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Overnight Sentiment: Leave It All To The Fed

Tyler Durden's picture


News may come, and news may go, but the fiscal policy implementation vehicle known as the market, and now controlled by the Political Reserve don't care. For those who do, here is what has happened in the past few hours and what is on deck for the remainder of the week.

From DB's Jim Reid:

The risk tone in Asian equities is mostly softer overnight led by underperformance in China. The Shanghai Composite and the Shenzhen Composite benchmarks are down 1.3% and 1.7% respectively. Ongoing concerns about China’s slowdown and escalating tensions with Japan are probably weighing on sentiment. Chinese Vice President Xi Jinping re-appeared in public after a two week absence which may have helped put to bed some of the health speculations but there is plenty of focus on the transition as we navigate towards October. Elsewhere in Asia credit spreads tighten further as demand for spread products continue to rise on the back of the Fed’s latest liquidity policies. The Asia IG and Australia iTraxx indices are 3bp tighter as we type.

Recapping Friday’s move, the QE3 announcement underpinned the backdrop for a solid session for risk. The S&P500 added 0.4% even though economic data flow was mixed. Headline retail sales were marginally ahead of expectations (+0.9%mom vs +0.8%) but the core print was weak. IP (-1.2% v 0.0%) was below market consensus with broad based weakness in the detail. Headline CPI came broadly in line (+1.7% yoy) with consensus helped by the strongest monthly gain in energy prices (+5.6%) since June 2009.

Indeed energy prices have had a good run recently with Brent (+0.67%) up for the 7th consecutive day to $116.6/bbl on Friday. Brent and is now nearly 30% above the lows in June. Gold (+0.2%) edged higher to $1770/oz while the S&P GSCI index finished the week 2.6% higher. We’ve noted in earlier research how previous episodes of QE have triggered one of the strongest rallies in commodity prices coupled with one of the weakest nominal GDP recoveries through history so this is certainly a trend to watch again as we welcome another bout of liquidity.

Continuing on this theme but moving on to fixed income, long term inflation expectations were also on the rise last week as US 10yr breakevens rose 27bps to 264bp – the highest since April 2011. Nominal yields backed higher across the board led by longer-dated  bonds. The 2yr, 5yr, 10yr and 30yr yield rose +2bp, +7bp , +14bp and +16bp on Friday to close at 0.250%, 0.713%, 1.866% and 3.088% respectively. In corporate credit the US primary market ended the week just under $33bn across 31 transactions which puts last week as the second largest issuance week this year.

Also helping sentiment on Friday were a number of developments from the ECOFIN meeting in Cyprus. Spain told the ECONFIN meeting that it will set deadlines for structural reforms which will be announced on Sept 28th, the same the day as the 2013 budget is published and results of stress tests of Spanish banks will be made public. An EU official was also quoted as having said that this move was a precursor to formally requesting EU aid which will likely be in the form of a "precautionary credit line" from the ESM rather than a full bailout.

Spanish 10yr bond yields closed 15bp wider on Friday (5.727%). Greece was also high on the agenda in Cyprus. IMF’s Lagarde said that Greece may get more time to reach fiscal targets under its current bailout program, saying that an extension "needs to be considered as an option". Juncker said the troika must take a decision by the end of October on how to revise the Greek programme and said there was no question of Greece leaving the euro zone.

In other European headlines, Monti and Merkel issued a joint statement saying that the past week was "very positive for Europe", likely referring to the German constitutional court's decision, Dutch elections and what they referred to as a growing "awareness of the European public that solutions to the current financial crisis should emerge from more intense European cooperation". On the topic of bank supervision, French, Belgian and Italian officials continued their calls for rapid progress on ECB central bank supervision the finance ministers from Germany, Sweden, the Netherlands and Poland are still against certain aspects of the EU’s proposals. Interestingly over the weekend Schaeuble criticised Buba’s Weidmann for his public opposition to the OMT.

With major policy meetings now out of the way, the focus for the remainder of the week should return to economic fundamentals and dataflow. In the US, manufacturing and housing will be the main focus. Key data include the Empire State Manufacturing report today followed by housing starts, building permits and existing home sales on Wednesday. The Markit US PMI Preliminary and the Philly Fed survey are due on Thursday. We also have several Fed speak throughout the week. Bellwether Fedex’s Q1 earnings tomorrow should be  interesting. Meanwhile, it will be a relatively data-light week in the EU but the focus will probably be the Euroland, German and French flash PMIs on Thursday. That aside we get euroland trade data for July today, the German ZEW survey and UK retail sales tomorrow followed by the BoE minutes on Wednesday. Data side ECB’s Nowotny and Coene will speak at separate events today on the topic of challenges facing the euro-area. French finance minister Moscovici is also due to speak at the LSE on the outlook for French policy.The Dutch 2013 budget is due for submission to the new parliament for approval tomorrow. In Asia, all eyes will be on HSBC's flash manufacturing PMI for China on Thursday. Events wise Chinese Premier Wen will meet EU’s Van Rompuy Barroso in Brussels on Thursday.

