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Flat Futures Foreshadow FOMC Statement Despite Facebook Flameout

Tyler Durden's picture




 

Futures are largely unchanged ahead of today's, if not the year's, key event: the FOMC meeting in which Janet Yellen will announce the end of QE3, and with that the market will finally realize that the training wheels from the past 6 years are off, if only until the next market tantrum, or European/Chinese gray swan, pushes the Fed right back in.

As Deutsche Bank observes, the Fed has been wanting to hike rates on a rolling 6-12 month horizon from each recent meeting but never imminently which always makes the actual decision subject to events some time ahead. They have seen a shock in the last few weeks and a downgrade to global growth prospects so will for now likely err on the side of being more dovish than in the last couple of meetings. They probably won't want to notably reverse the recent market repricing of the Fed Funds contract for now even if they disagree with it. However any future improvements in the global picture will likely lead them to step-up the rate rising rhetoric again and for us this will again lead to issues for financial markets addicted to liquidity. And so the loop will go on for some time yet and will likely trap the Fed into being more dovish than they would ideally want to be in 2015.

But for now, expect a creeping hawkishness to finally be realized by a broken market that has levitated on nothing but implicit and explicit Fed support for the past 6 years. In the meantime, for those curious how to trade today's FOMC, DB's Alan Ruskin notes that over the last two years the S&P 500 has on average been 0.35% down on the day of the statement when there is no press conference. When there is one the index is up 0.87%, perhaps reflecting the dovish nature of Bernanke and Yellen relative to the committee. There is also more volatility across different asset classes on press conference days. Alan speculates that this is perhaps due to the market's interpretation of the dots that appear at press conference meetings.

So will yesterday's epic short squeeze be undone? Tune in in just over 7 hours to find out.

In the meantime, despite yesterday's amazing Facebook flameout which rivaled the Antares rocket explosion, in which a conference call announcement about the company's rapidly slowing growth and soaring expenses sent the company, held by nearly 130 hedge funds, plunging by over 10%, yet another rollercoaster night of Yen-carry levitation has assured that all initial losses in the Emini are made up futures are flat to start the day.

Once again, price action for European equities has centred around the slew of large cap companies reporting throughout the session, with European indices trading in the green with the exception of the IBEX and FTSE MIB. More specifically, Spanish heavyweight BBVA (-1.9%) is leading the Spanish banking sector lower, with Saipem and STMicroelectronics placing further weight on peripheral stocks following their respective earnings reports. In terms of other notable stocks news Sanofi (-4.0%) have announced they have ousted their CEO, while Total (+1.3%) have provided the CAC with some reprieve after their positive pre-market update. Despite the modest upside for stocks, fixed income markets trade in a relatively unchanged with today’s covered Bund auction failing to provide the German benchmark with any sustained price action.

Turning to Asia markets are generally stronger across the board following the positive lead from the US. Bourses in Japan, Hong Kong, China and Korea +1.6%, 1.4%, +1.2% and +1.7% respectively as we type. Focusing on Japan, the September industrial production print surprised to the upside (2.7% mom v 2.2% exp) but all eyes will be on the conclusion of the Bank of Japan policy meeting on Friday for whether a refresh of policy is attempted or hinted at. Asian credit markets are also on a firmer footing overnight with IG spreads around 1-2bp tighter across benchmark names while new issues are also being well absorbed.

JGBs trade marginally lower by 2 ticks, although lead futures touched a record high despite strength in Japanese stocks, supported by the BoJ who offered to buy JPY 1.05trl of debt. The Nikkei 225 (+1.5%) broke back above its 100 DMA at 15440.81 and 50% fib-level of the Sep-Oct sell-off, further buoyed by Japanese IP which printed an 8-month high (2.7% vs. Exp. 2.2%, Prev. -1.8%). Shanghai Comp (+0.2%) and Hang Seng (+0.9%) also traded higher, with the latter erasing its post Hong-Kong protests led losses.

