Despite 'market-based' appearances (CAC near price highs and OATs near low spreads), the reality in France is dismal and growing more dismal. As we have explained in great detail (here and here most recently) France's economic fortunes are depression-like and today's Jobseeker data merely goes to confirm this. The total number of Gallic Jobseekers rose to 3.26 million, the highest ever on record and is accelerating at its fastest YoY rate in over three years. This month's gain of 39,800 was far above the 30,000 expectation but have no fear as Mr. Hollande promises to do whatever it takes. Interestingly, just as in the US, it is the young (under-25 +10,800) and middle-aged (25-49 +21,400) demographic that is suffering the most while the over-50 population saw only modest rises in joblessness. No green shoots here for the EU political elite to proclaim the crisis is behind us...
Those who recall about the implicit housing subsidy we discussed when we coined the term "foreclosure stuffing" which is merely the well-planned systemic bottleneck to clearing foreclosed properties already in the system, and thus artificially reduce housing supply will be happy to learn that according to RealtyTrac the average time for a foreclosed property to sell just hit a record at nearly 400 days across the entire nation.
With both the Real Estate and Banking equity indices in Japan already in bear markets (down over 20% from recent highs) and the broad indices down over 15%, just how much pain can the massive influx of foreign capital take before the exodus really takes hold. Today's 'news' of the GPIF's allocation shift won't be enough to stem the tide as 'foreigners' (who have flooded on an epic scale into Japanese stocks) step away to the next hot-money focus... this won't end well.
S&P 500 futures are up a healthy 9 points seemingly on the basis that bad-is-good and EUR or JPY are driving correlating-algos. But, it's not just the equity market that is 'Up' - VIX (the hedging vehicle) is 'Up'... Treasury bonds (the anti-risk vehicle) are 'Up'... and Swiss short-dated bonds (the EU safe-haven) are 'Up'... all makes perfect sense to someone we are sure.
It appears that the USD is no longer the cleanest dirty shirt - but precious metals, perhaps? And amid all this chaos in fiat and non-fiat currency markets, equities and bonds remain somewhat stoic. This is the biggest 2-day drop in the USD in 19 months. These are chaotic movements in colossal markets (that dwarf equity market capitalization) - but of course, none of that matters.
Deteriorating economic data? Check. No volume? Check. Increasing expectations the Fed will taper? Check. So what does a "stock market" do - it tags along to the USDJPY which ramps just because it bounces off the 101 algorithmic support level, and just happens to take the S&P up 10 points with it. Then EUR takes over for the ramp. New normal "trading"...
The European Central Bank warned yesterday that six quarters of recession are eroding the resilience of banks and risk ending what it describes as 'the calmest period in financial markets since 2011'. As Bloomberg's Niraj Shah notes, the Bloomberg Euro-area Financial Conditions Index has averaged 0.31 this year, compared with -1.47 in 2012 and the measure has only ended in negative territory on three days this year. However, it has very recently fallen to its lowest in a month as financial CDS begin to rise (even with Mrs. Watanabe's presence) to once again wider on the year. As The ECB adds, "Financial stability conditions in the euro area remain fragile. Several vulnerabilities in the interaction between sovereigns, banks and the macroeconomy persist."
At the height of the financial crisis (i.e. 2008) it was easy to despise just the bankers for their serial and colossal ineptitude and rank hypocrisy. Now, five years into one of history’s most alarming bubbles, it’s easy to despise just about everyone in a position of financial or political authority, and for the same reasons. The real black comedy lies in the manipulation of market prices that is now endemic throughout the global financial system. As Japan is now showing, even with the unrestrained commitment of a central bank and its magical powers to create money out of nothing, there are practical limits to market rigging activity. Last week’s price action within the Japanese government bond market and stock market suggests that both of these markets are in the early stages of shaking themselves to pieces. The fallout of unintended (counter-intended ?) consequences from massive market manipulation will be awesome.
Just when there was some concern that the US economy was no longer imploding at the usual pace, we get confirmation that nothing is actually better, following the one-two punch of weaker than expected Q1 revised GDP data, printing at 2.4% on expectations of an unchanged 2.5% print driven by a revision in Private Inventories (from 1.03% to 0.63% of total GDP, offset by a plunge in imports sliding from -0.9% to -0.32%). Personal Consumption posted a tiny increase from 2.24% to 2.40% which can only mean the consumer overextended themselves in Q1 - perhaps it is about time to ask the question of how consumption in the "sequester" and tax-hike quarter was the highest since Q4 2010. Additionally, initial claims increased from the as usual upward-revised 344K to 354K, on expectations of a 340K print. But fear not: what both these data points showed is that any fears that the monthly Fed flow may slow down from the $85 billion monthly to a ghastly $75 billion or, heaven forbid, a tiny $65 billion monthly increase in the Fed's balance sheet, may be deferred. End result: futures jump higher. Because it is a Bizarro Ben, or Benzarro for short, market after all.
