This page has been archived and commenting is disabled.

BTFTripleD Algos Engage: Futures Rebound Following Third Japnese Recession

Tyler Durden's picture




 

Perhaps the biggest shock following last night's completely expected and very predictable (previewed here over a month ago) Japanese slide into triple- (actually make that quadruple) dip recession, is that it took the BTFTripleDip recession algos as long as they did to recover most of the overnight futures losses. Because after surging to 107 on a confused short squeeze kneejerk reaction, the USDJPY subsequently tumbled 150 pips to 105.50 as rationality briefly emerged, and the market wondered for a few brief hours if rewaring the destruction of one's economy is actually a prudent thing. Then, however, when European traders started walking into work, the now default USDJPY levitation on no volume came right back, and with that the correlation algo buying of E-mini futures, no doubt helped by the Bank of Japan itself taking advantage of the CME's ES liquidity rebate program. Because without confidence as expressed by the lowest and only common denominator left - global equities - there is nothing else.

Luckily, there was not if nothing on the plate in one after another Japanese press conference overnight, where we heard such brilliant pearls of Keynesian wisdowm as

  • AMARI: ABENOMICS HASN'T FAILED
  • HAMADA: CURRENT WEAK YEN IS PLUS OVERALL FOR JAPAN ECONOMY but...
  • HAMADA: JAPAN IMPORTERS MAY BE SUFFERING FROM WEAK YEN
  • SUGA: INVENTORIES, WEATHER, CONSUMER MINDSET CAUSED GDP FALL.
  • HONDA SAYS GOVT SHOULD DISCUSS STEPS TO SUPPORT ECONOMY:REUTERS. Uhm, what was govt discussing in past 2 years?
  • SUGA:ABE TO DECIDE ON ANY ECONOMIC MEASURES NEEDED AFTER RETURN. Is "quitting" one of them?
  • and HAMADA: NO NEED TO WORRY ABOUT FUTURE OF JAPAN FINANCES. True: the outcome is quite clear

In short: Abenomics has failed miserably, and the only question is if there will be a "shocking" defeat of Abe at the coming impromptu elections (which Goldman believes will take place on December 14), as the re-peat PM just can't wait to get the hell out, especially since he already used the "diarrhea" defense once...

In other news, the other greatly anticipated event overnight, the launch of the Chinese Stock Connect trading with Hong Kong was a dud: as Macquarie said "China Stock Connect trading volume "disappointing").

Most H.K. stocks in the connect declined, with China investors taking ~17% of the 10.5b yuan daily quota, according to Bloomberg data after the market close. Keep in mind, 80% of brokers in a survey expected Shanghai quota to be filled; 50% expected H.K. quota to be filled. Another result: Shanghai Composite Index -0.2%; HSCEI -1.9%, down most in 2 mos.; HSI -1.2%, down most in 5 weeks. Because nobody buys stocks as good as central banks.

