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Stocks, Futures Soar As Europe Joins Japan In Deflation, Surge Driven By Hopes For More Japan, ECB QE
Terrible economic news is wonderful news for markets, all over again, and with the worst S&P500 quarter since 2011 set to close today, some horribly "great" news is just what the window-dressing hedge funds, most of whom are deeply underperforming the broader market (not to mention Dennis Gartman) ordered.
Days after Japan returned to deflation for the first time since 2013, confirming Abenomics 1.0 was a failure (hence Abe's launch of Abenomics 2.0 which will be even worse)...
... and after reporting even more abysmal industrial production and retail sales data, which in turn prompted a bevy of banks to cut their Q3 GDP forecasts to negative (JPM now expected Q3 GDP of -1.0%) and unleash yet another technical recession for Japan, the fifth since the financial crisis, the Yen plunged following the latest round of loud, renewed calls for a boost to the BOJ QE, and JPM in fact made the October 30 BOJ meeting its base case for further central bank easing. Abe advisors Honda and Takenaka both confirmed more BOJ easing is just a matter of time, as a result pushing the USDJPY solidly above the market critical 120 level.
And then, just a few hours later, we got the latest inflation, or rather deflation, data out of Europe, where consensus hoping for an unchanged print was once again disappointed when the September CPI print came in negative once again on the back of a drop in commodity prices, confirming the latest inflationary impulse from the March launch of QE is officially over.
As a result of Europe's relapse into deflation, hours ago S&P announced that it believes the ECB will more than double its QE program from €1.1bn to €2.4 bn: "We believe the ECB will extend its QE program beyond September 2016, most likely until mid-2018, and that it could reach €2.4 trillion--more than twice the original €1.1 trillion commitment."
Nothing new here, just more people piling onto the more stimulus train before this too fail, and the now inevitable monetary paradrops begin.
Finally, jumping on board the "moar stimulus" train, was China which whose central bank and banking regulators just announced today that down payment requirement for first mortgage will be lowered from 30% to 25%, while additionally China would also cut in half the taxes on small car purchases in a bid to stimulate its sputtering auto market. How this latest attempt to reflate the previously burst housing bubble will help the proper allocation of capital is anyone's guess, but for now markets are loving this trifecta of "bad news is good news" from around the globe, even as such "hawks" as Bill Dudley and Janet Yellen are set to speak later today in the US.
Looking at markets it was blast off from the beginning entirely on the back of the diagonal move in the USDJPY: Asian equity markets traded mostly higher as they rebounded from yesterday's substantial declines. The Nikkei 225 (+2.7%) recovered from 8-month lows and yesterday's 4% slump, to return back above 17,000 as JPY softened, while the ASX 200 (+2.1%) was lifted by strength in large banks. Shanghai Comp. (+0.5%) was supported by gains in the auto sector, after China announced it is to halve taxes on small car purchases. JGBs tracked the losses seen in USTs on the last day of fiscal H1 trade amid gains in equities with investors side-lined until tomorrow's 10yr auction, while the BoJ entered the market to purchase JPY 1.18trl as expected.
Equities in Europe traded higher since the open (Euro Stoxx: +2.4%), largely in reaction to stock specific news flow, which in turn meant that Bunds traded lower, albeit marginally. Glencore (+11.0%) shares surged as it continued to reaffirm that it is financially sound, while VW (+2.7%) shares advanced in reaction to reports that China is to halve taxes in small car purchases, together with WSJ reports, which suggested that the company could avoid criminal prosecution. At the same time, shares of UK retailer Sainsbury's jumped over 10% after it said full-year profits were set to be better than expected.
Bonds are understandably weaker as T-Notes head into the pit open firmly in negative territory in line with the pickup in sentiment and strength in global equities , while over in Europe the latest LTRO auction saw ECB allot EUR 11.842bIn with 92 bidders and long end peripherals have outperformed after long end Bunds have lead the way lower throughout the European morning.
In commodities, softness in the metals complex has been observed in early European trade, weighed upon by a stronger USD with platinum set for its worst performing quarter in nearly seven years, on fears of falling demand from the VW scandal, while gold is set for its worst quarter in nearly a year as participants continue to look ahead to a Fed rate hike. Elsewhere Brent and WTI crude futures have pared back some of yesterday's losses after API crude oil inventories showed a build of 4600K (Prey. drawdown on 3700K), seeing the 2nd biggest weekly build in over 5 months.
In FX, month and quarter-end related flows proved supportive for the USD index, which in turn ensured that USD/JPY reclaimed 120.00 level, while EUR/USD was also weighed on by carry related flows amid better bid stocks, as well as lower EUR/GBP amid a large payment from the EU to UK farmers. Elsewhere, despite the mixed performance by energy and metals markets, commodity sensitive currencies rose, in part benefiting from the alleviation of fears regarding the future of the troubled mining and trading giant Glencore. While the upside by NZD was aided by comments from Westland Milk who lifted their 2016 forecast pay-out and said they see some signs of increasing demand and price recovery.
