Fed Post-Mortem And Overnight Summary

Yes, yes, only the Fed matters. Still, there was some event flow overnight which while completely meaningless for the epic liquidity bubble, may have some implications eventually when the music finally stops. In thie regard, perhaps the best summary of the the lunacy coming out of the Marriner Eccles building is the following sentence from Bloomberg: "Bernanke said he was concerned that market interest rates, driven higher
by his own suggestion he would scale back QE, would curb growth." One can't make this up.

Market Recap via Ran [23] [23]

Equity markets in Europe and Asia surged, as credit spreads tightened aggressively in reaction to the Fed’s decision not to taper QE late yesterday. Position scrambling saw the 1y1y USD OIS rate fall aggressively to its lowest level since mid-August, below the 50 and the 100DMA lines. In turn, market participants were forced to scale back expectations of higher rates in the Eurozone, which saw the 1y1y EONIA swap rate fall sharply to its lowest level since early August, testing the 100DMA line in the process. Consequently, both EUR/USD and GBP/USD advanced to its highest level since late January. The move higher in stocks was led by basic materials and consumer goods sectors, with telecommunications related stocks underperforming after Vivendi/Activision Blizzard deal was halted by court injunction and Telefonica said to weigh stake increases.

The aggressive bond yield curve flattening did not deter investor demand for the latest round of debt sales, with both French and Spanish Treasuries selling just over EUR 10bln worth of bonds. Looking elsewhere, the release of the latest UK retail sales report failed to meet market expectations, with the ONS stating that the drop was due to sharp fall in food sales. Going forward, market participants will get to digest the release of the latest Philadelphia Fed survey, Existing Home sales report and the US Treasury will sell USD 13bln in 10y TIPS.

Overnight news bulletin from Bloomberg:

• Treasury yields holding near lowest levels since August as global stocks jump to 5-year high, USD falls and JPY plunges after Fed’s tapering postponement triggered risk asset rally.
• Bernanke said he was concerned that market interest rates, driven higher by his own suggestion he would scale back QE, would curb growth
• U.S. stock-index futures rose, indicating the S&P 500 will extend its all-time high reached yesterday
• JPMorgan is poised to pay about $900m to settle claims that lax internal controls led it to provide inaccurate information about last year’s London Whale losses to the board, investors and regulators, people with knowledge of matter said
• U.K. retail sales fell 0.9% in August vs expectations for 0.4% gain, as demand for food plunged; a measure of new orders at British factories rose to the highest in six years
• U.K. officials, emboldened by a series of victories on financial regulation, are set to challenge EU plans to toughen rules for benchmarks over concerns the  proposals will unfairly burden banks
• New Zealand GDP rose 2.5% in the three months through June from the year-earlier period, more than 2.3% median estimate
• After eight years of bellicose rhetoric from his predecessor, Iranian President Hassan Rohani’s smiling face is prompting a debate about whether his outreach is a promise or a ploy
• House Republicans could vote as soon as today on a spending plan that seeks to avoid a looming government shutdown by giving party members a chance to deny funds for Obama’s health-care law
• Elections in three days augur a second campaign for Germany’s Social Democratic leaders: persuading their rank and file to join as Merkel’s junior coalition partners
• Sovereign yields slide. EU peripheral spreads mixed. Nikkei +1.8%, leading Asian stocks higher; European stocks, U.S. equity-index futures gain. WTI crude and copper higher, gold falls

Asian Headlines

BoJ board member Kiuchi said the BoJ's 2 year time frame is too short in meeting it's 2% inflation target. Japanese PM Abe instructed his finance ministry to include a 2-stage lowering of corporate taxes in economic stimulus measures that would kick in if the consumption tax is hiked in April as expected.

