Overnight Summary: All Eyes On The Central Printer

Tyler Durden's picture

While this and that may have happened overnight, the only thing that matters today is what the FOMC presents to a market which has now priced in well over 100% of a new easing round. Except little movement until Bernanke speaks, and with that removes any doubt that i) the Fed, like the ECB, are both political creations comprised of unelected academics, and ii) the entire modern capitalist world is nothing but a Pavlovian creation that responds only to promises of liquidity injections. Luckily, if nothing else, this will once and for all shut up anyone who claims that the market reflects the economy, it doesn't; that a "virtuous economic cycle" is possible under the new centrally planned normal, it isn't, and that the US economy is recovering 4 years after Lehman collapsed. It never did, and without $14 trillion in central bank liquidity injections over the same period, the world, as represented by the S&P, would be in a mindblowing depression, which it will still get back to once the surge in hard asset inflation offsets any incremental liquidity provided by the central planning academics as Citi warned yesterday.

As to the "this and that" here is a summary of key events from DB's Jim Reid:

Briefly recapping the events of yesterday, in what German Chancellor Angela Merkel described as a “good day for Germany and a good day for Europe”. The German Constitutional Court dismissed six constitutional complaints against the ratification of the ESM and the fiscal compact. However the court did impose a EU190bn cap on Germany's liability which cannot be increased without German legislative approval. In addition, the German court explicitly ruled out the ESM borrowing from the ECB. Following the ruling, a German ministry spokesperson said that the German government will move to sign the ESM into German law "within the next few weeks" and EU President Juncker said that he will convene an inaugural ESM meeting on October 8th in Luxembourg.


Across the border in the Netherlands, Bloomberg is reporting that PM Mark Rutte’s Liberal Party has taken 41 out of the 150 seats in the lower house (up from 31 in the outgoing parliament). They narrowly edged out the Labour Party who won 39 seats (up from 30). D66 rose to 12 from 10, the Christian Democrats lost eight seats to 13, while the anti-euro Freedom Party lost nine seats to 15. According to Reuters, the most likely scenario at this stage is a left-right coalition between the two centrist parties in the 150-seat lower house, which would be a positive development for markets.


The reaction from markets was broadly supportive. The S&P500 closed up 0.2% with seven out of ten sectors trading up. The Stoxx 600 index rallied 1.5% on the news of the ESM ruling, but faded into the close to finish 0.3% higher on the day. Notably, the Stoxx 600 closed at levels last seen in July 2011. Italy's MIB (+1.2%) and Spain's IBEX (+0.8%) outperformed yesterday. Spanish 10-yr yields rallied 8bps, while Italian 10yr BTPS were 5bp lower. Italian 10yr BTP yields closed just above the 5% mark. EURUSD rallied 0.9% after the German court's ruling, finishing 0.35% higher on the day, a four-month peak.


Credit markets have virtually unwound all the volatility that picked up beginning last summer post the US rating downgrade and European sovereign issues. Yesterday, the Xover (490bp) and Subordinated Financials (320bp) indices closed at the lowest levels since late July 2011; while iTraxx Main (124.5bp) and Senior Financials (198bp) indices closed at the lowest levels since March 2012. Staying in credit, it was a busy day for USD new credit issues yesterday. The day saw the market absorb $4.8bn in new paper bringing week to date supply to just over $30bn.


In other European headlines, the European Commission unveiled its proposals for Eurozone bank regulations and ultimately, a banking union. The core aspects of the proposal include a single rulebook in the form of capital requirements, harmonized deposit protection schemes, and a single European recovery and resolution framework. The ECB will be tasked with ultimate responsibility of the financial stability of banks, while national supervisors will play a role in implementation and day-to-day monitoring. German Finance Minister Schauble reiterated his doubts that the ECB has the capacity to supervise all 6000 banks in the Eurozone. In his State of the Union speech, European Commission's President Barroso said that the EU needs to move towards a federation of nation states and will publish plans to deepen the economic and monetary union later this year.