Looking at the rest of the day ahead, we’ve got a fairly quiet calendar in the US with just the mortgage application print to look forward to. in Europe the notable readings include the September retail sales for Spain and consumer confidence in France. All eyes will be on the FOMC statement today though.

Bulletin Headline Summary from Bloomberg and RanSquawk

  • European equities trade mostly in the green with the exception of Spain and Italy as large cap earnings dictate the state of play amid a lack of notable macro Eurozone commentary.
  • Both fixed income and FX markets remain tentative as participants begin to position ahead of today’s eagerly anticipated FOMC meeting.
  • Looking ahead, attention will turn towards the upcoming DoE release, 2yr FRN and 5yr note auction and a stream of large cap US earnings, although the main focus for the session will likely be placed on the FOMC meeting.
  • Treasuries gain as market awaits FOMC policy statement at 2pm in Washington DC; Fed expected to keep “considerable time” language, end QE.
  • Fed won’t provide new economic projections, Yellen not scheduled for post-meeting presser; click here for Decision Day Guide
  • The end the Fed’s third round of bond purchases is proving to be a non-event for MBS, partly because even though the central bank won’t be adding more of the bonds to its balance sheet, it will still be buying enough to prevent holdings from shrinking
  • Bank of England Deputy Governor Jon Cunliffe said slowing inflation and a bleaker outlook for the economy justify keeping emergency stimulus for longer
  • EU said no nation has broken budget rules by a big enough margin to warrant immediate action, a move that gives France and Italy more time to win approval for their draft spending plans
  • Pimco, seeking to stem redemptions after its co-founder Bill Gross left unexpectedly, was dropped as manager of a $6.16b strategy offered by a unit of Prudential Financial Inc
  • Iraqi Kurdish fighters armed with mortars and Katyusha rocket launchers arrived in Turkey today on their way to the Syrian town of Kobani, where they’ll join the fight against Islamic State, according to live footage on NTV television
  • The U.S. vowed to continue its commercial space launch program just hours after a rocket carrying supplies to the International Space Station exploded over a Virginia launch pad
  • North Korean leader Kim Jong Un is seeking to erase the remaining influence of his dead uncle, executing about 10 senior Workers’ Party officials on charges from graft to watching South Korean soap operas, according to an aide to a South Korean lawmaker
  • Sovereign yields mostly lower. Asian and European stocks gain; U.S. equity-index futures mixed. Brent crude and copper gain, gold little changed

US Event Calendar

  • 7:00am: MBA Mortgage Applications, Oct. 24 (prior 11.6%) Central Banks
  • 2:00pm: Fed seen maintaining overnight bank lending rate of 0%-0.25%
  • Fed seen ending QE program
  • 11:30am: U.S. to sell $15b 2Y FRN
  • 1:00pm: U.S. to sell $35b 5Y notes

ASIA

JGBs trade marginally lower by 2 ticks, although lead futures touched a record high despite strength in Japanese stocks, supported by the BoJ who offered to buy JPY 1.05trl of debt. The Nikkei 225 (+1.5%) broke back above its 100 DMA at 15440.81 and 50% fib-level of the Sep-Oct sell-off, further buoyed by Japanese IP which printed an 8-month high (2.7% vs. Exp. 2.2%, Prev. -1.8%). Shanghai Comp (+0.2%) and Hang Seng (+0.9%) also traded higher, with the latter erasing its post Hong-Kong protests led losses.

