The new year has officially started because it wasn't even a day in and Mario Draghi was once again out and about, jawboning the Euro to a lower level than where it was when he said back in 2012 he would do "whatever it takes" to push it higher. The reason, as Reuters reports [27], why the Euro sank to a nearly 5 year low against the USD, was "clear indications that the European Central Bank will soon embark on outright money-printing." Actually, it was on just more hollow rhetoric by Draghi, who told German Handelsblatt [28]that "the risk that we don’t fulfill our mandate of price stability is higher than it was six months ago." He also added that "it’s difficult to say” how much the institution will have to spend on government-bond purchases.
Confirming yet again, that when it comes to QE the ECB is all about talk and precisely zero action, Draghi continued: "We are in technical preparations to alter the size, speed and composition of our measures at the beginning of 2015, should this become necessary, to react to a too-long period of low inflation. There’s unanimity in the ECB council on that."
On the topic of deflation he said that “the risk cannot be entirely excluded, but it is limited,” still “we have to act against such risk. A look into history shows that falling prices can endanger the prosperity and stability of our community just as much as high inflation."
“Interest rates have been very, very low for a long time - and that will continue for another while."
Draghi then tried to debunk recent swirling rumors [29]that he would quit the ECB and become Italy's next president when he said that “I don’t want to be a politician,” when asked about resignation of Italian President Napolitano; says his ECB mandate lasts until 2019. In other words, he lied. Just as a politician would.
And speaking of lying, Draghi concluded with just that when asked about the likelihood of a break-up of the euro zone. "A break-up of the euro zone? That will not happen. That's why there is no plan B," he said. Which, as Zero Hedge readers now know, is what Draghi told Zero Hedge back in April 2014, [30]and as they further know, is a bold-faced lie as explained in "When The Head Of The European Central Bank Lies To Zero Hedge On The Record: Presenting Europe's "Plan Z [31]." Recall, via the FT:
Unbeknown to almost the entire Greek political establishment, a small group of EU and International Monetary Fund officials had been working clandestinely for months preparing for a collapse of Greece’s banks. Their secret blueprint, known as “Plan Z”, was a detailed script of how to reconstruct Greece’s economic and financial infrastructure if it were to leave the euro. The plan was drawn up by about two dozen officials in small teams at the European Commission in Brussels, the European Central Bank in Frankfurt and the IMF in Washington. Officials who worked on the previously undisclosed plan insisted it was not a road map to force Greece out of the euro – quite the opposite. “Grexit”, they feared, would wreak havoc in European financial markets, causing bank runs in other teetering eurozone economies and raising questions of which country would be forced out next. But by early 2012, many of those same officials believed it was irresponsible not to prepare for a Greek exit. “We always said: it’s our aim to keep them inside,” said one participant. “Is the probability zero that they leave? No. If you are on the board of a company and you only have a 10 per cent probability for such an event, you prepare yourself.”
Then again, technically Draghi isn't lying: it isn't Plan B - it is Plan Z.
Of course, for an entire continent in dire terminal straits, we have grown to expect nothing less from its central bank than a constant barrage of lies desperate to preserve confidence (who can forget that for the ECB it is not deflation, which is going to happen [32]after all, it is "negative inflation [33]"... please). However, while Draghi did drive the EURUSD lower once more and in the process sent USDJPY surging to 120.5 which promptly took E-minis up by 0.4%, European stocks have been unable to rally on Draghi's latest jawboning and addining insult to injury, Europe reported a set of PMI data that was even worse than expected, confirming Europe's triple-dip recession, even with the "benefit" of hookers and blow, has arrived. The details from Goldman:
The final Euro area Manufacturing PMI came in at 50.6 in December, 0.2pt lower than the Flash estimate. Today's release constitutes a 0.5pt sequential improvement in the area-wide Manufacturing PMI in December, though this serves only to reverse the index's November decline. The monthly rise in the area-wide index is largely attributable to a 1.7pt increase in the Manufacturing PMI for Germany to 51.2 (in line with its Flash estimate). The Manufacturing PMI for France came in 0.4pts lower than its Flash estimate (with a final reading of 47.5). The Manufacturing PMI for Italy fell by 0.6pts on the month (from 49.0 in November to 48.4 in December, against consensus expectations of a small increase to 49.5) and the Manufacturing PMI for Spain fell by 0.9pts on the month (from 54.7 in November to 53.8 in December, against consensus expectations of a small increase to 54.9).
[34]
And while the ECB's hands may in fact be tied due to the recent political Snafu in Greece (as Zero Hedge [35] and Morgan Stanley [36]explained previously), the bond market won't hear any of it, and this morning pulled peripheral Eurozone yields to fresh record lows:
- Italian 10Y yield -6bps to 1.826%, least since Bloomberg began collecting the data in 1993.
