NYMEX

It has been a largely event-free weekend except, of course, for the previously reported re-escalation in Ukraine following what was a lethal shooting in the east Ukraine city of Slavyansk blamed on Ukraine's Right Front, which has made a mockery, as expected, of the Geneva Ukraine de-escalation announcement from last Thursday. Overnight in Asia, Japan reported its largest ever trade deficit, providing yet more evidence that Abenomics has been an abysmal failure: all we are waiting for now is confirmation that basic Japanese wages have fallen yet again, which would make nearly 2 years in a row of declines. Still, the USDJPY, gamed as usual by HFT algos for which FX is now the last respite as the equity market crackdown gets louder, is doing its best to ramp from the overnight lows and ahead of the traditional US market open surge, as a result equity futures are modestly higher.

Symbolism is important and Putin may be sending the U.S. a message, in the aftermath of JP Morgan unilaterally deciding to block an official Russian wire transfer, regarding how they might use gold as a geopolitical weapon should economic and currency wars deepen ...

It has been a relatively quiet overnight session, aside from the  already noted news surrounding China's halt on virtual credit card payments sending Chinese online commerce stocks sliding, where despite an ongoing decline in the USDJPY which has sent the Nikkei plunging by 3.3% (and which is starting to impact Abe whose approval rating dropped in March by a whopping 5.6 points to 48.1% according to a Jiji poll), US equity futures have managed to stay surprisingly strong following yesterday's market tumble. We can only assume this has to do with short covering of positions, because we fail to see how anyone can be so foolhardy to enter risk on ahead of a weekend where the worst case scenario can be an overture to World War III following a Crimean referendum which is assured to result in the formal annexation of the peninsula by Russia.

Since Ukraine is the only wildcard variable in the news these past few days, it was to be expected that following i) the end of the large Russian military drill begun two weeks ago and ii) a press conference by Putin in which he toned down the war rhetoric, even if he did not actually say anything indicating Russia will difuse the tension, futures have soared and have retraced all their losses from yesterday. And not only in the US - European equity indices gapped higher at the open this morning in reaction to reports that Russian President Putin has ordered troops engaged in military exercises to return to their bases. Consequent broad based reduction in risk premia built up over the past few sessions meant that in spite of looming risk events (ECB, BoE policy meetings and NFP release this Friday), Bund also failed to close the opening gap lower. At the same time, USD/JPY and EUR/CHF benefited as the recent flight to quality sentiment was reversed, with energy and precious metal prices also coming off overnight highs.

U.K. natural gas jumped the most in more than 16 months and was 2.3% higher to $4.72 on supply concerns. Wheat and corn surged 4.3% and 3.3% respectively, also on supply concerns. Should relations between Russia and Western nations deteriorate further, it will have consequences for already vulnerable economies and lead to increased safe haven demand.   

In addition to the already noted fireworks out of China, where the Yuan saw the biggest daily plunge since 2008 and the ongoing and very rapid newsflow out of the Ukraine, focus this morning was very much of the latest Eurozone CPI data, which despite matching previous low levels, came in above expectations and in turn resulted in an aggressive unwind of short-EUR bets as market participants were forced to re-asses the likelihood of more easing by the ECB. Still, even though the Euribor curve bear steepened and Bunds came under significant selling pressure, the EONIA forward curve remained inverted, signifying that there is still a degree of apprehension over what is unarguably very low inflation data.

It's snowing in New York so the market must be down. Just kidding - everyone know the only thing that matters for the state of global risk is the level of USDJPY and it is this that nearly caused a bump in the night after pushing the Nikkei as low as 13,995, before the Japanese PPT intervened and rammed the carry trade higher, and thus the Japanese index higher by 1.23% before the close of Japan trading. However, since then the USDJPY has failed to levitate as it usually does overnight and at last check was fluctuating within dangerous territory of 101.000, below which there be tigers. The earlier report of European retail sales tumbling by 1.6% on expectations of a modest 0.6% drop from a downward revised 0.9% only confirmed that the last traces of last year's illusionary European recovery have long gone. Then again, it's all the cold weather's fault. In Europe, not in the US that is.

Alarms are going off in assorted plunge protecting offices, now that the USDJPY has breached the 102.000 "fundamental" support level, below which the Yen can comfortably soar to sub 100.000 in perfectly even 100 pip increments. The first trading day of February has brought another weaker session across Asia though some equity indices such as the KOSPI (-1.1%) are in catch-up mode given they were shut towards the back-end of last week. Over the weekend, the Chinese government published its latest official manufacturing PMI which showed a 0.5pt drop to 50.5, a six-month low, and consistent with consensus estimates. DB’s Jun Ma believes there was some element of seasonality affecting this month’s result including the fact that Chinese New Year started at the end of January (vs February last year), anti-pollution measures in the lead up to CNY and efforts to control government consumption around the holiday period. The official service PMI was released overnight (53.4) which printed at the lowest level since at least 2011. The uninspiring Chinese data has not helped market sentiment this morning, with the Nikkei plunging -2% and ASX200 once again under pressure. S&P500 futures have fluctuated around the unchanged line this morning although if support below the USDJPY fail solidly, then watch out below. Markets in Mainland China and Hong Kong remain closed for Lunar New Year.

