volumes last week were the lowest in years) with a US holiday on the horizon (there will be nobody manning trading desks on Friday as everyone rushes to catch one last weekend on Hamptons frat boy fun) and so attention turns to US New Home Sales, the Markit Composite PMI, the Dallas Fed and tomorrow’s meeting between the Ukrainian and Russian Presidents, which Merkel previewed over the weekend saying not to expect much if anything.

Bulletin headline summary from RanSquawk and Bloomberg

  • EUR/USD slumps to an 11-month low as markets bet on diverging policy between the Fed and ECB, widening the US/GE 10yr yield spread to levels not seen since 1999
  • US stock futures sit at all-time highs ahead of the US open as markets price-in the increasing likelihood of ECB asset purchases
  • UK bank holiday keeps volumes muted, but attention turns to US New Home Sales and tomorrow’s meeting between the Ukrainian and Russian Presidents
  • Long Treasuries gain, curve spreads flatten led by 5/30; overnight volumes light as U.S. Labor Day weekend looms.
  • With euro-area data this week likely to show the weakest inflation since 2009, Draghi pushed the ECB closer to QE by warning in his Jackson Hole speech that investor bets on prices have “exhibited significant declines”
  • Jackson Hole Roundup: Yellen shift to neutral vs Draghi easing
  • Germany’s Ifo institute business climate index fell to 106.3 in August, more than expected and a fourth consecutive monthly decline, from 108 in July
  • French President Hollande asked Prime Minister Valls to form a new government amid a cabinet dispute over the direction of the euro area’s second-biggest economy
  • Greece plans to reopen its 3Y & 5Y bond issues in next two weeks to top them up by up to EU1.5b; payment to be in outstanding T-bills instead of cash, Reuters reports, citing unidentified senior govt. official
  • Sellers of bonds backed by mortgages and auto loans would have to give investors details including the borrowers’ income and credit scores under rules the SEC is poised to consider this week, according to two people briefed on the plan
  • Russia plans to send a second convoy loaded with humanitarian aid to eastern Ukraine, Foreign Minister Lavrov said, days after the first delivery sparked international condemnation by crossing its neighbor’s border without authorization
  • The Democratic Republic of Congo said as many as 13 people have died of Ebola in a separate outbreak from the one raging in three West African nations
  • Islamic State militants seized a Syrian air base, dislodging forces loyal to Assad from the last stronghold in the northeastern Raqqa province
  • An alliance of Islamist militias said it wrested control of Tripoli’s international airport from a rival force after weeks of fighting that triggered an exodus of foreigners and threatened to plunge Libya deeper into chaos
  • Sovereign yields decline. Asian stocks mixed, European equities gain. U.S. stock futures higher. WTI crude and copper gain; gold lower

US Event Calendar

  • 8:30am: Chicago Fed National Activity Index, July, est. 0.20= (prior 0.12)
  • 9:45am: Markit U.S. Composite PMI, Aug. preliminary (prior 60.6)
  • Markit U.S. Services PMI, Aug. preliminary, est. 57 (prior 60.8)
  • 10:00am: New Home Sales, July, est. 426k (prior 406k); New Home Sales m/m, July, est. 4.9% (prior -8.1%)
  • 10:30am: Dallas Fed Manufacturing Activity, Aug., est. 12.5 (prior 12.7)
  • No POMO

FIXED INCOME

German, Italian and Spanish 10yr yields hit all-time lows this morning after the continued dovish digestion of Draghi's comments at Jackson Hole on Friday. Draghi highlighted that the ECB will acknowledge the deterioration in inflation expectations seen over the past few months - leading to more speculation bets of QE and further easing from the ECB. The upside in Bund futures was cemented by the lower than expected IFO Business Climate survey, with the IFO chief economist stating that German GDP expectations are likely to be cut to 1.5% from 2.0% later in the year. T-notes trade higher, but underperform their European counterparts as traders highlight the policy divergence themes evident in Yellen's speech on Friday against Draghi's particularly dovish tones.

Prelim Barclays month end extension for Pan-Euro Agg at +0.03y (Prev. 0.12yrs, 12m average +0.03yrs)
Prelim Barclays month end extension for Sterling Agg Tsy at +0.08y
Prelim Barclays month end extension for US Treasuries +0.12yrs (Prev. 0.08yrs, 12m average +0.09yrs)

EQUITIES

European equities surged from the open, led higher by Italian and Spanish banks (Banca Monte dei Paschi up over 5%) as markets eye the increasing likelihood of broad-based asset purchases from the ECB. French markets have shrugged off the resignation of the French government, after the PM Valls handed in notice of the dissolution of the parliament after economic policy hit the rails after slashing growth forecasts last week. US stock futures have struck all-time highs (E-Mini S&P all-time high now at 1997.50) on the back of ECB easing hopes, indicating a strong open on Wall Street later today.

