The depressed tone overnight following AAPL's disappointing earnings mysteriously evaporated just ahead of the European open, when around 2 am Eastern the all important USDJPY began an dramatic ramp, (with ES following just behind) which saw it rise from the Monday closing level of 102.600 all the way to 103.250, in what appears to have been a new frame-setting stop hunt ahead of a variety of news including the start of the January - Bernanke's last - FOMC meeting.
One of the potential triggers for the move may have been the RBI's unexpected hike in the repurchase rate to 8.00% with an unchanged 7.75% consensus, which was its second consecutive INR-boosting "surprise." Among the amusing comments by RBI's Rajan, justifying the ongoing (loising) fight with inflation, was that India's consumer numbers are weak because of inflation. But... isn't that the Keynesian cargo cult's wet dream?
Moving to Turkey, where Turkey Central Bank governor Erdem Basci had an epic 2 hour long headline-generating fest ahead of the bank's midnight announcement which everyone is so keenly looking forward to as it will either delay the EM moment of reckoning, or it won't, and expectations are for everything from a 150 to 500 bps rate hike, up to and including capital controls. Among some of the things he noted was that tonight’s extraordinary meeting of the monetary policy committee targets taking necessary steps on price stability, and that the central bank won't refrain from permanent tightening if needed. He added that tightening using liquidity policy above what’s necessary can have a beneficial impact in times of high uncertainty and that Turkey’s central bank will discuss moving to a policy based on a single main rate at tonight’s extraordinary meeting: normalization via return to 1-week repo rate as the policy rate will be discussed, Basci said and stated that Turkey central bank sees less need for fx sales to support the lira ahead, and Basci says fx sales are more effective when supported by interest rates. Finally here is an example of Turkish forward guidance: "Turkey may see unexpected positive developments in the second half." Sounds about right for a central banker.
That said, good luck to Turkey whose economy is now set to grind to a halt as liquidity dries to a trickle, rates soar and its markets will probably not do much better. Especially since any measures the central bank engages in will be ultimately futile.
Anyway, keep an eye on the headlines at 5 pm Eastern when the TCB is expected to make its announcement.
Summarizing the market so far with Ran Squawk
Heading into the North American open, stocks in Europe are seen broadly higher, amid the alleviation of concerns surrounding EM nations after the RBI unexpectedly raised rates, while the PBOC injected CNY 150bln, which all comes ahead of the extraordinary monetary policy meeting by the Turkish central bank. As a result, JPY and CHF weakened, with USD/JPY advancing above the 55DMA line amid touted HF buying, while the out of favour EM currencies such as ZAR and TRY remained bid ahead of the policy announcement by the Turkish central bank scheduled for 2200GMT. Financials led the move higher, with Spanish banks outperforming after analysts at Credit Suisse raised Banco Popular Espanol and CaixaBank to outperform from neutral. Looking elsewhere, consequent USD strength ensured that in spite of an in line UK GDP report, GBP/USD traded lower, as did EUR/USD which edged back below the 50DMA line. Going forward, attention will turn to earnings by Pfizer, AT&T, Ford and Yahoo. In terms of macroeconomic releases, focus will be on the latest Durables report, US Consumer Confidence and the weekly API data.
Overnight bulletin headlines from Bloomberg:
- Treasuries decline as 2Y/5Y/7Y auction cycle begins today, with inaugural FRN sale tomorrow; yields also higher as FOMC expected to announce additional tapering tomorrow, offsetting demand created by ongoing retreat from emerging market currencies and stocks.
- The U.K. economy expanded 0.7% in 4Q, ending the best year since 2007 amid growth in every industry except construction
- China’s eleventh-hour rescue of wealthy investors in a high-yield trust threatens to drive more money into the nation’s $6t shadow-banking industry, undermining regulators’ efforts to deter excessive risk-taking
- While Obama will say in tonight’s State of the Union address that he’s prepared to act without Congress to advance parts of his agenda, there is little he can do on the biggest issues for U.S. companies without agreement from legislators
- Obama to use executive authority to impose minimum $10.10 wage for those working on new federal contracts for services, White House says in e-mail
- Ukraine’s prime minister offered his resignation to help bring about an end to more than two months of street protests as parliament revoked anti-rally laws that sparked deadly riots last week
- Reserve Bank of India unexpectedly boosts benchmark repo rate by 25bps to 7%; only 3 of 45 economists surveyed by Bloomberg predicted an increase
- When Argentina decided last week to ease limits on dollar purchases, it became the latest emerging-market nation to acknowledge that capital controls usually fail in masking an economy’s flaws
- A 39-year-old man died after falling from JPM’s London headquarters, the city’s Metropolitan Police said.