As while most eyes were on the Nikkei during Asian hours, European equities opened firmly in the red in sympathy with the Nikkei 225 (-2.96%) which saw its largest decline since August. Heading into the North American open, European equities remain in the red albeit off their worst levels, with stocks seeing some reprieve after comments from PM Adviser Honda who said that a sales tax hike is out of the question and the Japanese economy may require a JPY 3 trillion stimulus package. Further negative sentiment has also stemmed from the fallout of the G20 summit over the weekend that saw Russian President Putin leave the meeting earlier due to confrontations with other members, although German Chancellor Merkel has said she will continue to engage in negotiations with the Russian leader. Fixed income products have largely tracked the movements seen in equities with Bunds firmly in the green albeit off their best levels amid the mild recovery in equities. More specifically, the short-sterling strip contract is trading higher by around 1-8 ticks following dovish rhetoric from BoE members Carney and Haldane, with tier 1 investment banks continuing to push back their expectations for a rate-hike by the BoE.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European equities feel the squeeze in-line with their Japanese counterparts as Japanese GDP falls well short of expectations.
  • EUR/USD faces further downside after ECB’s Mersch said unconventional measures could theoretically include buying state bonds or other assets such as gold, shares or ETFs, while GBP is also seen lower following increasingly dovish rhetoric from BoE members.
  • Looking ahead, attention turns towards US empire manufacturing and industrial production figures, as well as any comments from ECB’s Draghi, Coeure and Fed’s Evans.
  • Treasuries gain, led by long bonds, as Japan unexpectedly sank into recession, with 3Q GDP shrinking 1.6% vs est. +2.2%.
  • Japan Economy Minister Amari says PM Abe likely to make decision tomorrow on snap elections, sales tax delay, also says he sees high chance of economic package being needed
  • Abe says he’ll decide on sales tax increase after careful analysis, shouldn’t through away chance to end deflation; PM adviser Hamada says now isn’t best time to raise sales tax
  • China’s bad loans jumped by the most since 2005 in 3Q, fueling concern that a cooling economy will be further weakened as banks limit lending to avoid credit risks
  • Draghi will succeed in boosting the ECB’s balance sheet back toward EU3t ($3.75t ), though he’ll have to override some policy makers’ qualms on quantitative easing to do so, according to Bloomberg monthly survey
  • ECB’s Yves Mersch says ABS purchases to start this week; says balance-sheet expansion no end in itself
  • Putin warned he won’t allow rebels in eastern Ukraine to be defeated by government forces as EU ministers met to consider imposing more sanctions on the separatists
  • Russia sees no sign of political will in Iran and the U.S. to strike an agreement on the disputed Iranian nuclear program by the Nov. 24 deadline, the top Russian negotiator at the talks said
  • German Chancellor Angela Merkel said she has “very good German reasons” for convincing the U.K. to stay in the EU, saying the EU needs Britain’s dynamism and its broad global perspective.
  • Bank of England Governor Mark Carney and his chief economist, Andy Haldane, indicated they are focused on downside risks to inflation as the central bank emphasizes the reasons for keeping loose monetary policy
  • Sovereign yields mixed. Asian stocks fall, Nikkei -2.96%. European stocks, U.S. equity-index futures higher. Brent crude -1.2% to 78.47, gold and copper gain

US Event Calendar

  • 8:30am: Empire Manufacturing, Nov., est. 12.00 (prior 6.17)
  • 9:15am: Industrial Production, Oct., est. 0.2% (prior 1%)
  • Capacity Utilization, Oct., est. 79.3% (prior 79.3%)
  • Manufacturing (SIC) Production, Oct., est. 0.3% (prior 0.5%)

Central Banks

  • 9:00am: ECB’s Draghi speaks in Brussels
  • 10:00am: Fed’s Evans speaks in Chicago
  • 7:30pm: Reserve Bank of Australia releases Nov. minutes

FX

In FX markets, EUR/USD has been seen lower throughout the session amid the recovery in the USD, before being placed under further pressure and breaking below 1.2500 following comments from ECB’s Mersch who said unconventional measures could theoretically include buying state bonds or other assets such as gold, shares or ETFs. Elsewhere, GBP continues to get squeezed following further dovish rhetoric over the weekend from BoE’s Carney and Haldane with the latter saying he is watching “like a dove” for signs that expectations of very low inflation in Britain could become entrenched. USD/JPY has naturally been a key focus overnight after initially breaking above 117.00 for the first time since 17th Oct’07, before seeing an aggressive sell-off heading into the European open to break back below 116.00 on profit-taking and safe-haven flows. Thereafter, the pair has recovered off its lows amid continued hopes of further Japanese stimulus.

COMMODITIES

In the commodity complex, price action has largely been swayed by movements in the USD-index with Brent and WTI crude futures seen lower once again as global growth concerns continue to weigh on prices following the Japanese GDP release. More specifically, oil risk manager Nunan at Mitsubishi said the move to the downside has been exacerbated by yet ‘another bearish factor’. Bearish sentiment has also been enhanced by comments from West’s energy watchdog who said a quick return to high prices is unlikely. For precious metals, following the Japanese GDP release, spot gold managed to see some reprieve with prices supported by the subsequent safe-haven bid, while Iron ore futures saw steady overnight trade on expectations that Chinese steel mills will continue to replenish stockpiles after an output halt earlier this month.