The World Bank said China has buffers to prevent disorderly debt unwind and sees China GDP growth slowing to 7.1% in 2016. Elsewhere, Deutsche lowered China’s GDP growth forecast by 0.5pp to 7.3% for 2014 and by 1pp to 7.0% for 2015. (RTRS)

FIXED INCOME & EQUITIES

Once again, price action for European equities has centred around the slew of large cap companies reporting throughout the session, with European indices trading in the green with the exception of the IBEX and FTSE MIB. More specifically, Spanish heavyweight BBVA (-1.9%) is leading the Spanish banking sector lower, with Saipem and STMicroelectronics placing further weight on peripheral stocks following their respective earnings reports. In terms of other notable stocks news Sanofi (-4.0%) have announced they have ousted their CEO, while Total (+1.3%) have provided the CAC with some reprieve after their positive pre-market update. Despite the modest upside for stocks, fixed income markets trade in a relatively unchanged with today’s covered Bund auction failing to provide the German benchmark with any sustained price action.

FX

FX markets remain relatively tentative ahead of the FOMC, with the modest upside for AUD seen overnight being sustained throughout European trade following a flurry of bids in AUD/JPY. Elsewhere, GBP was unreactive to the UK Mortgage approvals data (61.3K vs. Exp. 62.0K) which came in at its lowest level since July 2013 as the release painted a relatively similar picture to recent mortgage-related data points. Furthermore, comments from BoE’s Cunliffe who said the BoE can keep stimulus longer than previously thought, citing softening in UK pay and inflation data also failed to weigh on the UK currency. However, in recent trade EUR/GBP has just broken above 0.7900, with the move said to be spurred by the usual month-end buying from a large European central bank.

COMMODITIES

WTI and Brent crude futures trade in the green after API Crude Oil Inventories (+3200k vs. Prev. +1200k) showed a lower than expected build in today’s DOE crude report (Exp. +3650k, Prev. +7111k). However, prices remained unscathed to comments from OPEC’s Sec Gen who said that if oil prices stay at USD 85/bbl, a lot of oil will go out of the market, adding that OPEC does not have a price target and they 'just leave it to the market'. Elsewhere, precious metals markets remain relatively steady ahead of the FOMC release.

* * *

DB's Jim Reid Conludes the Overnight Recap

Two weeks ago today's FOMC conclusion was looking set to be a pretty exciting event. However the fact that the S&P 500 has rallied 9.03% off the intra-day lows that week to now only be around 1.3% off the all time highs probably means it will be a much more predictable affair. However it's likely that recent events will have had an impact in our opinion.

Our take is that the Fed has been wanting to hike rates on a rolling 6-12 month horizon from each recent meeting but never imminently which always makes the actual decision subject to events some time ahead. They have seen a shock in the last few weeks and a downgrade to global growth prospects so will for now likely err on the side of being more dovish than in the last couple of meetings. They probably won't want to notably reverse the recent market repricing of the Fed Funds contract for now even if they disagree with it. However any future improvements in the global picture will likely lead them to step-up the rate rising rhetoric again and for us this will again lead to issues for financial markets addicted to liquidity. And so the loop will go on for some time yet and will likely trap the Fed into being more dovish than they would ideally want to be in 2015.

On the specifics for today, DB's Peter Hooper expects the Committee to maintain a modestly dovish stance with relatively few changes other than those necessitated by the ending of QE. A big question mark will be as to whether they explicitly mention the recent volatility or tighter financial conditions similar to what they did in September last year. Peter doesn't think so as back then Treasury yields had climbed over 100bps and the labor market had showed signs of slowing which hasn't happened this time round. Peter thinks they are concerned about there being an 'investor put' if they make too much of the volatility of two weeks ago. For us though its easy for them to act like this now that markets have recovered but it might be a little circular. The rebound started with Bullard's about turn suggesting that QE might be extended and also as markets started to price out 2015's interest rate rises. The rally soon got extra legs when speculation arose that the ECB might be considering buying corporate bonds. So if the Fed use this rebound to be too hawkish then it may backfire so we'd expect some compromise probably in the form of keeping considerable time in and emphasising the global risks to growth and inflation.

DB's Alan Ruskin makes some interesting observations about the FOMC. Firstly he says that over the last two years the S&P 500 has on average been 0.35% down on the day of the statement when there is no press conference. When there is one the index is up 0.87%, perhaps reflecting the dovish nature of Bernanke and Yellen relative to the committee. There is also more volatility across different asset classes on press conference days. Alan speculates that this is perhaps due to the market's interpretation of the dots that appear at press conference meetings.