And, to follow, a summary recap of this week's key events via GS:

Monday 17 September

  • India: RBI meeting. Consensus and we expect rates to remain unchanged at 8% and 7%. The RBI will consider the impact of a  less-than-normal monsoon on food prices in the next few months. Liquidity conditions have eased considerably, and with the announcement of QE3 by the Fed on Thursday, can be expected to ease further. Therefore, we do not see any reason for the RBI to inject further liquidity into the system through changes in cash reserve requirements.
  • Also of interest: Korean department store sales, Philippines remittances, Euro area balance of payments, US Empire survey

Tuesday 18 September

  • Australia RBA minutes: While we do not sense that a rate cut was seriously entertained at the last meeting (which kept rates unchanged at 3.5%), it will be interesting to see if the central bank flags a meaningfully heightened concern about the consequences of recent falls in bulk commodity prices and/or the peak in the investment cycle. In addition, we will be trying to gauge from the Minutes whether the RBA feels that its earlier rate cuts have gained sufficient traction on demand and sentiment.
  • UK CPI (Aug): Consensus expects a reading of 2.5%yoy after 2.6% previously.
  • US Current Account (Q2): The Bloomberg consensus expects a narrowing of the deficit to US$127bn from US$137bn previously, as do  we. We will also be paying attention to the US BBoP. It has been in persistent deficit, a situation which we expect to continue and this is a key underpinning of our dollar bearish views.
  • US TIC data (Jul): The data will provide the latest evidence of foreign appetite for US assets. Foreign buying of USTs has been strong, but appetite for other assets has been relatively weak. In addition, US investors have been repatriating small amounts of foreign assets.
  • Also of Interest: India CPI

Wednesday 19 September

  • Malaysia CPI (Aug): The Bloomberg consensus and we expect an unchanged print of 1.4%.
  • BoJ Meeting: Will they react to QE3 and the recent appreciation of the yen? At this point we think they will keep policy unchanged.
  • Sweden: Riksbank minutes.
  • UK: BoE minutes.
  • Also of Interest: NZ Balance of Payments, Philippines Balance of Payments.

Thursday 20 September

  • China: HSBC Flash PMI (Sep). Last reading was 47.6.
  • New Zealand Q2 GDP: The Bloomberg consensus expects a rise of 0.4%, which is a slower growth rate than the 1.1% in Q1. We expect a rise of 0.3%qoq.
  • Taiwan Monetary Policy Meeting: The Bloomberg consensus expects rates to remain on hold at 1.875%. The bank faces the task of navigating between very weak exports and high inflation.
  • Taiwan Export Orders.
  • Euro area Flash PMIs (Sep): The Bloomberg consensus expects a rise to 45.5 from 45.1 on the manufacturing index and a rise to 48.5 from 48.3 on the services index.
  • UK Retail Sales (Aug): The Bloomberg consensus expects a rise to 3%yoy from 2.8%yoy.
  • US Philadelphia Fed survey (Sep): The Bloomberg consensus expects a rise to -3.3 from -7.1. We expect a slightly higher rise to -2.0.
  • Also of interest: Japan trade balance (Aug), Swiss trade balance.

Friday 21 September

  • Euroarea: Spanish PM Rajoy and Italy's Monti scheduled to meet in Rome.
  • Canada CPI (Aug): The Bloomberg consensus expects an unchanged reading of 1.3%yoy.

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Mon, 09/17/2012 - 06:55 | 2802542 GetZeeGold
GetZeeGold's picture




Overnight Sentiment: Leave It All To The Fed


We're paying those guys damn good money......why should we work at night?

Mon, 09/17/2012 - 06:57 | 2802544 william shatner
william shatner's picture

When are we expected to hit the debt ceiling?

Mon, 09/17/2012 - 07:00 | 2802546 GetZeeGold
GetZeeGold's picture



You must mean again.....fixed it for you.


Mon, 09/17/2012 - 07:35 | 2802569 xtop23
xtop23's picture

...... and again, and again, and again. Now it's fixed.

Mon, 09/17/2012 - 07:19 | 2802562 SilverDOG
SilverDOG's picture

Every GodDAMN day Captain.

Every dollar printed at warp speed Captain.


Mon, 09/17/2012 - 06:58 | 2802545 bullionbaron
bullionbaron's picture

With perpetual QE there is nothing left to front run. Speculators will buy Gold in increasing quantities sending it parabolic:

Mon, 09/17/2012 - 07:25 | 2802565 Snidley Whipsnae
Snidley Whipsnae's picture

A parabolic move upward in PMs may not have a rosy outcome for those of us that have invested in PMs.

I believe that a steady increase in PMs, priced in all fiat currencies, would be a better outcome for us.

Making all fiat currencies look very weak compared to PMs (which they are) is more likely to cause soverign govs to place control or confiscation of PMs high on their list of priorities... not what we want.

I can see the appeal of 'get rich quick, buy PMs' as an approach to investing. It is appealing to all of us but it's not what will be in our best interest if we wish to avoid confiscation/control by soverign govs.

