Nikkei

Even though no rational person expected that the Greek situation would be resolved at today's talks in Riga, Latvia, apparently the algos were so caught up in spoofing each other to new record highs that futures, after surging once more overnight following the latest Google miss which sent the company and the Nasdaq soaring, actually dipped modestly into the red following headlines that the latest Greek talks have broken down after a "hostile" Troika "hammered" the Greek finmin, who was accused by European finmins of "being a time-waster, a gambler and an amateur."

Today is shaping up to be a rerun of yesterday where another frenzied Asian session that has seen both the Shanghai Composite and the Nikkei close higher yet again (following the weakest Chinese HSBC mfg PMI in one year which in an upside down world means more easing and thus higher stocks) has for now led to lower US equity futures with the driver, at least in the early session, being a statement by the BOJ's Kuroda that there’s a "possibility" the Bank of Japan’s 2% inflation target will be delayed and may occur in April 2016.

Whether it is in sympathy with the now relentless surge in the Shanghai Composite which tacked on another 2.44% overnight to close at a fresh multi-year high just shy of 4400, well more than double from a year ago, or because Mrs Watanabe was unable to read the latest Japan trade data whose first trade surplus in 3 years hinted that there will be no new easing by the BOJ any time soon, but overnight the Nikkei closed above 20,000 for the first time in 15 years, with "makers of chocolate, mayonnaise, potato chips and household appliances" helping lift the Tokyo market according to the WSJ. The now daily Asian euphoria however did not last long in the European session, and after opening higher, the Stoxx Europe 600 slipped into negative territory just an hour into trading, and was down 0.4% by midmorning, lead by a near 1% decline on Athens' mains stock index, which has since recouped losses stemming from the overnight report that the ECB is considering an up to 50% haircut on Greek bank collateral, a move that would wipe out the Greek financial sector with ease.

Explaining the catalysts that move the "market" overnight has become so farcical it is practically an exercise in futility and absurdism.

It is only fitting that the next business day following a headline that "Global Futures Slide China Tumbles On Short Selling Boost" we would see China, in an apparent panic, not only cut its RRR by 100 bps to 18.5% - far more than expected and the most since 2008 - but, more importantly, hinted that the Friday regulatory decision to encourage short sales and tighter margin rules on "umbrella trusts" was in no way meant to pop that the Chinese stock bubble, ridiculous as it may be. End result: after Chinese futures crashed by up to 6% on Friday after the Shanghai close, overnight the SHCOMP was down just 1.64%, erasing the bulk of the futures loss. More importantly, US equity futures have seen a strong bid this morning in yet another attempt to defend not only the Apple Sachs Industrial Average from going red on the year but the all important 100 DMA technical levels.

Just as China was closing for trade and Europe was opening, something previously unseen happened: no, not another another GPIF or Virtu inspired marketwide stop squeeze, those are quite recurring these days. It was virtually every Bloomberg terminal around the globe suddenly going dark.

Mario Draghi, perhaps blinded by confetti, doesn't see a scarcity of collateral while HSBC thinks that's a bit "strange," and Morgan Stanley doesn't really see what the problem is even as their own analysis shows that it is now "impossible" for Germany to fully implement their portion of the program under the capital key. Meanwhile, FT thinks it's possibly important that thanks to the absurd consequences of NIRP-dom, the ECB may soon take the plunge into euro corporate credit sending yields on corporate bonds negative.

Just as the S&P appeared set to blast off to a forward GAAP PE > 21.0x, here comes Greece and drags it back down to a far more somber 20.0x. The catalyst this time is an FT article according to which officials of now openly insolvent Greece have made an informal approach to the International Monetary Fund to delay repayments of loans to the international lender, but were told that no rescheduling was possible.  The result if a drop in not only US equity futures which are down 8 points at last check, but also yields across the board with the German 10Y Bund now just single basis points above 0.00% (the German 9Y is now < 0), on its way to -0.20% at which point it will lead to a very awkward "crossing the streams" moment for the ECB.

If yesterday stocks surged on the worst 4-month stretch of missing retail sales since Lehman, one which BofA with all seriousness spun by saying "it seems not unreasonable to suspect that the March 2015 reading on retail sales gets revised up next month", then the reason why futures are now solidly in the green across the board even as German Bunds have just 14 bps to go until they hit negative yields and before the ECB is fresh out of luck on future debt monetization, is that overnight China reported its worst GDP since 2009 together with economic data misses across the board confirming China's economy continues its hard landing approach despite a stock market that has doubled in the past year.

Judging by the recent action in equity futures, the continuously rangebound US market since the end of QE may be entering its latest downphase, catalyzed to a big extent by the recent strength in the JPY (the EURJPY traded down to 2 year lows overnight), especially following yesterday's not one but two statements by Abe advisor Harada saying a USDJPY at 125 isn't "justified" and a 105 level would be appropriate. A level, incidentally, which would push the Nikkei lower by about 20% and crush Japanese pensions which are now mostly invested in stocks. Not helping matters was the pause in the Chinese and Hang Seng stock bubbles, with the former barely rising 0.3%, while the former actually seeing its first 1.6% decline after many days of torrid, relentless rises.

If there was any doubt that global trade is stalling, it was promptly wiped out following the latest abysmal Chinese trade data which saw exports tumble by 15% - the most in over a year - on expectations of a 8% rebound, with the trade surplus coming in at CNY18.2 billion, far below the lowest estimate. While unnecessary, with the Chinese GDP growth rate this Wednesday already expect to print at a record low, this was further evidence of weak demand both at home and abroad. Weakness was seen in most key markets, and the strength of China's currency was partly to blame, which again brings up China's CNY devaluation and ultimately QE, which as we wrote some time ago, is the ultimate endgame in the global reflation trade which, at least for now until the CBs begin active money paradropping to everyone not just the 0.01%, is only leading to inflation in stocks and deflation in everything else.v

A look ahead into next week's macro forces.

There is much more going on than just a problem in the Japanese bond market...

What a wonderful and perfectly representative dichotomy of where monetarism stands. We have Bernanke - the former, massive practitioner of QE - telling the world how it does nothing much; while at the exact same time Draghi - the latest - tells the world its super-healing and supporting properties. What’s reconcilable about those two positions is simply asset bubbles, as they are what stand against the former and remain the only, dim hope of the latter.

"A small bubble is something that can be contained. If recent stock gains are signs of a mini-bubble, this is something I would welcome," Japan's Economics Minister says, just as the Nikkei touches fresh highs. And while we thought bubbles were inherently dangerous in any size, we also mistakenly thought the BoJ's multi-trillion yen ETF portfolio could fairly be classified as "large".