Ahead of all this markets shrugged off some mixed data in the US yesterday to rally strongly. The good news came from the Conference Board Consumer Confidence report that topped estimates (94.5 v 87.0) to print at a seven year high. The Richmond Fed manufacturing survey also came in stronger than expected (20 v 11). The bad news though came from September's durable goods data. The volatile headline series fell unexpectedly (-1.3% mom v +0.5% mom expected) and the core capex reading (ex. aircraft and defense) also weaker. A weak core capex adds downside risk to the Q3 GDP numbers as our US colleagues pointed out earlier this week. The other notable data release in the US yesterday was the S&P/Case Shiller house price index which came in slightly below expectations (+5.57% yoy v +5.70% expected).

With the S&P 500 (+1.19%) and the Russell (+2.86%) rallying, US Treasuries were unsurprisingly weaker. 10yr yields closed +3bp to 2.29%. Commodities were also stronger with WTI, Brent, and Copper up +0.5%, +0.2% and +0.8% on the day.

Turning to Asia markets are generally stronger across the board following the positive lead from the US. Bourses in Japan, Hong Kong, China and Korea +1.6%, 1.4%, +1.2% and +1.7% respectively as we type. Focusing on Japan, the September industrial production print surprised to the upside (2.7% mom v 2.2% exp) but all eyes will be on the conclusion of the Bank of Japan policy meeting on Friday for whether a refresh of policy is attempted or hinted at. Asian credit markets are also on a firmer footing overnight with IG spreads around 1-2bp tighter across benchmark names while new issues are also being well absorbed.

Looking at the rest of the day ahead, we’ve got a fairly quiet calendar in the US with just the mortgage application print to look forward to. Over on this side of the Atlantic, the notable readings include the September retail sales for Spain and consumer confidence in France. All eyes will be on the FOMC statement today though.

 

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Wed, 10/29/2014 - 06:53 | 5389061 negative rates
negative rates's picture

People never stop believeing what they want to believe.

Wed, 10/29/2014 - 07:03 | 5389070 TeamDepends
TeamDepends's picture

You don't have to live like a refugee
You don't have to end the QE

Wed, 10/29/2014 - 07:09 | 5389077 GetZeeGold
GetZeeGold's picture

 

 

Just hold on......let the white haired midget say her piece.

Wed, 10/29/2014 - 07:14 | 5389085 max2205
max2205's picture

Somethings wrong when the only thing TPTB care about is a rising equity market.

 

Mr Yellen won't do anything

Wed, 10/29/2014 - 07:15 | 5389087 LULZBank
LULZBank's picture

It just means they have not been able to fully offload their portfolios on to the muppets before causing a correction and buying at lower levels to start it over again.

Wed, 10/29/2014 - 08:42 | 5389249 negative rates
negative rates's picture

And just how many days in a row can you do that before it gets old.

Wed, 10/29/2014 - 08:45 | 5389259 LULZBank
LULZBank's picture

Muppets eventually come but the problem is they dont have much money left.

Wed, 10/29/2014 - 09:11 | 5389335 nightwish
nightwish's picture

Speaking of Muppets, Yellen would've been a natural in a hobbit role. Did they finish shooting already? 

Wed, 10/29/2014 - 09:22 | 5389375 LULZBank
LULZBank's picture

Cannot think of any character, Yellen will fit into.

Gollum's wife?

Balin's sister?

Gandalf's little squeeze?

Wed, 10/29/2014 - 10:17 | 5389549 Hohum
Hohum's picture

negative rates,

So true.  Like infinite growth on a finite planet.