I see no problem with a ~ 15% compounding investment in a commodity with NO counterparty risk... excepting the risk of soverign intervention in our investments. Off the radar is a good thing and waving a red flag in front of a pissed off soverign by a hand full of investors that made the correct move is not a good idea.

BTW, I began my 'retirement plan' in 1968 so I am not new to this topic... I am not more savvy than others here but I do have some experience in this arena.

Good luck to all of us.

Mon, 09/17/2012 - 07:35 | 2802570 bullionbaron
bullionbaron's picture

I agree Snidley Whipsnae, the rise in price of Gold and Silver will probably bring about unwanted attention. I would love to see a situation where I could continue to add to my stack in a consistent fashion with the price rising enough each year to beat the returns on most other investments, but not enough to catch the attention of governments. However, I think at some point we are going to see a larger number of investors start to flood into the metals and the market is simply not ready to cope with the extra demand... even last year when speculators bought into the April 2011 peak we had many Mints struggling to keep up with demand.

Mon, 09/17/2012 - 09:49 | 2802966 Bananamerican
Bananamerican's picture

"the rise in price of Gold and Silver will probably bring about unwanted attention."

yeah, they might even start manipulating PM prices...who knows?   pfft

as to confiscation, any moves in that direction tell you the end is near.... for the confiscating fiat system

Mon, 09/17/2012 - 07:41 | 2802575 xtop23
xtop23's picture

A good post and I hope for the same. I think more than likely a dash into metals is unavoidable at some point. The resulting parabolic move higher will happen whether we would prefer "steady wins the race" or not.

Mon, 09/17/2012 - 07:48 | 2802595 KickIce
KickIce's picture

There's a reason why the IRS is buying bullets.

Mon, 09/17/2012 - 07:05 | 2802547 Al Gorerhythm
Al Gorerhythm's picture

Hey William S. When do we reach the debt ceiling? Last year.

When a debt ceiling is creating a problem, just like a growing family, you just add an extra floor. Problem solved. Never ending growth.

Mon, 09/17/2012 - 07:03 | 2802549 Zero Govt
Zero Govt's picture

"Leave It All To The Fed"

Bernanke couldn't change a lightbulb


Mon, 09/17/2012 - 07:04 | 2802551 GetZeeGold
GetZeeGold's picture



Bernanke couldn't change a lightbulb


True....but he can write a pretty damn big check to have someone else do it.



Mon, 09/17/2012 - 07:08 | 2802552 Bobbyrib
Bobbyrib's picture

He didn't have to work for it, what does he care?

Mon, 09/17/2012 - 07:10 | 2802555 GetZeeGold
GetZeeGold's picture



If we can't get it free.....we can always print it.



Mon, 09/17/2012 - 07:02 | 2802550 KickIce
KickIce's picture

Algo logic

If any headline eqauls more QE then disregard all other headlines

Mon, 09/17/2012 - 07:10 | 2802554 Sheeple Shepard
Sheeple Shepard's picture

Euroarea: Spanish PM Rajoy and Italy's Monti scheduled to meet in Rome.


That mutual handjob must really be starting to chafe by now.  

Mon, 09/17/2012 - 07:11 | 2802557 fonzannoon
fonzannoon's picture

So that's it? Slow calm crack up boom from here?

Mon, 09/17/2012 - 07:11 | 2802556 buzzsaw99
buzzsaw99's picture

all the financial news out of europe reads the same. blah blah blah.

Mon, 09/17/2012 - 07:14 | 2802558 GetZeeGold
GetZeeGold's picture



You almost scared me there for a second.


Mon, 09/17/2012 - 07:16 | 2802559 SilverDOG
SilverDOG's picture

I don't need no stinking FED.

Keep Stacking

Mon, 09/17/2012 - 07:18 | 2802561 HD
HD's picture

I'm surprised how high short interest has remained - you would think QE forever would cause it to implode to record lows.

Seems there are a few that think October may prove interesting.

Mon, 09/17/2012 - 07:24 | 2802564 Glass Steagall
Glass Steagall's picture


"Is this Ben?"

"This is he."

"Fuck you!"


Mon, 09/17/2012 - 07:38 | 2802571 GetZeeGold
GetZeeGold's picture





"Is the Glass?"


Don't make me call the TSA!

Mon, 09/17/2012 - 07:50 | 2802599 Mark Wilson
Mark Wilson's picture



"Political Reserve"

Well, that didn't take long.



Mon, 09/17/2012 - 08:05 | 2802621 new game
new game's picture


gubmnt stealing pm, g&a, land and your liberty-history repeats and you are living thru it.

ever wondered what it was like in the 30's in germany when the insane leaders printed to pay

off debts from ww1 and ongoing spending? well here we are - all are being told it will be all good.

ready for the power vacuum upon us as 2013 unfolds and turmoil is a daily finom. yes the next leaders

will truely be looking out for your intersts! history is a bitch, bitcheez...nowhere to hide, so decide which

side of the fence to be on > liberty or poverty/serfdom...

Mon, 09/17/2012 - 09:03 | 2802790 Vince Clortho
Vince Clortho's picture

Will China engage in regional conflict to solve their economic issues?

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