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Markets Drift Without Direction As Zombified BTFDers Unable To Frontrun Hawkish Fed
With markets still digesting the surprising FOMC announcement, which was far more hawkish than most expected, and which once again saw right through the crude weakness and interpreted it as "favorable for households" if saying nothing about investment linkages to this most financialized of commodities, this morning has seen more of the same, with the Nikkei sliding on JPY strength despite the BOJ's clear mini-intervention in the market through its favorite commercial banks buying USJDPY early in the session and moments ago as the pre-US open ramp begins, and even as the Shanghai Composite - now detached completely from everything but investor leverage - once again dipped by 1.3% on fears of a more serious crackdown on margin accounts. In Europe all eyes are still on Greece with the curve now massively inverted, as the 10Y continues to drift wider than 10% even as the Athens Stock Exchange has found a bit of a dead cat bounce this morning and is up just over 3%.
The bottom line is that unfortunately for the BTFDers, with the Fed no longer giving explicit buy signals with the "considerable time" language struck, and with an implicit economic upgrade suggesting a rate hike is still on the table, it is becoming increasingly more difficult to frontrun the Fed's "wealth creation" intentions.
More details from RanSquawk:
Asian equity markets mostly fell after following suit from a second consecutive negative Wall Street close after yesterday’s slightly hawkish FOMC rate meeting. The Nikkei 225 (-1.06%) fluctuated between gains and losses underpinned by weakness in JPY, while Chinese bourses fell for a third day as China’s CRSC launched a new margin trading probe on 46 brokerages. Consequently, the Shanghai Comp (-1.31%) fell to a 1-week low while the 50DMA crossed above the 100DMA in the Hang Seng (-1.07%), for the first time since May’14.
Today’s European session has seen equities open in negative territory, but pared some of these moves throughout the session, after some disappointing earnings pre market, specifically from Shell (RDSA LN), which consequently weighed on competitors BP (BP/ LN) and Total (FP FP). However, as has been the case over the last few days, market participants will be keenly watching todays US corporate earnings, with the likes of Alibaba (BABA) and ConocoPhillips (COP) due to report ahead of the opening bell and Google (GOOGL), Amazon (AMZN) and Visa (V) aftermarket.
The other factor weighing on European indices today is last night’s FOMC meeting, whereby the Fed removed their `considerable time` phrasing in what was interpreted as a less dovish than expected announcement, with Fed watcher Hilsenrath stating that the Fed keeping their `patience` phrase suggesting that rates will not rise before June at the earliest.
Elsewhere, Gilts outperform its German counterpart after BoE’s Carney stated aftermarket that interest rate hikes will be more gradual than the central bank anticipated at this stage last year. Meanwhile, the GR/GE 10y spread remains in focus after yesterday’s moves, wider today by around 50 bps in the wake of S&P changing Greece’s sovereign rating outlook to `watch negative` from `stable`, with the rating maintained at `B`. Note, this move comes ahead of a scheduled meeting between EU’s Dijsselbloem and SYRIZA’s Tsipras in Athens on Friday.
In FX, antipodean currencies have been in focus as AUD continues its downtrend from the Asian session where attention was still on the dovish article by RBA watcher McCrann, with market now pricing a high probability of a rate cut at the next scheduled meeting on 3rd February, with AUD/USD breaking below 0.7800 to trade at 5 and a half year lows. While NZD has been weighed on by yesterday’s dovish RBNZ policy meeting, where the central bank abandoned its tightening bias to trade at 4 year lows.
Elsewhere, EUR/CHF and USD/CHF have moved to intraday highs with CHF weakness evident across the board; EUR/CHF trades just off highs hit on Tuesday at 1.0383 which was hit in the midst of talk that the SNB were intervening in the market. Looking ahead, later today sees German CPI data, after we have seen all German states report a fall from previous month’s CPI. As well as this, out of the US today we have Weekly Jobs data and Pending Home Sales.
Gold has been the underperformer in the precious metals complex today in response to FOMC inspired USD strength seen during Asia-Pac hours. In the energy complex, both WTI and Brent have seen a slight uptick this morning after WTI crude futures closed last night’s session at the lowest level since early 2009 as crude stockpiles rose above 400mln bbls for the first time in over 30 years.