EU & UK Headlines

UK Retail Sales Ex. Auto (Aug) Y/Y 2.3% vs. Exp. 3.2% (Prev. 3.1%, Rev. to 3.2%) - ONS says drop due to sharp fall in food sales.
- UK Retail Sales Ex. Auto (Aug) M/M -1.0% vs. Exp. 0.0% (Prev. 1.1%, Rev. to 1.2%)
- UK Retail Sales Incl. Auto (Aug) Y/Y 2.1% vs. Exp. 3.3% (Prev. 3.0%)
- UK Retail Sales Incl. Auto (Aug) M/M -0.9% vs. Exp. 0.4% (Prev. 1.1%)

Spanish bond auction results: Sold EUR 3.08bln vs. max target of EUR 3.0bln.
- Spain sells EUR 2.06bln 3.30% 2016, bid/cover 2.25 vs. Prev. 3.32 (yield 2.365% vs. Prev. 2.636%)
- Spain sells EUR 1.02bln 5.15% 2028, bid/cover 2.73, yield 4.809% vs. Prev. 5.194%

French auction results: Sells EUR 7.49bln vs. Exp. EUR 6.5-7.5bln.
- Sells EUR bln 0.25% 2015, b/c 2.59 (prev. 3.24), avg. yield 0.39% (prev. 0.31%)
- Sells EUR bln 2.25% 2016, b/c 2.33 (prev. 2.62), avg. yield 0.43% (prev. 0.34%)
- Sells EUR bln 1.00% 2018, b/c 1.67 (prev. 1.91), avg. yield 1.23% (prev. 1.13%)

UK DMO sells GBP 4.75bln in 1.25% 2018 conventional gilts, b/c 1.59 (Prev. 1.37) and yield tail of 0.2bps
(Prev. 0.8bps)

US Headlines: FOMC post-mortem:

- Goldman now expects Fed to start taper in December and finish in Sept 2014, maintains first rate hike call for early 2016.
- UBS FX strategy notes that the Fed’s dovish about-turn could be interpreted as a long-term "black mark" against the dollar.
- Deutsche Bank notes that the move by the Fed is negative for the USD and positive for commodities, with silver standing out as the star performer yesterday.
- Fed watcher Jon Hilsenrath said Fed is going to take its time before it starts raising interest rates and the Fed sees soft growth, low inflation and modest improvement in unemployment.
A US White House official said Yellen is leading candidate to replace Bernanke as Fed Chairman when he steps down.

Equities

Equity markets in Europe and Asia surged, as credit spreads tightened aggressively in reaction to the Fed’s decision not to taper QE late yesterday. Position scrambling saw the 1y1y USD OIS rate fall aggressively to its lowest level since mid-August, below the 50 and the 100DMA lines, in turn supporting investor appetite for riskier assets. The move higher in stocks was led by basic materials and consumer goods sectors, with telecommunications related stocks underperforming after Vivendi/Activision Blizzard deal was halted by court injunction and Telefonica said to weigh stake increases.

FX

In reaction to the Fed's decision not to taper QE, which weighed heavily on the USD, also prompted market participants to scale back expectations of higher rates in the Eurozone, which saw the 1y1y EONIA swap rate fall sharply to its lowest level since early August, testing the 100DMA line in the process. Consequently, both EUR/USD and GBP/USD advanced to its highest level since late January, with USD/JPY also trading higher in spite of unfavourable interest rate differential flows, which was offset by an aggressive surge higher by EUR/JPY.

The SNB kept its 3-Month Libor rate unchanged at 0.00-0.25% and maintained EUR/CHF floor at 1.2000, as expected.

Commodities

Goldman Sachs sees a near-term upside for gold on delayed Fed taper but remains bearish on gold into 2014. Barclays has said that the Fed tapering delay will help emerging market oil demand with import costs to fall in Latin America and Asia.

Last month Japan (the fourth-biggest crude importer in the world) imported 2.3% less crude than a year earlier according to government data.

Syrian President Bashar al-Assad said Syria is to destroy chemical weapons to comply with the UN treaty.

Bahsar al-Assad added the Syrian government didn't use any chemical weapons and that his government is ready for talks with any party inside or outside of Syria.

- Israel Army says Gaza-fired rocket hits Southern Israel but no damage or injuries caused by rocket