On today's US calendar, we have the Milwaukee ISM (expected to improve to 48.5), the Chicago Purchasing Managers index (expected to fall to 53) and the September ADP employment change number (expected in steady at 190k) to set us up nicely for Friday’s NFP number. We also have a fair amount of Fed speak with Dudley, Bullard and Yellen all scheduled to opine on things with the latter two due to make opening remarks at the Fed’s annual Community Banking conference.
* * *
Bulletin Headline Summary from Bloomberg and RanSquawk
- Month and quarter-end related flows support the USD to see USD/JPY break back above 120.00
- Equities in Europe trade higher since the open (Euro Stoxx: +2.4%), largely in reaction to stock specific news flow, which in turn meant that Bunds trade lower, albeit marginally
- Today sees the release of the latest US ADP employment change report, Chicago PMI and the weekly DOE inventories update as well as comments from Fed's Dudley, Yellen and Brainard
- Treasuries drop in overnight trading as equity markets see robust gains as ECB begins to debate expanding QE after consumer prices declined y/y.
- Glencore has recouped most of the losses from Monday’s 29 percent plunge as the shares rebounded for a second day on higher metal prices and speculation the stock is cheap
- Glencore is unlikely to lose access to its $15 billion of syndicated loans, even as liquidity concerns weigh on its stock and bond prices, according to Macquarie Group
- Chesapeake Energy is letting go of about one in six employees, the latest blow to a workforce that enjoyed boom years under shale wildcatter Aubrey McClendon and shrank since his departure as the natural gas producer grapples with a downturn
- A key gauge of wealth in Britain has risen above its pre- recession peak and workers are seeing their compensation grow at the fastest pace in eight years
- China cut the minimum down payment requirement for first- time homebuyers, stepping up support for the property market amid an economic slowdown
- Sovereign 10Y bond yields mostly higher. Asian and European stocks gain, U.S. equity-index futures gain. Crude oil drops, copper rises, gold lower
US Event Calendar
- 7:00am: MBA Mortgage Applications, Sept. 25 (prior 13.9%)
- 8:15am: ADP Employment Change, Sept., 190k (prior 190k)
- 9:00am: ISM Milwaukee, Sept., est. 48.5 (prior 47.67)
- 9:45am: Chicago Purchasing Manager, Sept., est. 53 (prior 54.4)
Central Banks
- 8:30am: Fed’s Dudley speaks in New York
- 3:00pm: Fed’s Yellen, Bullard speak in St. Louis
- 8:00pm: Fed’s Brainard speaks in St. Louis
DB's Jim Reid completes the overnight wrap
Its been an action packed last two weeks in markets and there's plenty to consider what with the Fed, VW, Glencore and a general uneasiness in markets all contributing to the risk off. I'll be trying to make some sense of it all in tomorrow's EMR with some comments so watch this space.
For now today ends what is likely to be one of the worst quarters for global risk for 4 years and at the moment we're all looking for the catalyst as to what brings this extended period of volatility and uncertainty to an end. Yesterday was a quieter day but despite there being little in the way of new news or headlines, the S&P 500 capped a 1.5% intraday range but finally snapped five days of consecutive losses and nudged into positive territory in the final minutes of trading, closing up a modest +0.12% after being supported by a rebound in healthcare names. That was after having traded between gains and losses over a dozen times during the session. Credit markets, or more specifically primary markets continue to be weighed down by the lack of stability with yesterday case in point after no deals were done in the Dollar market and up to six issuers were said to have stood down in the European session.
Volatility was the dominating feature for European equity markets as well and despite buyers re-emerging for Glencore and sending the stock soaring +17%, the Stoxx 600 failed to fully recover from an early 2% fall, eventually closing -0.69%. There were similar falls for other DM bourses but it’s the peripherals which are outperforming at the moment with the Spanish IBEX in particular having closed the session flat. VW tumbled another 4% but much of the focus in Germany was on a disappointing headline CPI, stoking the ECB stimulus fire some more.