* * *

DB's Jim Reid Concludes the overnight recap

It is a fairly busy week ahead. We'll review it in full at the end but perhaps the biggest headlines will come out of Japan where Abe may dissolve the lower house this week ahead of snap elections, with the BoJ also meeting one month on from their surprise and narrow 5-4 decision to increase asset purchases. As DB's James Malcolm pointed out over the weekend there is some evidence that Abe wasn't privy to the coordinated BoJ/GPIF action and perhaps wasn't appreciative of the pressure to go ahead with the sales tax that this move might have subtly encouraged. So will the BoJ be disappointed in the ever increasing likelihood of a delay to the sales tax and snap election? The likelihood of which has surely only been further enhanced this morning following a weak Q3 GDP print pushing Japan into a technical recession, the -0.4% qoq reading well below expectations of +0.5% for the quarter (-1.6% annualized versus +2.2% expected). The problems is that the longer the government leaves it to improve the fiscal situation the longer the BoJ's asset purchases might have to last and the more it’s possible that the market will think the BoJ actions increasingly amount to monetising the debt. So this week's decisions by Abe could have big implications further down the road and also shorter-term on the relationship between him and the BoJ.

Taking a quick look at price action in Asia this morning, markets are generally mixed with bourses reacting to the Japan data and the opening day of the Shanghai-Hong Kong Connect. This has generally dominated over headlines out of the G20 over the weekend with news that leaders have agreed to raise global growth by 2% over the next five years. With few details around the story, investors appear to be treating the news with caution although it’ll be interesting to see if we get any clarity around structural reforms associated with the plan. In terms of markets, the Nikkei is currently trading -2.7% whilst the Hang Seng and CSI 300 are -0.7% and +0.3% respectively. The latter boosted by a report in Bloomberg that Shanghai stock purchases through the link have exceeded Hong Kong buying by more than ten times over the first hour. This seems to have largely offset a reported increase in bad loans for China this morning, jumping by the most since 2005 in the third quarter to 776.9bn yuan. The JPY has recovered from the earlier weakness post the GDP print to now trade +0.58% stronger versus the Dollar.

Before we look at the rest of the day and week ahead, markets on Friday finished the week fairly subdued in the US with the S&P 500 virtually unchanged (+0.02%) on the day despite better than expected macro data, whilst 10y Treasuries closed 2bp lower and credit markets ended flat. In terms of data, the -1.3% mom import price index reading came ahead of the -1.5% mom expectations and marked the fourth consecutive monthly decline although this was somewhat influenced by lower oil prices and a rising dollar. Meanwhile the University of Michigan consumer confidence (89.4 vs. 87.5 expected) and business inventories (+0.3% mom vs. +0.2% mom) were other notable beats whilst the Dollar rallied following a strong retail sales print. The headline figure and ex. auto component were both a touch above consensus at +0.3% mom. Our US colleagues noted that the latter component was also revised up +0.2% in the previous month which should have the effect of contributing modestly to Q3 real GDP. The more material reading was the retail control figure which rose +0.5% in October along with a cumulative +0.3% revision in the previous month. This is a key input into GDP and our colleagues note that at the current level, retail control is +2.8% annualized compared to its Q3 average. Given low inflation this is consistent with real consumption growth well above last quarter’s +1.8% annualized reading. As mentioned the dollar rallied post the print, with the DXY index touching its highest level since June 2010 at 88.27, only to then settle lower later in trading closing -0.15% on the day. Away from the data releases we also had the usual Fedspeak, this time from Bullard who reiterated his forecast from his last statement of raising interest rates in the first quarter of next year, supported by rebounding inflation and strong jobs data. His comments a month ago about continuing with asset purchases seems to have been forgotten.

Closer to home, the Stoxx 600 was similarly subdued, closing -0.07% at the end of play. This was despite marginally better than expected GDP data out of the region with the overall Eurozone print +0.16% qoq, a tad above the +0.1% consensus. In terms of regions, Germany (+0.1% qoq) and Italy (-0.1% qoq) were in line with expectations whilst France surprised to the upside (+0.3% qoq vs. +0.2% expected). Our European colleagues noted that the print, similar to October PMI’s suggests that the growth outlook is stabilizing somewhat (albeit at low levels) following downward surprises in recent months. Elsewhere the HICP reading for the eurozone turned out to be fairly non-eventful with both the headline and core in line with consensus at +0.4% yoy and +0.7% yoy respectively.

Wrapping up the market moves on Friday, WTI and Brent pared back some of the losses over the week, climbing +2.17% and +2.48% respectively on the day with sentiment improved after Bloomberg reported that the slump in oil prices will force OPEC to act ahead of its meeting at the end of the month. WTI and Brent are currently trading -0.45% and -0.59% respectively this morning.