Two days ago we reported that the most recent escalation in the Syrian proxy war involved a bitter exchange between Russia and Israel, where the latter warned the former that it would proceed with destroying any arms shipments from Russia into Syria, specifically referencing the S-300 missiles that has been known to be en route to Damascus for several weeks now. The Israel defense minister warned that: "The shipments haven't set out yet and I hope they won't. If they do arrive in Syria, God forbid, we'll know what to do." Well, according to Lebanese newspaper al-Akhbar not only has the shipment been sent out, but it has already arrived. Check to Israel and coming through on its warning to begin an offensive action not only against Syria, but more importantly, implicitly against Russia.
One look at the 5%+ plunge in the Nikkei overnight and one would be allowed to wonder if this was it for Abenomics: with a 15% drop from recent highs, and the TOPIX Real Estate index down by more than 20%+ since mid-April, entering a bear market, what's worse is that even the "wealth effect" Mrs Watanabe fanatics would be excused from having much hope going forward. The problem, however, is that in a world in which only the USDJPY matters as a risk signal, and only the stock market remains as a last bastion of "hope", the overnight weakness pushing the dollar yen to just 50 pips above 100 threatened to crush the manipulated rally and force everyone to doubt the sustainability of central planning. So, sure enough, literally seconds we got the much needed stick save without which everything could have come tumbling down, namely based on an unsourced article out of Reuters that Japan's Public Pension Fund is considering a change to its portfolio strategy that could allow domestic equity share of investments to rise in rallying market. The immediate result was an instantaneous surge in the USDJPY which in turn dragged global risk higher across the board, simply due to what algos deemed as yet another procyclical last minute rescue. More importantly this was nothing but a squeeze catalyst coming at just the right time before market open to prevent a rout in global equities. Ironically, that we are back to the Reuters "sticksave" unsourced article, indicates just how weak the reality behind the scenes must be.
Traders and speculators are watching the $1,413/oz resistance level. A daily close above this level will likely trigger the beginnings of a short squeeze. Holdings in the largest bullion-backed exchange-traded product expanded yesterday for the first time since May 9. Strong premiums for gold bars in Asia show that jewellers and investors are busy buying bullion on this dip. In Singapore, Reuters reports that “supply constraints” have sent premiums to “all time highs” at $7 to spot London prices. Animal spirits are returning to the gold market in the ‘Land of the Dragon’ in this the ‘Year of the Snake’. The volume for the Shanghai Gold Exchange’s benchmark cash contract surged to 19,599 kilograms yesterday from 15,641 kilograms the day before. In two days the volumes have nearly doubled and surged from 10,094 kilograms to 19,599 or 94%.
- Japan’s Stocks Correction Raises Stakes for Abe’s Growth Plan (BBG)
- China Failure to Grow With $1 Trillion Is Warning to Li (BBG)
- Blankfein Leads Bank CEO Pay With $26 Million Deemed Overpaid (BBG)
- IMF says ‘no evidence yet’ of Abenomics hurting other economies (FT)
- Europe Seeks CFTC Delay in Imposing Swaps Rules on Banks (BBG)
- Fed's Rosengren: 'Modest' QE3 cut may make sense in a few months (Reuters)
- Who’s who of Obama lobbyists pushes Keystone pipeline (FT)
- China to Study Joining U.S.-Led Trade Accord After Japan Added (BBG)
Presenting the key assets JPY108 trillion ($1.16 trillion) GPIF pension fund as of September 2012:
- JPY 68.3 trillion in government bonds: 64%
- JPY 12.6 trillion in foreign stocks: 12%
- JPY 12 trillion in Japanese stocks: 11%
- JPY 9.6 trillion in foreign bonds: 9%
In other words, the fact that the GPIF's overall domestic equity allocation will not decline from 11%, or a little over $100 billion, is the main catalyst for today's move. Putting $100 billion in context: this is how much liquidity the BOJ injects in the stock market in under two months.