Greece's finance minister Stournaras said talks with the Troika are continuing with around half of the targeted EU11.5bn in budget cuts signed off (ekathmerini). Newswires are reporting that the next Greece aid tranche will be decided on at the EU summit on October 18th. Stournaras and the Troika will fly to Cyprus today to provide an update to the Eurogroup.


According to Bloomberg, Greece has identified 40 uninhabited islands that could be leased for as long as 50 years to reduce debt. In Spain, PM Rajoy said that a full sovereign bailout is not needed and he will monitor bond yields in coming days to determine the appropriate course of action. Finally, China’s envoy to the EU said that the country will step up its cooperation with the EFSF through investment in the bailout fund’s bonds and will also reach out to the ESM.


Moving to overnight markets, Asian markets are trading with a mixed tone led by the Nikkei (+0.4%) and Hang Seng (+0.2%). Chinese equities are underperforming (Shanghai Composite -0.2%) despite new government measures announced yesterday to provide tax and fiscal support to exporters. State-owned Xinhua news agency said in a commentary that “massive stimulus” measures would be “detrimental” to sustainable growth which is likely weighing on sentiment. Korean equities are also underperforming following the Bank of Korea’s surprising decision to leave rates unchanged at 3%. Asian credit is weaker overnight, with the IG index 3bp wider as we type.


Looking at the day ahead, aside from the FOMC meeting and Bernanke’s press conference, we get the usual Thursday US jobless claims in addition to the August PPI print and monthly budget statement. While in Europe, Italian CPI and Greek unemployment will be the main data releases. But all eyes will be on the Chairman today.

Finally, some thoughts from Reid on the world's now admitted addiction to liquidity:

Firstly I think its still fair to say that the financial world remains addicted to liquidity and can't prosper without it. Whether that be periodic Chinese stimulus or hints thereof, hope of fresh action from the Fed, the ECBs LTROs and now the new OMT facility. To be fair to the authorities they have  so far come good in the market's hours of need. We've long been of the opinion that the Fed would do QE, QE2, QE3, QE4 etc etc so whilst the timing is debatable the end game seems more certain to us. As for timing its strange that one volatile jobs report can tip the balance of market probabilities in favour of 100s of extra billions of future dollar liquidity injections but that seems to be where consensus is after last Friday.


DB's view has also tipped slightly in favour of at least announcing another QE program today on top of an extension of the initial rate hike projection to 2015 or even further into the future. Verbal easing is widely expected but DB’s Peter Hooper thinks whether or not we get another dose of QE is a more finely balanced call to make. There are a number of options if fresh QE was announced. As Peter highlights, the Fed may repeat its past practice and announce a fixed amount of bonds to be purchased over a specific period (say another $600bn over next 12 months) focusing on USTs or MBS. The other choice is to announce an adjustable and open ended programme which the Fed could start with a smaller  amount of purchases per month but keep its options open to buy more if economic and financial conditions took a turn for the worse or do less if things improved.


This seems to be the more likely to us as it continues to satisfy the market’s appetite for more liquidity going whilst retaining some flexibility and ammunition. So all eyes on the announcement at 12:30pm and Bernanke’s press conference at 2:15pm (NY time).

Indeed, the only thing that matters now, as we first said well over 3 years ago, is what the Fed does.

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LongSoupLine's picture

Calling it Pavlovian at this stage is an insult to dogs.

firstdivision's picture

What's worse, equating the market to a dog, or being dog in bath salt county Florida

Zgangsta's picture

I'd say being a dog in Korea.

I think I need to buy a gun's picture

does anyone care? Maybe they will care at $9.99 gas

achmachat's picture

i am paying 7.5 USD per gallon here in Europe right now... and I do care.

uhlmant's picture

its 1.70 Euro a liter here in Germany...that is $8.37 a gallon

JPM Hater001's picture

For those who havent traveled abroad here are a few transportation observations:

1) Amerstdam has a lot of fucking bike...a lot

2) Paris has a lot of motor scooters

3) Roads in Ireland tend to trail off into paths and then end in the middle of nowhere.

4) Rent a small car...It aint America over there.