Looking at the day ahead, this morning looks like it’ll be fairly quiet with just trade data expected out of the Eurozone. This afternoon however, will likely be highlighted by Draghi’s quarterly testimony to the Committee on Economic and Monetary Affairs. Over in the US, industrial production, capacity utilization and empire manufacturing are the key releases for today.

In terms of the rest of the week ahead, we’ve got a fairly packed calendar in the US highlighted by the FOMC minutes on Wednesday and CPI print on Thursday. In terms of the former DB’s Joe LaVorgna notes that the minutes could potentially be a market-moving event given that the statement from that meeting was much more hawkish than what the market expected, whilst the Fed was also upbeat over comments around the economy and labour market. However we note that there was no mention to a stronger dollar or tightening financial conditions so conceivably these items could be mentioned in the minutes. With regards to the CPI reading, our US colleagues are expecting an energy related -0.1% decline in the headline and a housing related +0.2% increase in the core. Elsewhere tomorrow kicks-off with October property price data out of China - this comes after new home prices fell in all but one city in September so it’ll be interesting to see what the reading shows. We then follow this up with the ZEW survey in Germany and CPI and output prices out of the UK. In the US session we will be keeping an eye on the PPI print which we expect to continue to be depressed by lower energy costs whilst our US colleagues note to keep an eye on the healthcare component of the reading given it’s used to estimate the comparable component of the PCE deflator (the Fed’s preferred measure of inflation).

Later on Tuesday we will also get the homebuilders’ sentiment index out of the US. Away from the highlighted FOMC minutes on Wednesday, we will also get housing starts data of the US. Before all this in Asia we will be keeping an eye on developments out of the Japan, particularly with regards to Prime Minister Abe with the possible dissolving of the lower house potentially coming to fruition ahead of the well-publicised potential snap elections. Of course we will also have the results from the BoJ monetary policy statement. In the UK we will be casting a keen eye over the BoE monetary policy minutes. There’s no shortage of highlights on Thursday and we start the day in Asia with the November HSBC flash manufacturing PMI prints in China as well as machine tool orders out of Japan. We then follow this up with the ever important flash PMI’s out of Europe as well as consumer confidence and UK retail sales. Later in the day and on the other side of the pond, as well as the much anticipated CPI we will also be anticipating the Philadelphia Fed survey print, existing home sales and finally leading economic indicators, so certainly a lot for the market to digest.

Following a busy Thursday, the market will be perhaps be happy to hear that Friday is particularly data-light, with the main highlights being potentially comments out of the ECB’s Draghi and Nouy. We will also be getting our usual dose of Fedspeak with Dudley, Plosser, Williams and Mester due to speak at various points so there will certainly be enough to keep the market busy.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 11/17/2014 - 07:57 | 5456579 Headbanger
Headbanger's picture

"ABENOMICS HASN'T FAILED"

Please do not worry..

The check's in the mail

And other well known lies...

Mon, 11/17/2014 - 08:34 | 5456635 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

As long as the Japanese cronies stay in power Abenomics has not failed. Average Joe Jap, tough luck. Don't forget that.

Mon, 11/17/2014 - 09:21 | 5456740 Bloppy
Bloppy's picture

100% UNsurprising

 

PC madness: comet genius attacked for wearing 'kinky' shirt during press conference

http://tinyurl.com/pxt867f

Mon, 11/17/2014 - 07:59 | 5456585 SickDollar
SickDollar's picture

Print more fucken money, after all it is FIAT currency, hence paper

 

Mon, 11/17/2014 - 08:07 | 5456592 GetZeeGold
GetZeeGold's picture

 

 

Jonathan Gruber approves this message.

Mon, 11/17/2014 - 08:08 | 5456594 Headbanger
Headbanger's picture

I bet he's found "suicided" soon.

That POS..

Mon, 11/17/2014 - 08:13 | 5456600 GetZeeGold
GetZeeGold's picture

 

 

In a perfect world.

Mon, 11/17/2014 - 07:59 | 5456586 Racer
Racer's picture

Today's farce of a 'market' is plain to see

Mon, 11/17/2014 - 08:07 | 5456593 WTFUD
WTFUD's picture

Honey Boo Boo's sister marries Kim Kardashian's driver.

Never last he's been in jail and she's far too classy for him.
( now this is what the sheeple want; REALITY MAN!!! )

Oh well back to chanting

Krishna Hare Hare Hare Hare Krishna Krishna Hare . . .