FX

USD-index trades at its best levels since September 2013 as policy divergence between the Fed and ECB continues to support the USD, which saw EUR/USD hit an 11-month low following Draghi’s comments. Separately, USD/JPY touched a 7-month high following dovish comments from BoJ Governor Kuroda, who said that QE will continue until inflation expectations are anchored which may take “some time”. Nonetheless, the pair has drifted back towards the 104.00 handle which is said to be a large option expiry worth USD 1bln.

COMMODITIES

Energy markets trade relatively unchanged, with traders looking ahead to the meeting between the Ukrainian President Poroshenko and Russian President Putin tomorrow, where the two are to discuss de-escalation in Ukraine. The Russian foreign minister this morning announced a second aid convoy is to cross over to Luhansk by the end of the week, despite the controversy over last week's violation of the Ukrainian border. Spot gold and silver trade slightly softer after the USD-index struck the best levels since Sep'13 on the continued digestion of Yellen's less-dovish speech on Friday.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 08/25/2014 - 07:17 | 5139697 GetZeeGold
GetZeeGold's picture

 

 

We're currently at full tilt retard.

Mon, 08/25/2014 - 07:18 | 5139704 negative rates
negative rates's picture

He aint heavy, he's your brother.

Mon, 08/25/2014 - 07:22 | 5139711 ilion
ilion's picture

Volatility in FX markets on the rise as explained here.

Mon, 08/25/2014 - 07:26 | 5139716 NoDebt
NoDebt's picture

I come back from vaca and drop straight back into Hitchhiker's Guide To The Galaxy that the markets have become.  "Don't Panic" being the operative phrase.  Just remember to bring your towel (so you can let a short seller use it to mop up his tears).

Mon, 08/25/2014 - 08:36 | 5139884 USisCorrupt
USisCorrupt's picture

I am just amazed that Market's still matter? Some people still think that they are real?

Mon, 08/25/2014 - 08:38 | 5139893 MalteseFalcon
MalteseFalcon's picture

US ends QE, then EU starts QE

EU ends QE, then Japan starts QE

Japan ends QE, then China starts QE

China ends QE, then US starts QE

It's 4:20 and somewhere in the world there is QE.

Mon, 08/25/2014 - 07:20 | 5139709 TideFighter
TideFighter's picture

'cept the full tilt retard indicator has been permanently disabled.

Mon, 08/25/2014 - 07:27 | 5139723 DavidC
DavidC's picture

GetZeeGold,
Indeed, it continues ti feel like a bad dream that won't stop.

When will these central banker idiots realise that what they're doing WON'T improve things, ever?

DavidC

Mon, 08/25/2014 - 07:31 | 5139727 GetZeeGold
GetZeeGold's picture

 

 

Well.....when you have the ability to write yourself a check....you'll almost always do that.

 

It's not rocket science.....it's just human nature.

Mon, 08/25/2014 - 08:18 | 5139825 Rip van Wrinkle
Rip van Wrinkle's picture

Ever thought the CB's don't want things to get better? That they just want to give the impression that it will make things better to the mass morons walking the streets?

Mon, 08/25/2014 - 07:17 | 5139698 Bossman1967
Bossman1967's picture

Dow pumps,S&P over 2,000 PM dumps s these fools keep up the manipulationa

Mon, 08/25/2014 - 07:18 | 5139699 disabledvet
disabledvet's picture

Another short seller jumps from the roof.

Mon, 08/25/2014 - 07:20 | 5139710 negative rates
negative rates's picture

We use to practice as kids off a ranch house, maybe they want to make a carier out of it.

Mon, 08/25/2014 - 07:17 | 5139700 TabakLover
TabakLover's picture

No market drop this week.   Gotta keep things rosey for the USA sheeple at their Labor Day BBQ.

Mon, 08/25/2014 - 07:30 | 5139725 DavidC
DavidC's picture

Agree with you but 'That which can't continue, won't'. At some point this WILL blow, it HAS to, ALL bubbles implode.

DavidC

Mon, 08/25/2014 - 07:41 | 5139746 Took Red Pill
Took Red Pill's picture

and they've got to keep the stock market up with elections just 70 days away

Mon, 08/25/2014 - 08:03 | 5139773 yogibear
yogibear's picture

It's all about Obama's party getting elected in November.

Mon, 08/25/2014 - 07:18 | 5139701 TideFighter
TideFighter's picture

Jackson's Hole = Yellen. Less unsure about rate hikes, more uncertain concerns, possibilities waning, potentially disturbing, distant chances...damn, does she ever spew a unhedged fact out of her piehole? 