Precious's picture

Newbody cares what gas costs when you have the Intersnoot and a 7-11.  Little reason to leave the house or neighborhood.

Techflation rocks in the USSA thanks to the gooroos and wyzards in DC.  We are living in the age of youtopia.

NewThor's picture

Speaking of dogs,

The Bernanke shall jawbone until December

or a correction.

No QE3 today.

greensnacks's picture

Why are so many reporting / expecting the Fed to do more for the US than the ECB has committed to doing for the rest of Europe?

stocktivity's picture

The only thing that matters is these assholes can keep printing. This won't be the last QE. You can expect the jawboning on QE4 to begin by next spring or summer and start the whole hopium process going again.  It's all Bullshit!!!

firstdivision's picture

I pray for another LSAP or flat out QE.  Not becuase it will help the economy, but because it will help end the farce of a system even quicker.  Let's hope for another $2.4T in QE is announced.

On another note, don't know how they will justify anything with it being a) an election year where the feds programs are viewed as ineffective and only helping the top earners, and b) with commodities sitting at the current levels. 

fonzannoon's picture

I pray Bernanke does nothing, trips himself up, and the world finally sees he is a limp dick at best.


becky quick and her beautiful mouth's picture

amen, just burn this fucker down already.

malikai's picture

Personally, I am shocked. SHOCKED I say! That the policies of the oligarchy has only further enriched the oligarchy.

Who would have known?

Zgangsta's picture

What's the worry?  So long as everyone is willing to believe the lie, everything will be fine.

People have believed in God for thousands of years now, so how hard can that be?

firstdivision's picture

They'll just move operations to South Africaaaaahhh..nevermind.

Howdan's picture

Surely the printers must have run out of ink by now?!

Personally I think the "sheeple" are pricing in too much expectation of QE3 - If you listen to what The Bernank has actually said in past Fed meetings then you could get the impression that he isn't as willing to embark on QE3 as a lot of people think.

I'm on the sidelines but would be more skewed to taking a short position in this market for the "unexpected" event risk of there being no QE3 announcement today (ahead of the US election and with DOW / S&P 500 / Oil etc all back up at multi-month highs.

Remember when Gold plunged over $100/oz from $1800 to below $1700 in February this year (around 29th) when Bernank said no  more printing (apart from Op Twist) ?

I'm just trying to be an "independent thinker" as the legend Ray Dalio of Bridgewater advises.

fonzannoon's picture

There will be a point, hopefully soon, where this site (I hope) decides to not give any more exposure to Bernanke. Besides, what, going forward will have a bigger impact on gold prices..Bernanke, or a continent of miners becoming defiant?

kalum's picture

Bernanke is a frigging maniac. Our enemy within.

Cunnial's picture

Fuck CenTRL-Planning!

TPTB's picture

Hahahaha More dollars in my pocket!

bigdumbnugly's picture

Finally, some thoughts from Reid on the world's now admitted addiction to liquidity:


well, the first step is admitting it i guess.    but i was anticipating 11 more steps here.

Sudden Debt's picture

I don't think they'll do anything.

first they need to raise the debt ceiling.


disabledvet's picture

In essence the Tylers Durden have been correct...save for one "minor" detail. The way to solve a debt problem is not with more debt but with more WAR. THAT has been the solution. Witness no less than the Secretary of Treasury basically "going to war with Tehran." Amazing! This is a MASSIVE war machine...those in DC "waiting for their protection money" before they exit stage left OR right are simply Waiting in Vain i might add.http://www.youtube.com/watch?v=G6NNGVHrqho

Cursive's picture

The Fed is the Market, but not the economy.  Governments also lift markets and goose the economy but we have reached debt saturation.  NO New QE today.

orangedrinkandchips's picture

So the piece with Insana and Schiff is priceless! Seriously, it is one for the archives and B-SCHOOLS EVERYWHERE......for generations to come....


Ronny seems to think the Fed MUST do something, anything, over and over. It's their job, mandate etc.....we need it.