In summary: European shares are mixed, after paring earlier declines, with the oil & gas and financial services sectors underperforming and food & beverage, personal & household outperforming. Companies including Royal Dutch Shell, Deutsche Bank, Diageo, Infineon, Nokia and Sandvik released earnings/trading statements. Greek stocks rise after 3 sessions of losses, Greek bond yields continue rise. Turkish lira falls to new record against the dollar. The U.K. and Swedish markets are the worst-performing larger bourses, the Swiss the best. The euro is stronger against the dollar. German 10yr bond yields fall; U.K. 10-year gilt yield drops to record low. Commodities decline, with silver, copper underperforming and Brent crude outperforming. U.S. jobless claims, pending home sales due later.
Market Wrap:
- S&P 500 futures up 0.5% to 2000.75
- Stoxx 600 up 0.04% to 369.2
- US 10Yr yield up 1bps to 1.73%
- German 10Yr yield down 2bps to 0.34%
- MSCI Asia Pacific down 1.4% to 140.4
- Gold spot down 0.9% to $1272.4/oz
- Euro up 0.27% to $1.1318
- Dollar Index up 0.1% to 94.56
- Italian 10Yr yield up 3bps to 1.62%
- Spanish 10Yr yield up 3bps to 1.47%
- French 10Yr yield up 1bps to 0.58%
- S&P GSCI Index down 0.4% to 375.2
- Brent Futures up 0.5% to $48.7/bbl, WTI Futures down 0.3% to $44.3/bbl
- LME 3m Copper down 2.3% to $5359/MT
- LME 3m Nickel down 1.7% to $14790/MT
- Wheat futures down 0.6% to 502 USd/bu
Bulletin Headline Summary From RanSquawk and Bloomberg
- Antipodean currencies trade at multi year lows after the dovish article by RBA watcher McCrann and the prospect of a dovish RBA next week continues to be priced into the currency, while the RBNZ abandoned their tightening bias.
- Today’s European session has seen equities open in negative territory but ebb higher throughout the European morining in the wake of a less dovish than expected announcement from FOMC and some weaker than expected earnings pre market, specifically from Shell (RDSA LN).
- Looking ahead, later today sees German CPI data, as well as Weekly Jobs data and Pending Home Sales from the US, with Alibaba (BABA) and ConocoPhillips (COP) due to report ahead of the opening bell and Google (GOOGL), Amazon (AMZN) and Visa (V) aftermarket.
- Treasuries steady, headed for biggest weekly gain in more than three years after Fed added “international developments” to items used to assess progress toward employment and inflation objectives.
- While Yellen says history and theory suggest wages will pick up as job market tightens, investors have their doubts, expecting inflation will run well below the Fed’s target for the next decade
- U.K. gilt yields fell to a record as Bank of England’s Carney said inflation is likely to turn negative for a period, adding to speculation rates will stay at a record low for longer
- Investors gave their verdict on the new Greek government, selling the country’s stocks and bonds in a signal to Prime Minister Alexis Tsipras of the price he will pay for sticking to promises to end austerity
- ECB Executive Board member Benoit Coeure said it is “not an urgent issue” to discuss how long quantitative easing will last, because “it will be assessed based on a range of indicators, including inflation expectations”
- Economic sentiment in the euro area rose for the first time in three months after the ECB committed to spend at least EU1.1t on fueling growth and inflation
- Sovereign yields mostly lower, Greece 10Y surges 44bps to 10.78% Portugal, Spain and Italy also higher. Asian stocks mostly lower; European stocks fall, U.S. equity-index futures gain. Brent, WTI and gold lower; copper gains
US Economic Data
- 8:30am: Initial Jobless Claims, Jan. 24, est. 300k (prior 307k)
- Continuing Claims, Jan. 17, est. 2.405m (prior 2.443m)
- 9:45am: Bloomberg Consumer Comfort, Jan. 25 (prior 44.7)
- 10:00am: Pending Home Sales m/m, Dec., est. 0.5% (prior 0.8%)
- Pending Home Sales y/y, Dec., est. 10.8% (prior 1.7%)
- 10:00am: ISM Seasonal Adjustments
We conclude with DB's Jim Reid summarizing all the major overnight events
So today is 1 AD (1 week after Draghi) and its interesting to see which major assets have been impacted most by the move so far. Using the Thursday pre-announcement levels and the closing prices from yesterday the Stoxx 600, DAX and CAC have rallied +2.81%, +3.90% and +2.44% respectively. Despite the weakness yesterday in peripherals, the IBEX (+0.28%) and FTSE MIB (+1.07%) are also in positive territory whilst on the flip side equity markets in the US are lower with the S&P 500 (-1.49%) and Dow (-2.08%) both down – not helped by a weaker session yesterday which we’ll touch upon later. So its been a good week for one of our trades for 2015 - namely European equities over US. This does seem to be creating more attention of late but we don't think its becoming consensus positioning wise yet. In fixed income, 10y yields in Germany (-23bps), France (-17bps), Spain (-12bps) and Italy (-12bps) have rallied hard since the announcement. Treasuries (-22bps) have also performed strongly although softer US data has helped. Crossover to some surprise is largely unchanged although yesterdays moves wiped a lot of the gains. The Euro, meanwhile, is nearly 3% weaker versus the Dollar and Gold -0.2% softer.