Wed, 10/29/2014 - 06:56 | 5389064 BringOnTheAsteroid
BringOnTheAsteroid's picture

ZH is broken now, no one is here. Hello . . . . o . . . . . o . . . . . o

Wed, 10/29/2014 - 07:02 | 5389069 LULZBank
LULZBank's picture

We need another Kardashian thread.

Wed, 10/29/2014 - 07:51 | 5389144 OW My Balls
OW My Balls's picture

Fat Fannied Fluffer Foreshadows Facebook Flameout?

Wed, 10/29/2014 - 08:44 | 5389256 LULZBank
LULZBank's picture

Whats wrong with plump pussies?

Wed, 10/29/2014 - 07:00 | 5389067 buzzsaw99
buzzsaw99's picture

markets, lulz

Wed, 10/29/2014 - 07:00 | 5389068 overmedicatedun...
overmedicatedundersexed's picture

OT, the vote..today in my home town, it was reported the diebold voting machines are fixed, even when the clerks at the early voting pol place got complaints about rigged machines, they themselves tried voting for non D candidates and t the votes were changed to D by the touch screen machine- seem no errors for D votes only non D votes in Maryland..tin foil hats are sold out.

Wed, 10/29/2014 - 07:02 | 5389071 LULZBank
LULZBank's picture

Its only helping you to vote for the right candidate, which is very important for democracy to survive.

Sometime we have to resort to undemocratic ways to restore democracy.

Wed, 10/29/2014 - 07:53 | 5389149 NoDebt
NoDebt's picture

That's a feature, not a bug.

Just another way your government is HELPING you make the right decisions.  THEIR decisions.

You're welcome.

Wed, 10/29/2014 - 08:16 | 5389187 OW My Balls
OW My Balls's picture

Nice to see those machines made it back from Scotland unharmed.

Wed, 10/29/2014 - 07:04 | 5389072 TeamDepends
TeamDepends's picture

Diebold- We put the "D" in Democrat

Wed, 10/29/2014 - 07:16 | 5389084 GetZeeGold
GetZeeGold's picture

 

 

We'll make sure you cast your vote the right way.

 

We've got team Hagel in charge....and we're hoping for a positive result.

Wed, 10/29/2014 - 07:06 | 5389074 buzzsaw99
buzzsaw99's picture

i might be outraged if it made any difference who won

Wed, 10/29/2014 - 07:19 | 5389092 GetZeeGold
GetZeeGold's picture

 

 

You obviously didn't attend this years Cremation of Care ceremony.

Wed, 10/29/2014 - 07:22 | 5389096 G.O.O.D
G.O.O.D's picture

+10000 ups.. no moar truth has ever been posted in the history of man and the tubes.

Wed, 10/29/2014 - 07:36 | 5389114 ThisIsBob
ThisIsBob's picture

Voting is bullshit.  We have been voting since 1776.  Look what we got.

Wed, 10/29/2014 - 07:40 | 5389118 LULZBank
LULZBank's picture

We have been discharging our responsibility for our actions since 1776, one election at a time.

Wed, 10/29/2014 - 07:51 | 5389135 GetZeeGold
GetZeeGold's picture

 

 

Yeah...we have a say...we just keep screwing it up.

 

Although I nust say we did pretty good with Eric Cantor.....there may be a sliver of hope yet.

 

So much for my invite to the GOP Christmas party.....looks like I'm not going.....again.

Wed, 10/29/2014 - 07:45 | 5389129 G.O.O.D
G.O.O.D's picture

shoulda had a revolution every generation like Jefferson said, now the fvkin parasites are so ingrained it will kill the host to get rid of them,

Wed, 10/29/2014 - 07:50 | 5389140 LULZBank
LULZBank's picture

Host will be dead, one way or another.

Wed, 10/29/2014 - 07:21 | 5389095 wmbz
wmbz's picture

Don't worry I am sure that rare beauty Jack Yellen will use her svelte tongue deftly. As she does on Jamies balls!

 

Wed, 10/29/2014 - 07:26 | 5389099 Kina
Kina's picture

Feel like a deer in the headlights. Arms full of AUD....but don't know which way to run... yes have some gold and silver.