Mon, 08/25/2014 - 07:18 | 5139703 russwinter
russwinter's picture

End of QE to Lead to Whodathunk Market Crash:

http://winteractionables.com/?p=13987

 

Mon, 08/25/2014 - 08:00 | 5139761 ebworthen
ebworthen's picture

I like it Russ.  The last blood moon wasn't cataclysmic, but you never know with October.

"Third comes the 'final solution', the inevitable raid on real assets and feeding frenzy on Aunt Millie’s pension, social security and savings account."

Yup, we can "bank" on it.

Mon, 08/25/2014 - 07:18 | 5139705 Moonrajah
Moonrajah's picture

Sweet dreams are made of this. Who am I to disagree?

Mon, 08/25/2014 - 07:22 | 5139712 Kawaii Empress ...
Kawaii Empress Natalia Poklonskaya's picture

Mutti Merkel saying that Ukraine solution should not harm Russia or Germany etc. etc. Gotta keep the spice flowing so Poroshenko nice knowing ya but you're out of here.

Mon, 08/25/2014 - 07:26 | 5139718 NaiLib
NaiLib's picture

QE? The TLRO only replaces the LTRO that is almost fully repaid by now. Draghi is an expert in fooling the markets there will be moar cash. in reality its kept steady and it is still Japanese and US QE that prop the European bonds into a state where Spain France and Italy do nothing to change thier structural behaviour.

Only when Draghi sees another danger of the € to break up eh will come into desperation. For the moment markets make sure there will be no QE from Draghi. The € is going in the right direction for Spain Italy and France anyway.

Mon, 08/25/2014 - 07:31 | 5139726 DavidC
DavidC's picture

NaiLib,
Spot on.

DavidC

Mon, 08/25/2014 - 07:35 | 5139733 spanish inquisition
spanish inquisition's picture

So if you are a trader and overslept, tough luck. If you are a programmer who overslept, don't worry we will hold the market for you.

Mon, 08/25/2014 - 07:38 | 5139737 Sudden Debt
Sudden Debt's picture

Well, now we'll get a right wing government without any left representation in France.

Now, this is like a fuse in a powder keg, which I fully support :)

 

Mon, 08/25/2014 - 07:45 | 5139745 GetZeeGold
GetZeeGold's picture

 

 

Light the damn thing......and run!

 

Throw some cake crumbs behind you.....should at least slow them down.

Mon, 08/25/2014 - 07:56 | 5139763 Brazen Heist
Brazen Heist's picture

The SPX has been looking ridiculously linear if you take a closer look at the charts in over the last 5 years or so. It has all the makings of a manipulated market. 

All I know is to stack up on gold and silver while cheap......and when this fucker crashes, buy into a well tracking ETF and make some gains while it begins its next upward journey to insanity again.

Mon, 08/25/2014 - 08:03 | 5139772 AdvancingTime
AdvancingTime's picture

The Euro-zone is engaged in a talkathon, with fear of an immediate collapse off the table the members of the Euro-zone much like their political counterparts in America just talk about solutions without any action. For us in America news from across the pond dribbles out in small doses with almost daily media boost of promises that things are getting better. For more on all of "what is not happening" see the article below.

http://brucewilds.blogspot.com/2014/04/euro-zone-update.html

Mon, 08/25/2014 - 08:07 | 5139785 yogibear
yogibear's picture

The goal is to keep everyone happy at least until the November elections. Got to get Berry's people elected.

Mon, 08/25/2014 - 08:09 | 5139792 yogibear
yogibear's picture

Talk of the new normal again to get prices lofty like the dot com days. Have to get the PEs really up there.

Mon, 08/25/2014 - 08:12 | 5139804 nightshiftsucks
nightshiftsucks's picture

 I just bought some more silver and lead,I feel better.

Mon, 08/25/2014 - 08:13 | 5139805 huggy_in_london
huggy_in_london's picture

Breaking news... cnbc kicks feldstein off after he says "stocks are overvalued"... immediately cuts for a break....

 

Mon, 08/25/2014 - 08:27 | 5139847 yogibear
yogibear's picture

Got to keep the game going.

Mon, 08/25/2014 - 08:30 | 5139851 huggy_in_london
huggy_in_london's picture

Yep cause once this merry-go-round stops the kids are going to realise they ain't real horses

Mon, 08/25/2014 - 09:37 | 5140123 Wait What
Wait What's picture

"once this merry-go round stops"

what makes you think it's going to stop in your lifetime?

you'll be better off going along for the ride than hiding in the creeper corner envying everyone who is enjoying it.

Mon, 08/25/2014 - 09:41 | 5140154 RattNRoll
RattNRoll's picture

The market is a policy tool.

Mon, 08/25/2014 - 09:54 | 5140233 tip e. canoe
tip e. canoe's picture

1998 = 666 x 3
noodle that for a sec

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