- Sovereign yields mostly higher; EU peripheral yields decline, peripheral spreads narrow. Asian equity markets mostly lower; European markets, S&P 500 futures gain. WTI crude, copper higher; gold falls
US economic docket:
- 8:30am: Durable Goods Orders, Dec., est. 1.8% (prior 3.5%, revised 3.4%); Durables Ex-transportation, Dec., est. 0.5% (prior 1.2%); Capital Goods Orders Non-defense, Ex-aircraft, Dec., est. 0.3% (prior 4.5%, revised 4.1%); Capital Goods Shipments Non-defense, Ex-aircraft, Dec., est. 0.1% (prior 2.8%, revised 2.7%)
- 9:00am: S&P/Case Shiller Home Price Index m/m, Nov., est. 0.8% (prior 1.05%) S&P/CS y/y, Nov., est. 13.8% (prior 13.61%); S&P/CS Home Price Index NSA, Nov., est. 165.72 (prior 165.91)
- 10:00am: Consumer Confidence Index, Jan., est. 78 (prior 78.1)
- 10:00am: Richmond Fed Manufacturing Index, Jan., est. 13 (prior 13)
- 11:30am: U.S. to sell 4W bills
- 1:00pm: U.S. to sell $32b 2Y notes
- 11:00am: Fed to purchase $2.25b-$3b in 2021-2023 sector
Asian Headlines
PBOC injected CNY 150bln to the interbank market as it seeks to preserve necessary amount of liquidity and avoid potential credit crunch over the Chinese New Year holiday period.
INR strengthened overnight after the RBI raised the Repurchase Rate to 8.00% vs. Exp. 7.75% (Prev. 7.75%). The RBI has now surprised markets for the 2nd consecutive time and unexpectedly hiked rates.
EU & UK Headlines
UK GDP (Q4 A) Q/Q 0.7% vs. Exp. 0.7% (Prev. 0.8%)
- UK GDP (Q4 A) Y/Y 2.8% vs Exp. 2.8% (Prev. 1.9%), highest since Q1 2008
- UK preliminary 2013 GDP 1.9% vs 2012 0.3%, highest since 2007
Solid demand for the Finnish 10y syndication, together with the resurgence in risk appetite saw Bunds trend lower for much of the session. So much so that even larger than avg. month-end extensions failed to support prices.
Standard & Poor's said the Eurozone has made little progress in weaking links between sovereigns and vulnerable banks in their jurisdictions. Analysts also said that the Eurozone will continue with it's slow recovery in 2014, which high-frequency indicators appear to confirm this. (DJN)
Barclays preliminary pan-Euro agg month-end extensions: +0.14y (12m avg. +0.07y)
Barclays preliminary Sterling month-end extensions:+0.19y
US Headlines
In his State of the Union address, Obama will also call on Congress to pass a bill that would increase the federal minimum wage for all workers to USD 10.10 an hour from USD 7.25 and index that to inflation going forward. (RTRS)
Barclays preliminary US Tsys month-end extensions:+0.06y (12m avg. +0.07y)
Equities
Stocks traded higher in Europe this morning, with financials leading the move higher as market participants remained hopeful that EM central banks will be able to prevent further capital outflow, with credit and bond yield spreads also seen tighter this morning. Spanish listed banks outperformed its peers following positive broker recommendation by analysts at Credit Suisse. Better than expected earnings by Siemens also supported industrials in Europe, with the sector among the best performing in Europe.At the same time, tech sector underperformed since the get-go, as market participants in Europe reacted to less than impressive earnings by Apple after the closing bell on Wall Street yesterday (of note German listing is seen down 6.6%).
FX
USD/JPY traded higher, supported by touted HF buying, as market participants used the actions overnight by the RBI and the PBOC as an opportunity to enter carry trades ahead of the much anticipated extraordinary monetary policy meeting by the Turkish central bank later today. Of note, analysts at JPMorgan suggested that Turkey needs to raise O/N rate 300BPS to achieve any meaningful effect. Nevertheless, EM currencies such as ZAR, TRY and INR remained bid overnight and during the London morning session.
Commodities
Goldman Sachs says spare refining capacity has led to greater product market flexibility, leaving oil markets benign this year even with inventories limited. (BBG)
Opponents to the Keystone pipeline are attempting to halt the progress of the pipeline by saying that trains cannot move all the oil out of Canada. (BBG)
According to analysts from Bernstein, Co.'s oil and gas output estimate has been revised up from 11.5mln boepd to 12.4mln boepd for 2014. (BBG)
Mexico reduced its gold reserves in December, whilst Ukraine, Turkey, Kazakhstan, Belarus and Azerbaijan increased gold reserves, according to IMF data. (BBG)
South African platinum producers have built a two-month stockpile to beat the current pay strikes occurring at the country's mines. (BBG)