The clear outlier to all this is Greece and yesterday’s 9.24% decline in the ASE means that Greek equities are now over 15% down from pre-election levels. Yesterday’s sharp leg lower was once again led by steep falls for the banks (-26.2%) after a report on Bloomberg that bank deposit outflows stood at over €14bn in the run-up to the Greek election, €11bn of which came out in January alone. The last reported total Greek bank deposits was said to stand at around €164bn in November according to Moodys.
Recent announcements by the new government to block privatizations of assets which had previously been agreed under the bailout package - starting with the Piraeus Port - is only adding tension to the relationship between the Syriza-led coalition and the Eurozone. A Reuters article yesterday also noted that the new government is looking at plans to reinstate public sector employees and announce increased pensions for those on low incomes. Germany’s economy minister Gabriel was quoted in another Reuters article saying that ‘if Greece wants to deviate from some of these measures, it must bear the cost itself rather than exporting this to other European countries via a haircut or other such ideas’. Gabriel was also critical of the announced blocks to privatizations of assets, specifically saying that ‘citizens of other euro states have a right to see that the deals linked to their acts of solidarity are upheld’. Meanwhile PM Tsipras yesterday declared that Greece would look to seek a solution with creditors, but refused to back down from its pre-election pledge. Specially the Prime Minister was quoted on Bloomberg as saying that ‘there will neither be a catastrophic clash, nor will continued kowtowing be accepted’ before going on to say that the new government ‘will not be forgiven’ in reference to going back on its word on renegotiating the bailout terms.
Greek 10y yields closed 86bps wider yesterday and 3y yields finished 270bps wider at 16.73% - the highest since 2012. Meanwhile the 5y CDS is now implying a 70% probability of default within 5 years for the sovereign, not helped by S&P yesterday announcing that it was placing Greece’s credit rating on credit watch negative. Clearly the situation is becoming more and more fragile each day with the banking sector in particular being hardest hit at this point. With the ELA facility currently under bi-weekly review and the relationship between Greece, the Euro-area and Troika coming under more pressure as the government goes against earlier bailout terms, all eyes will be on Athens’ meeting with the Eurogroup tomorrow and if we get any clues or progress towards the end of February funding deadline in particular. For this to seriously impact global markets it does have to spread to other peripherals. With the ECB about to be big buyers the news has to be pretty bad for this to occur. Although yesterday saw some weakness, as we showed earlier these countries are still lower in yield over the past week due to the ECB impact outweighing Greek political concerns.
Away from Greece yesterday the day’s other focus was the release of the FOMC January statement. In a nutshell the comments painted further improvement in both the economy and labour market however highlighted that inflation had declined further and reiterated patience around raising rates – specifically noting that the move will be data dependent. With regards to the former, the Fed changed language around job gains from ‘solid’ to ‘strong’ and suggested that the economy has expanded at a ‘solid’ pace having previously suggested a ‘moderate’ pace. On the inflation front language changes included inflation ‘declining further’ below target from ‘continued to run’ and the addition of ‘inflation is anticipated to decline further in the near term’. The FOMC also changed the language around market-based inflation measures by moving from declining ‘somewhat further’ to ‘substantially’. Also of some interest was the addition of ‘international developments’ in the text – highlighting no doubt the recent ECB QE move and tensions around Greece. So an upgraded assessment of the economy but perhaps a slightly more dovish inflation picture. The ‘patience’ language means a March/April hike is very unlikely although mid-year is still in the picture, however their acknowledgement of ‘international developments’ is interesting. As regular readers know we still think this gets pushed back further as the Fed struggles to hike in a global easing environment.
Indeed yesterday we highlighted that 9 Central Bank have eased policy this year. However we've subsequently learnt there are actually 13. Here is the full list: Singapore, Europe, Switzerland, Denmark, Canada, India, Turkey, Egypt, Romania, Peru, Albania, Uzbekistan and Pakistan. Given that the ECB covers 19 countries you could actually say its 31 countries. On the other hand we think 5 countries have tightened monetary policy including Brazil, Armenia, Krygyzstan, Mongolia and Belarus. Overnight the RBNZ kept rates on hold although attention in the Asia-Pacific region will move to the RBA decision next week.