Mon, 11/17/2014 - 08:12 | 5456598 dannyboy
dannyboy's picture

Check the numbers here Tyler, abit off. 117 down 150 pips not 107. That entire line needs editing lol.

Mon, 11/17/2014 - 08:31 | 5456632 negative rates
negative rates's picture

They would say they did it just to see if you were paying attention and move on.

Mon, 11/17/2014 - 08:38 | 5456645 konputa
konputa's picture

But hey, what's +/- an order of magnitude among friends?

Mon, 11/17/2014 - 08:14 | 5456602 huggy_in_london
huggy_in_london's picture

"the USDJPY subsequently tumbled 150 pips to 105.50 as rationality briefly emerged"

Huh?  "Rationality" would imply the yen weaken if growth were poor, so a move higher in USDJPY is exactly what I would have expected.

Mon, 11/17/2014 - 08:13 | 5456603 ...out of space
...out of space's picture

ECB’s Mersch who said unconventional measures could theoretically include buying state bonds or other assets such as gold, shares or ETFs.

 

who is gonna sell gold to ecb?

Mon, 11/17/2014 - 08:18 | 5456606 ukspreads
ukspreads's picture

An opening print tomorrow below 16533 and further falls throughout the day is what I would like to see, creating a bearish island gap and revesral of that ridiculous one day rise on October 31st

Mon, 11/17/2014 - 08:24 | 5456621 NoDebt
NoDebt's picture

Maybe.  I'm just glad that the US stock market has permanently decoupled from the rest of the world.  Not our economy, but our stock market.

Mon, 11/17/2014 - 10:28 | 5456948 silverer
silverer's picture

I'm sure many ZH readers have de-coupled from the stock market, period.

Mon, 11/17/2014 - 08:16 | 5456607 ukspreads
ukspreads's picture

An opening print tomorrow below 16533 and further falls throughout the day is what I would like to see, creating a bearish island gap and reveral of that ridiculous one day rise on October 31st

Mon, 11/17/2014 - 08:15 | 5456609 Ewtman
Mon, 11/17/2014 - 08:31 | 5456631 ebworthen
ebworthen's picture

Banks buying Treasuries with free money from the back door with implicit guarantees that they will be made whole and never prosecuted for any crimes.

The corporatocracy buying back their own stocks instead of investing in R&D or employees.

It's all green and good for the 1% and the .gov mandarins.

Mon, 11/17/2014 - 08:34 | 5456638 Its_the_economy...
Its_the_economy_stupid's picture

when your out of ideas, do waht you always do

Mon, 11/17/2014 - 08:43 | 5456652 vegas
vegas's picture

They've been in a recession for over 25 years, notwithstanding government "cook-the-books" data releases showing otherwise; there simply is no legitimate business data anymore. Everything is Orwell's 1984 with manipulation of markets the norm. When this world shit eventually explodes [as it must] don't be in front of the fan.

 

www.traderzoo.mobi

Mon, 11/17/2014 - 08:52 | 5456668 Keltner Channel Surf
Keltner Channel Surf's picture

Wow -- SO many acronyms to keep track of.

Silly me, I assumed BTFTD was for when you forgot to send your wife flowers on her birthday . . .

Mon, 11/17/2014 - 09:32 | 5456767 Brazen Heist
Brazen Heist's picture

AMARI: ABENOMICS HASN'T FAILED

No, its just warming up.

Mon, 11/17/2014 - 09:32 | 5456768 Brazen Heist
Brazen Heist's picture

.

Mon, 11/17/2014 - 09:56 | 5456835 jubber
jubber's picture

European futures now all green from red,ftsemib has bounced 400 Dax 150 ibex 200 CAC 70 on nothing, Dow up 70 from overnight Nikkei lows

Mon, 11/17/2014 - 10:26 | 5456943 silverer
silverer's picture

Isn't this kind of like placing bets on a horse race after it started, and your pick collapsed on the track before you ran to the window?

Mon, 11/17/2014 - 10:41 | 5456998 MaximilianConti
MaximilianConti's picture

What these people are doing is not keynesianism. But neo keynesianism. He did not think that the government should just pump money into the financial markets, but to also build long term national projects, like infrastructure. He absolutley did not think that the government should pump in both boom and bust times but should save up money during the boom times to spend in the bust times.

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