- Spanish 10Y yield -5bps to 1.565%
- Belgian 10Y yield touches 0.819%, also record low
- French 10Y yield reaches 0.812%
- Portugal 10Y drops under 2.50% for the first time ever
In other news, Asian stks rise, after fluctuating at least 10 times between gain and loss, on low trading volume as region’s two largest mkts shut for holidays. MSCI Asia-Pacific ex-Japan Index gains as 5/10 index groups advance, led by financials; 4 groups drop, led by consumer discretionary. MSCI A-P Index -0.1%. New Zealand, Philippines, Taiwan, Thailand also closed for holidays.
As a result, and in summary, European shares trade mixed, having risen from intraday lows, with the personal & household and autos sectors underperforming and bank, oil & gas outperforming. Euro weakens to 2010 low, ECB President Mario Draghi says can’t exclude risk of deflation in interview with Handelsblatt. Euro-area, U.K. manufacturing PMI data below estimates. The German and Swiss markets are the worst-performing larger bourses, the Spanish the best. Portuguese 10yr bond yields fall; Irish yields decline. Commodities gain with natural gas outperforming. U.S. Markit U.S. manufacturing PMI, ISM manufacturing, construction spending due later.
Market Wrap via Bloomberg
- S&P 500 futures up 0.4% to 2061.2
- Stoxx 600 down 0.1% to 342.1
- US 10Yr yield up 3bps to 2.2%
- German 10Yr yield little changed to 0.55%
- MSCI Asia Pacific little changed to 137.9
- Gold spot little changed to $1182.6/oz
Europe
- 3 out of 19 Stoxx 600 sectors rise; bank, oil & gas outperform, personal & household, autos underperform
- 49.8% of Stoxx 600 members gain, 48.3% decline
- Eurostoxx 50 -0.1%, FTSE 100 -0%, CAC 40 -0.1%, DAX -0.6%, IBEX +0.9%, FTSEMIB +0.8%
Asia
- Asian stocks little changed, MSCI Asia Pacific at 137.9
- Nikkei 225 closed, Hang Seng up 1.1%, Kospi up 0.6%, Shanghai Composite closed, ASX up 0.5%, Sensex up 1.4%
FX/Bonds
- Euro down 0.4% to $1.2055
- Dollar Index up 0.47% to 90.7
- Italian 10Yr yield down 8bps to 1.81%
- Spanish 10Yr yield down 6bps to 1.55%
- French 10Yr yield up 1bps to 0.83%
Commodities
- S&P GSCI Index up 0.7% to 420.9
- Brent Futures up 0.6% to $57.7/bbl, WTI Futures up 0.8% to $53.7/bbl
- LME 3m Copper down 0.5% to $6268.8/MT
Bulletin headline Summary
- Treasuries fall to begin the new year, led by 2Y and 3Y notes; USTs returned 6.02% in 2014, best performance since 2011, led by double-digit gains for 10Y and 30Y sectors, according to BofAML; 10Y yield began 2014 at 2.989%, 30Y at 3.922%.
- ECB’s Mario Draghi said he can’t exclude the risk of deflation in the euro area, in a sign that the likelihood of large-scale quantitative easing is increasing; EUR weakened to 2010 low while Spanish and Italian bonds gained
- U.K. manufacturing unexpectedly slowed to a three-month low in December as weak growth in overseas markets such as the euro area undermined demand
- French investors are piling into Japanese stocks again, a sign to Nomura Holdings Inc. that the market is poised to fall.
- Bonds of Kaisa Group Holdings Ltd., a developer based in the southern Chinese city of Shenzhen, plunged to record lows after the resignation of its chairman triggered a default on one of its loans
- China is investigating an assistant foreign minister suspected of disciplinary violations as President Xi Jinping continues an anti-corruption campaign that has netted thousands of officials over the past two years
- Pimco’s Total Return Fund returned 4.7% in 2014, trailing a majority of peers for the second straight year after missing a rally in longer-term bonds and betting incorrectly that inflation would rise
- Russian oil production rose to a post-Soviet record last month, showing how pumping of the nation’s biggest source of revenue has so far been unaffected by U.S. and European sanctions or crude’s price collapse
- China demanded a review of crowd-safety procedures as dozens of people remain in Shanghai’s hospitals after a deadly stampede on New Year’s Eve killed 36 and caused the cancellation of celebrations across the city
- Search teams looking for the crashed AirAsia Bhd. jetliner’s black box will deploy side-scan sonar and pinger locaters as inclement weather off Indonesia’s coast hinders efforts to recover bodies and the plane’s fuselage
- Kim Jong Un’s younger sister married the son of one of North Korea’s most powerful officials last year, Yonhap News reported, citing two people in China it didn’t identify
- Sovereign yields mostly higher. Asian and European stocks mixed, U.S. equity-index futures gain. Brent crude, gold and copper fall
US Event Calendar
- 9:45am: Markit US Manufacturing PMI, Dec. final, est. 54 (prior 53.7)
- 10:00am: Construction Spending, Nov., est. 0.4% (prior 1.1%)
- 10:00am: ISM Manufacturing, Dec., est. 57.5 (prior 58.7)