More on that shortly, but refreshing our screens this morning, the risk tone is generally firmer in Asia as we prepare ourselves for quarter end. The Hang Seng, HSCEI and Shanghai Composite indices are up +1.4%, +2.4% and +0.7%, respectively as we go to print. The KOSPI (+0.3%) resumed its trading session with modest gains while interestingly the Nikkei (+2.6%) is doing well despite some weak industrial data. Japan’s industrial production fell unexpectedly (-0.5% mom v +1.0% expected) in August. Retail sales were also flat month-over-month versus consensus forecast of a 0.5% gain. The disappointing data perhaps strengthens the case for more policy stimulus in Japan. Turning to credit markets, new issuance activity in has been fairly muted in Asia which has been a trend for some time now given the uncertainties around EM Asia/China although it does seem that the onshore CNY bond market is offering Chinese corporate an alternative source of funding. Secondary credit spreads retraced some of the widening yesterday with Asia iTraxx and benchmark IG cash spreads around 3-5bps tighter as we type. The UST 10yr yield is a smidgen higher but still wrapped around the 2.06% area as we type.
Back to markets yesterday. The highlight of yesterday’s economic data was out of Germany where more energy-price related weakness resulted in the headline September CPI reading falling a greater than expected -0.2% mom (vs. -0.1% expected). That was enough to nudge down the annualized rate two-tenths to 0.0% (vs. +0.1% expected) while the harmonized rate dipped into negative territory at -0.2% yoy, heightening concerns for today’s Euro area inflation reading. Despite the softer than expected headline reading, our colleagues in Europe calculate the core print to have remained stable around +1.2% yoy, which is easily inside the tight band it has stayed in since 2012. ECB Governing Council member, Weidmann, speaking shortly after the data said that the ECB should ‘look through’ the energy-price swings on inflation, saying also that deflation fears are overstated and have instead dissipated. Its probably fair to say he is again not in an immediate rush to vote for more QE!
Away from this, Euro area consumer confidence was unchanged at the final reading for September as expected at -7.1. There was better news elsewhere however with better than expected indicator prints for economic (105.6 vs. 104.1 expected), business climate (0.34 vs. 0.21 expected), industrial (-2.2 vs. -3.8 expected) and services (12.4 vs. 10.0 expected) confidence. Meanwhile, over in the UK we saw mortgage approvals tick up 2k to 71k (vs. 69.8k expected) in August.
Over in the US, the highlight of the dataflow was the September consumer confidence reading which rose 1.7pts to 103.0 (vs. 96.8 expected), driven by the present situation index, and to the second-highest level in eight years. Elsewhere, the July S&P/Case Shiller house price index declined 0.2% mom in July after expectations for a slight rise of +0.1%. A downward revision to the previous month however saw the annualized rate nudge up slightly to +4.96% (vs. +5.15% expected). Meanwhile, speaking to the Nikkei, Cleveland Fed President Mester largely re-affirmed what we already knew in saying that the decision of the Fed to ‘not raise rates in September was really a decision about risk management’.
Looking to the day ahead and it looks set to be a busy one. In the UK we have the latest house price data (with the rate of appreciation expected to rise to +3.8% YoY), the latest consumer confidence (expected to fall) and the final read on Q2 GDP (no change expected). We have the latest CPI inflation from Italy (expected to fall to +0.3%) and the Euro area (expected to fall to 0%). The Euro area core inflation is expected to remain steady at +0.9%. We also have September unemployment from Germany (expected in steady at 6.4%), Italy (expected steady at 12%) and the Euro area (expected at 10.9%). We also have the August retail sales number from Germany (expected steady at +3.3%) and French consumer spending. Over in the US we have the Milwaukee ISM (expected to improve to 48.5), the Chicago Purchasing Managers index (expected to fall to 53) and the September ADP employment change number (expected in steady at 190k) to set us up nicely for Friday’s NFP number. We also have a fair amount of Fed speak with Dudley, Bullard and Yellen all scheduled to opine on things with the latter two due to make opening remarks at the Fed’s annual Community Banking conference.
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Futures Soar As Europe Joins Japan In Deflation
Ummm.....nevermind.
Keep waiting for silver to deflate to about $1.24/oz. Dump truck time then, baby
Phyz silver is already well over $20 with spot assuming you can get it. What makes you think that will ever change regardless of the paper price? Hmm.
Jonx, "assuming you can get it" ????
silver-0-plenty: Silver Eagles
In stock: http://www.providentmetals.com/2015-1-oz-american-silver-eagle-bullion-c... $20.80
In stock: http://cbmint.com/1-ounce-american-silver-eagle-random-date $19.00
In stock: http://www.jmbullion.com/2015-american-silver-eagle/ $20.29
In stock: http://www.apmex.com/category/22111/silver-eagles $22.19
10 oz bars for $15.70 an oz at Provident.
deflate to about $1.24/oz
If it goes to that.....I'd definitely hold out for zero.
Over the years I've known a lot of people that have done that.....of course none of them own any silver.
Old farts using the CBJ to rip off the kids.
Don't hold your breath, and don't expect this stock rally to grow legs. Just about every index in the Western world just bpunced off the August lows. It would have been unusual for them to just plunge on through wothout a stimulus greater than Glencore. Sell every top from here on.