In terms of market reaction to the Fed, equities closed weaker yesterday with the bulk of the losses coming post the statement release. Indeed, the S&P 500 (-1.35%) and Dow (-1.13%) finished in the red for the second successive day. With the softer tone there was a firm bid for Treasuries. Yields on the 10y benchmark ended the day 10.2bps tighter at 1.721%, closing just above the January 15th lows. 30y yields meanwhile dropped 10.9bps to close at a new record low (2.291%). In fact an early gain for equities was also pared back by further weakness for energy stocks (-3.87%). Both WTI (-3.85%) and Brent (-2.28%) took a sharp leg lower to $44.45/bbl and $48.47/bbl respectively after the latest EIA report showed US crude inventories increasing 8.9m barrels last week to the highest on record.
Just wrapping up yesterday’s market moves, the Stoxx 600 closed +0.10% supported by a +0.78% strengthening for the Dax. The FTSE MIB (-0.81%) and IBEX (-1.34%) both weakened whilst 10y peripheral yields were anywhere from 5bps to 14bps wider after the negativity in Greece. The Euro weakened post FOMC to pare back the bulk of Tuesday’s gains and finish 0.83% lower versus the Dollar at $1.129. Data took a backseat with just consumer confidence data out of Germany (9.3 vs. 9.1 expected) and France (90 vs. 91 expected).
In terms of markets in Asia this morning, bourses are generally following the lead from the US and trading lower as we type. Indeed the Nikkei (-1.20%), Hang Seng (-1.17%), Kospi (-0.54%) and Shanghai composite (-0.86%) are all weaker. Chinese equities in particular have pared some of the earlier weakness after reports on Reuters that the regulator may launch a fresh review into margin lending in the region.
In terms of today’s calendar, focus this morning will likely be on the Euro-area with various confidence indicators due for January including consumer, services and economic prints as well as money supply data. German CPI will also be a highlight as well as unemployment data for the nation. Spanish retail sales will also be worth keeping an eye on. It’s fairly quiet in the US this afternoon with just initial jobless claims (market looking for 300k) and pending home sales due out although 50 S&P 500 companies are due to report. Tomorrow we shift our attention to another payroll report.
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I saw Mr. Yellen wink twice about 70 seconds in. That is the new buy signal. Make note of it.
What markets are you watching.
DAX + 130 DOW +65.... That's not what I would call "drifting without direction"
what market ?? we still have a market
I....see....dead....bankers.
I do too
I see a quadruple Evel Knievel formation forming.
I see a death valley welcome to rehab sign.
Not a good day to quit drinking scotch.
As always, it starts when London opens, cough cough BoE-NY Fed intervenes
IT'S A TRAP!
CHF, AUD, JPY all getting crushed to levitate equities. Good luck!
ukspreads
What markets are you watching?
Stock markets are not real market. Stop this delusion.
Stock markets are NO more real than religions. That’s all.
Believe in both nonsense’s at your own peril.
Fuck Yellen
this is all you need to know : https://www.youtube.com/watch?x-yt-cl=85027636&x-yt-ts=1422503916&v=Sriu...
All i can say is WOW , after watching the video
They may not know what to do, but I sure do. To borrow from Henry The Sixth:
"First thing we do, lets kill all the bankers."
Actually, during the presidential election runs, historically, prices across the board mysteriously fall, especially oil & gold (which surges before the campaign runs begin), till about mid year, and till late year for other things (especially commodities), then prices begin their climb back to the top again.
Check historical charts, you will see that 2015 is set to be a historical year of buying at the bottom value investing.
Music is playing in Europe right now, especially DAX. Trade accordingly
Not to worry, we'll open above 2000 on the ES and it'll be up, up, up from there.
EDIT: HOLY SHIT! We may actually see the ES down today, CU was pushed below 2.4550
No more Head Start program for financiers?
Yellon should be sued for emotional damage.
So it's OK now to openly talk about the market falling because the whole way up was only because the Fed had the priting presses cranked up? We can say that in polite non-ZH company now?
I don't mind talking about this stuff on ZH, but when ZH themes start showing up in the accepted mainstream I kinda get freaked out.
DAX new ATH until end of the week, From here it is only gonna get more expensive!