Peter seems to think the Fed must BACK THE FUCK UP and let the chips fall where they may....in what TEXTBOOKS CALL 'CAPITALISM'. No such thing in the real world....ever. And YOU GET TO PAY THOSE STUDENT LOANS BACK INTO YOUR 40s FOR LEARNING OBSOLETE BULLSHIT IN YOUR 20s!!!!!


I digress obviously, but Peter and I think so much alike on the topic.

EBB AND FLOW....it's how the tides are thanks to the moon and you know what, Muther Nature is the epitome of a well oiled machine. It's the poster-child of efficiency. The fact that the Fed feels they must somehow fight nature and synthetically avoid any downturn whatsoever is absurd to say the least.


MAN v. NATURE......ill back up the truck on Nature everytime personally.....thats what is scary when Ben tries to take it on himself.

Quinvarius's picture

Insana lost that one merely because he asked for the Fed to do something.  Schiff knows the government needs to get out of the way.  It is the difference between a useless failed hack and a real economist.

Papasmurf's picture

They are both salesmen. 

TheCanadianAustrian's picture

Not everyone is motivated by small, short-term profits. Peter wants to be known as a prophet and a visionary once we enter The World Economy: TNG.

Floodmaster's picture

Central banks: AAPL bugs best friend

Quinvarius's picture

The dropped rates when 9/11 happened.  What are they going to do now that we are being thrown out of every Arab country in the Middle East via embassy storming?  I expect massive money printing to prop up the banks.  I am not sure if they will announce it though.

MiltonFriedmansNightmare's picture

Yes, the printing will now occur in a stealth mode.

DosZap's picture

Yes, the printing will now occur in a stealth mode.

It has been for many months, why do you think the metals are not up were they should be?.$2k, and $50.00.

Learned their lesson..........keep it on the QT, and what the sheeple do not know, will not affect the markets.

eddiebe's picture

As long as the sheep are willing to be sheared without stampeding and storming the house, why not keep handing out more feed to the top. Who knows maybe a few scraps will trickle down.

jplotinus's picture

I wonder if QE, leading to higher oil and therefore higher fuel prices, will lead to release of strategic reserve oil? And, will rest of the world sit idly by and accept the unintended consequences?

I don't think this is going to end well...

Bogdog's picture

A QE announcement today coming on the heals of the latest ECB printing promise leads me to think both USD and EUR are in a race to the bottom. But there are no winners here except the usual suspects. Which further leads me to believe that the new reserve currencies will be 7.62x39 and 5.56. Good luck toting around your wheelbarrow full of physical gold.

Jstanley011's picture

PTB1: "It's time now, Bob."

BEN (Gulps.): "But they'll hang it on me."

PTB2: "We told you to stay in the background."

BEN (Loosens his tie.): "How much do you want me to pull?"

PTB1 (Hands BEN a folded-over piece of paper.)

BEN (Absentmindedly rubs his neck as he reads and rereads it. Beads of sweat break out on his forhead. He looks up, first at PTB2, then at PTB1, and back. His mouth is moving but no words are coming out)...

crusty curmudgeon's picture

I predict some QE will be announced...all is well on this planned road to recovery, of course, but a little more easing will help.  The debt ceiling won't be a problem with (more) war on the horizon.

“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it.The first lesson of politics is to disregard the first lesson of economics.” —Thomas Sowell

JackT's picture

Even if the FED does nothing the dogs will sit and wait on the porch. There is nowhere else to go.

RobinHood73's picture

 THE ORWELLIAN NIGHTMARE IS IN FULL SWING. Our indicators (aka the s&p 500) now rule us, enslave and impoverish us at the hands of the banking cartel. Pegging the indicator (the s&p 500, AAPL)  as the fed has ,has cost our society TRILLIONS of generational wealth. The balance sheet will NEVER be fully, let alone partially unwound.How can it? A single reverse-repo would drive the market limit-offer in about 15 secs as was tested during the "mystery" FLASH CRASH of 2010.   The fed has made gaming the thermometer its priorty in dealing with adverse weather . We are run by the most dangerous dictatorship: morons with degrees from fancy universities.


common_sense's picture

Printer sponsored by HP. Never fails!