Likely locations for tops are around 1920, 1929, 1946 and 1973
STFR! Turns out this game works both ways
With a >7,000 headcount in their main office, the ECB has not one employee authorized to press the "BUY" button on the DAX. Flush the ECB mandarin turd-apparatchniks down the toilet bowl, they are good for nuthin', I say nuthin'
Seems to be 2015.75
Come in, mister Armstrong??
Don't let the door hit you on the way out, mister Armstrong!
And don't trip over the forecaster..
Every forecaster his own adventure, I say.
You want the truth?
ZH does not know the truth.
Slow day at Huffpo?
You do realize you're free to go.....right?
grandad, you gonna give up some of your" truth"..big talker put it on the table...
I'll give him 10 minutes.....what the hell.
I'm practically giddy with excitement.....and I can't wait to hear it.
bound and determined to make September forgettable
BTFD works.
central bank dinosaurs flailing around in quicksand. do not approach lest ye die too.
In other news..numerous package bombs reported detonating in Chinese province..
http://www.scmp.com/news/china/society/article/1862823/multiple-explosio...
Wonder if the slowdown is beginning to cause a bit of restlessness.
"Terrible economic news is wonderful news for markets, all over again"
You can use this leed time and time again. QE, on and on. "They" will not stop, the solution is always the same.
If what you are doing is not getting the outcome you want, then keep right on doing it.
When "it" does blow up and it may be a long way down the road, you'll be able to see from Mars.
The definition of insanity is doing the same thing over and over again, and expecting a different result.
It's the joos ...
I had never seen so much MANIPULATION by algos and big guys than last few weeks. Way to go since it goes unpunished or with 10% fine...
S&P levitating since US close... perfectly normal
i think the algoz logic goes like this: well, if we can't regain 2000 on the s&p maybe we can hold 1900. try a little harder... it sure would help if yellen would get off her fat ass and say something bullish. oh well, if you want something done right...
Kocherlakota needs to oust Yellen. She is not fit for service, bith mentally and physically. What is it with Obama appointing geriatric women into power?
Buying 3:30 is on baby
USA
USA
USA
8 moar years
8 moar years!
.
.
.
The media headlines say the market "turmoil" is settling down. When the markets go down 2% in a day, it's turmoil. When they go up 2% in an hour, it is not turmoil--some sort of positive calm maybe?
Maybe the ridiculousness will end tomorrow.
You yourself dorathy, have the power to go back to Kansas, just click your heels 3 times, in the day light and make it happen.
So 1000 points up in the DOW
$10 up in WTI
$.50 up in RBOB
Is this quarter going to end with the mother of all window dressing? Wouldn't surprise me. Look what happened at the end of last month. $.30 up in wholesale gas in one day.
In several previous down years, it has been window dressing at the end of September and then the mother of all rushies for the door.
We shall see.
Sorry, failing to see how deflation helps companies post higher profits... which in turn makes the company worth more.
Or is this just another B/S mainstream media explanation for obvious manipulation.
What would elitists do if they could not lie, cheat, steal and defraud?
If they purchase at lower prices and sell for the same and replace equipment at lower cost, they make higher profits. Not that difficult ...
its good news for us who are long on gold..stack as much of the physical as possible while the CB's keep their jack boot on the paper price of the PM's...
www.teamramgold.com/about-us
Once again, I fail to see how gold helps unless you plan to use it for barter.
THEIR plan is for a global fully electronic currency for which they get to set the price, relative to everything else. Are you depending on their plan failing? It seems so.
Who says they will be able to do it in time? Time is running short. For them....
you really have no idea about the concept of money; medium of exchange; unit value of labour etc...
ok grandad, not sure I see how your truth is all that diff? what was it you where against on zh, not sure i see it.
Gramps: Gold is for carrying your wealth to the other side of this dying monetary system, AFTER a new currency is in place. Not before. Only barter it beforehand if you have no other choice. Otherwise, continue using the dying hyperinflating currency until it is no longer accepted.
End of month/quarter effect, bit of windowdressing. In my view, S&P500 still needs to retest Lower Lows, 1830 area, wave 5 down after which Highr Highs are likely.
http://tripstrading.com/2015/09/19/sp500-weekly-chart-2-or-5/
Not seeing it. But then again charting just charts the past actions of those who control the market with their money and pricing mechanisms. From their past actions, you then project what they are going to do based on previous past actions. Good plan... a parasitic living off of superior parasites.
Terrible economic news is wonderful news for markets
What means "markets"? The "markets" are the CBs, they are buying and a lot of people are selling.
So...Bad news is good news again?
The DOW will continue bouncing like a pair of unharnessed fun bags, and you know you want MOAR