OMG...you mean....investors will actually have to pick which companies' stocks to buy on.....GASP....fundamentals and earnings?
I'm shocked, SHOCKED, I tell you !!!
Trying to think of a useful analogy to describe the situation but they're all rubbish. I'll have a go anyway: It looks like this jumbo jet of a "market" full of parasitic passengers who have benefitted from the ride, is approaching stall speed. There is no more juice forthcoming from Yellen, all the other jets are running out of fuel and in imminent danger of getting hit by greek bird strikes. Furthermore, Yellen says she might pull back on the joystick later, increasing the likelihood of stalling the jumbo uncontrollably.
I have the feeling that there are a lot of very wealthy and powerful people who will want Tsipras sleeping with the fishes very soon.
Like the metaphors and double entendres.
As for the "Tsipras sleeping with the fishes" reference, that might be an Archduke Ferdinand moment.
Meh... Men getting paid 6 figures to lose other men's money.
Gold failed 1300 as expected. THe Fed never has shit for gold. Now the stocks are all under their 200 dma as is the HUI after failing to punch through. Gold is just above it's 200dma but it's getting no help in $. The ROW may be buying gold but they are buying $ even more and with oil as low as it is, watch gold sink like a stone now. No inflation and no reason to own gold either for that matter or stocks. After all, if oil is so easy to get out of the ground and it's so cheap, it can't cost much to get gold out either and just look at the storage situation with gold, we are swimming in the stuff, it's indestructible, it just keeps piling up, it should be zero by now.
It should be zero but i'm complaining that it aint 1300, what would I be doing at zero? Perhaps digging a hole for myself to lie in??
I think the crazy Bullard ramp may have scared the Fed, making them wonder if a non-voter can launch a rocket, what will actual tightening, if needed, do? So, a one-year advance notice starts.
Like a 6th-grader with a 100 MPH fastball, they underestimate their own strength, but overestimate their level of control.
All "bad things" must eventually come to and end!
http://www.telegraph.co.uk/finance/economics/11358316/Central-bank-prophet-fears-QE-warfare-pushing-world-financial-system-out-of-control.html
Mr. William White said Quantitative Easing (QE) is a disguised form of competitive devaluation. "The Japanese are now doing it as well but nobody can complain because the US started it," he said.
"There is a significant risk that this is going to end badly because the Bank of Japan is funding 40pc of all government spending. This could end in high inflation, perhaps even hyperinflation.
"The emerging markets got on the bandwagon by resisting upward pressure on their currencies and building up enormous foreign exchange reserves. The wrinkle this time is that corporations in these countries - especially in Asia and Latin America - have borrowed $6 trillion in US dollars, often through offshore centres. That is going to create a huge currency mismatch problem as US rates rise and the dollar goes back up."
Mr. White's warnings are ominous. He acquired great authority in his long years at the BIS arguing that global central banks were falling into a trap by holding real rates too low in the 1990s, effectively stealing growth from the future through "intertemporal" effects.
He argues that this created a treacherous dynamic. The authorities kept having to push rates lower with the trough of each cycle, building up ever greater imbalances, in an ineluctable descent to the "zero bound", where monetary levers stop working properly.
Under his guidance, the BIS annual reports over the three years before the Lehman crisis were a rising crescendo of alarm calls at a time when other global watchdogs were asleep. His legendary report in June 2008 openly discussed whether the world was on the cusp of events that might prove as dangerous and intractable as the Great Depression, as it indeed it was.
Mr White said central banks have been put in an invidious position, compelled to respond to a deep economic disorder that is beyond their power. The latest victim is the Swiss National Bank, which was effectively crushed last week by greater global forces as it tried to repel safe-haven flows into the franc. The SNB was damned whatever it tried to do. "The only choice they had was to take a blow to the left cheek, or to the right cheek," he said.
He deplores the rush to QE as an "unthinking fashion". Those who argue that the US and the UK are growing faster than Europe because they carried out QE early are confusing "correlation with causality". The Anglo-Saxon pioneers have yet to pay the price. "It ain't over until the fat lady sings. There are serious side-effects building up and we don't know what will happen when they try to reverse what they have done."
The painful irony is that central banks may have brought about exactly what they most feared by trying to keep growth buoyant at all costs, he argues, and not allowing productivity gains to drive down prices gently as occurred in episodes of the 19th century. "They have created so much debt that they may have turned a good deflation into a bad deflation after all."
You know better than any other, MY MAIN MAN, it's all but over, for these CRIMINALS!...
did i say turn out the lights?...YES!