Fri, 10/31/2014 - 09:17 | 5397889 Harry Balzak
Harry Balzak's picture

I'm right there with you; have no idea what move to make.  

Maybe now is time to get one of the remote bug-out properties I've been eyeing.  The paperwork will take awhile.  

RE prices are stupid, but they may not come down before said property becomes a necessity (which will probably be right around the time that fiat drops and PMs rise). 

Wed, 10/29/2014 - 07:28 | 5389103 new game
new game's picture

we have followed the money. we know where it goes. and we also should know if qe ends, nothing changes. the printed fiat will find cracks, roof entries, side and back doors. one way or another a "tool" will be employeed to get da printed fiat into the banks via bonds to fund the shortfall of the treasury to keep the failure of their policies intact. must print...

Wed, 10/29/2014 - 07:28 | 5389104 gmak
gmak's picture

Buy the rumour, sell the news.  I think that a stop limit short placed about 7 points above whever the E-mini is 15 minutes (gotta allow for front running) before the announcement with a cover at the price 15 minutes before, or a couple of points lower, might be a quick "thank you HTF drones" play.

Wed, 10/29/2014 - 07:28 | 5389105 SmallerGovNow2
SmallerGovNow2's picture

OT, probably too late, but a little ray of hope from the Drudge Report...

http://www.youtube.com/watch?v=BUSRZo1BE5o

Spread the word...

Wed, 10/29/2014 - 08:12 | 5389119 GetZeeGold
GetZeeGold's picture

 

 

Wanna watch a female white bread CSPAN host get punked by a 82 year old black grandmother? Can you accuse a black grandmother of being a racist?

 

http://www.youtube.com/watch?v=en6afOnpBNw&feature=player_embedded

Wed, 10/29/2014 - 07:30 | 5389108 muleskinner
muleskinner's picture

They're huffing paint and sniffing glue over at the fed reserve, so all is well.

Oh, the buzzards in the sky get so dizzy they can't fly just from sniffin' that good ol' mountain dew.

Them that refuse it are few.

Wed, 10/29/2014 - 07:42 | 5389124 AdvancingTime
AdvancingTime's picture

Maybe they will maybe they won't but one thing is clear regardless of what you call it the "Federal Reserve Nightmare" or the "Yellen conundrum", the box Ben Bernanke made when he painted both himself and the Federal Reserve in a corner remains. Bernanke has by passing the chairmanship to Yellen escaped from the QE trap but left the rest of us fully in its grasp.

With a policy of loose and cheap money  and an inflation target of just 2% the Federal Reserve  continues to please those gambling that not fighting the Fed guarantees profits. I wish someone would let the Fed know we have already passed their inflation target.

As many Americans are forced to pay higher food, gasoline, and health insurance premiums any thought that inflation is not higher has come from the false illusion brought from lower payments on things like auto loans and mortgages. This is a one off and will not continue. Trouble lurks ahead. More on this subject in the article below.

 http://brucewilds.blogspot.com/2014/06/exit-strategy-from-qe-remains-elusive.html

Wed, 10/29/2014 - 08:46 | 5389261 negative rates
negative rates's picture

Why don't you try and tell us something we don't already know.

Wed, 10/29/2014 - 08:42 | 5389246 eucalyptus
eucalyptus's picture

invested in only two things.

aapl (for 6 years) and gold.

Wed, 10/29/2014 - 10:38 | 5389622 Comte d'herblay
Comte d'herblay's picture

-10% is not a "flameout".    If anything sells for $100 and then sells for $90, that's maybe a decline, and considering the overall rise in the price of FACE over the last several months, it's a normal correction. 

 

Let's not use hype to label the declines that are long overdue. They are merely the signs of a 'market' trying to form around an inflated price. 

 

A flameout would have to be in  33% range, depending on the speed, and increase in price over the  IPO price. 

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