The Fed tightens by a little (sorry, tapering - flow - is and always will be tightening): markets soar; Turkey tightens by a lot: markets soar. If only it was that easy everyone would tighten. Only it never is. Which is why as we just reported, the initial euphoria in Turkey is long gone and the Turkish Lira is basically at pre-announcement levels, only now the government has a furious, and loan-challenged population to deal with, not to mention an economy which has just ground to a halt. Anyway, good luck - other EMs already faded, including the ZAR which many are speculating could be the next Turkey, and certainly the USDJPY which sent futures soaring last night, only to fade all gains as well and bring equities down with it.

The US wants its dollar system to prevail for as long as possible. It therefore has every interest in preventing a ‘rush out of dollars into gold’. By selling (paper) gold, bankers have been trying in the last few decades to keep the price of gold under control. This war on gold has been going on for almost one hundred years, but it gained traction in the 1960's with the forming of the London Gold Pool. Just like the London Gold Pool failed in 1969, the current manipulation scheme of gold (and silver prices) cannot be maintained for much longer.

If yesterday's price action in the moments following (and preceding) the FOMC announcement was just a little suspicious, with a seemingly endless supply of VIX selling originating as if from nowhere (or perhaps the 9th floor of Liberty 33) the morning after has so far been a snoozer. Perhaps this is to be expected following the third biggest one-day surge in the stock market in the year (1st =  Jan 2nd, 2nd = October 10th), or perhaps the market is finally focusing on Bernanke's tongue in cheek suggestion that the taper may be lowered by $10 billion per month (we disagree as described previously). Or perhaps the creep higher in 10 Year yields, at 2.915% at last check and just shy of the 3.00% psychological level, is finally being noticed. Or perhaps the fact that China, very surprisingly, is also tapering concurrently is finally being appreciated as is the fact that despite all talk of preparedness, developing economies were hardly left unscathed following yesterday's development. Whatever the reason, the euphoria this morning has "tapered."

• CME/CBOT/NYMEX Closed
• CME Globex -
  • Equity products halted (halted between 1030CST/1630GMT and 1700CST/2300GMT);
  • Interest Rate Products halted (halted between 1200CST/1800GMT and 1700CST/2300GMT);
  • FX halted (halted between 1200CST/1800GMT and 1700CST/2300GMT)
• NYMEX and Comex halted (halted between 1215CST/1815GMT and 1700CST/2300GMT)
• NYSE Closed
• NYSE LIFFE Regular Close
• Eurex Regular Close

• Winter storm lashes eastern U.S., threatens Thanksgiving travel (Reuters)
• Fed Reveals New Concerns About Long-Term U.S. Slowdown (BBG)
• Private equity keeps $789bn of powder dry (FT) - because they are "selling everything that is not nailed down"
• Merkel and SPD clinch coalition deal two months after vote (Reuters)
• Japan approves new state secrecy bill to combat leaks (BBC)
• CLOs are the new black: Volatile Loan Securities Are Luring Fund Managers Again (WSJ)
• Health website deadline nears (WSJ)
• Norway Debates $800 Billion Wealth Fund’s Investment Options (BBG)
• Set of global trade deals stalls (WSJ)
• Berlusconi To Learn Fate In Senate  (Sky)
• Silvio Berlusconi withdraws support from Italy’s government (FT)

In a carry-trade driven world in which news and fundamentals no longer matter, the only relevant "variable" is whether the JPY is down (check) and the EUR is up (check) which always results in green equities around the globe and green futures in the US, with yesterday's sudden and sharp selloff on no liquidity and no news long forgotten. The conventional wisdom "reason" for the overnight JPY underperformance against all major FX is once again due to central bank rhetoric, when overnight BOJ's Kiuchi sees high uncertainty whether 2% CPI will be reached in 2 years, Shirai says bank should ease further if growth, CPI diverge from main scenario. Also the BOJ once again hinted at more QE, and since this has proven sufficient to keep the JPY selling momentum, for now, why not continue doing it until like in May it stops working. As a result EURJPY rose above the 4 year high resistance of 138.00, while USDJPY is bordering on 102.00. On the other hand, the EUR gained after German parties strike coalition accord, pushing the EURUSD over 1.36 and further making the ECB's life, now that it has to talk the currency down not up, impossible. This is especially true following reports in the German press that the ECB is looking at introducing an LTRO in order to help promote bank lending. Since that rumor made zero dent on the EUR, expect the ongoing daily litany of ECB rumors that the bank is "technically ready" for negative rates and even QE, although as has been shown in recent months this now has a half-life measured in minutes as the market largely is ignoring whatever "tools" Draghi and company believe they have left.

There were two events of note in the overnight session: first was the return of the Japanese jawboning, because now that the Nikkei has upward momentum - nearly hitting 15600 in early trading only to close unchanged - and the Yen has downward momentum, the Abe, Kuroda, Amari trio will do everything to talk Mrs. Watanabe to accelerate the momentum. In this case BoJ Governor Kuroda said he does not think JPY is at abnormally low levels and consumer inflation likely to hit 2% by fiscal year to March 2016. Kuroda also said he does not think JPY is excessively weak or in a bubble now and JPY has corrected from excessive strength after Lehman. This also means look forward to the daily bevy of Japanese speaker headlines in overnight trading to push the USDJPY and EURJPY higher on an ad hoc basis. The other notable event was the German IFO Business climate which jumped from 107.4 to 109.3, beating expectations of 107.7 and in the process pushing the EUR notably higher, and particularly the EURJPY which moved from 136.30 to nearly 137 or a fresh four year high. At this point European exporters must be tearing their hair out, as must the ECB whose every effort to talk the Euro lower has been met with relentless export-crushing buying.