Back in late September, we posted what Albert Edwards thought at the time was "The Most Important Chart For Investors" which was quite simply, a chart of the USDJPY. Considering the BOJ's overnight move, he was absolutely correct. So for all those who missed it, here it is again, because it explains not only where the Yen is headed next, but why, sadly, this could well be the end of Japan and the mirage of a recovery that has had everybody hypnotized for the past 6 years.
- Futures rally after BOJ ramps up stimulus (Reuters), Japan's central bank shocks markets with more easing as inflation slows (Reuters)
- Kuroda Jolts Markets With Assault on Deflation Mindset (BBG)
- Japan Mega-Pension Shifts to Stocks (WSJ)
- Russia Raises Interest Rates (WSJ)
- Oil-Price Drop Has Saudi Officials Divided (WSJ)
- Not anymore, the BOJ is here: Fed Exit Could Spark Slump in All Markets, ATP CEO Says (BBG)
- Wal-Mart Weighs Matching Online Prices from Amazon (WSJ)
- Euro-Area Inflation Picks Up From Five-Year Low on Stimulus (BBG)
- Big Banks Brace for Penalties in Probes (WSJ)
- Ex-UBS Trader Defense Could Be Threat to U.S. Forex Cases (BBG)
Two days ago, when QE ended and knowing that the market is vastly overstimating the likelihood of a full-blown ECB public debt QE, we tweeted the following: "It's all up to the BOJ now." Little did we know how right we would be just 48 hours later. Because as previously reported, the reason why this morning futures are about to surpass record highs is because while the rest of the world was sleeping, the BOJ shocked the world with a decision to boost QE, announcing it would monetize JPY80 trillion in JGBs, up from the JPY60-70 trillion currently and expand the universe of eligible for monetization securities. A decision which will forever be known in FX folklore as the great Halloween Yen-long massacre.
Earlier this week some of the biggest financial news of the year made huge waves all over Asia. Yet in the Western press, this hugely important information has barely even been mentioned. So what’s the news? The Chinese government announced that the renminbi will become directly convertible with the Singapore dollar... effective immediately.
A week ago, when showing the following chart of Chinese housing trends, we reported that the "burst Chinese housing bubble leads to first annual price decline since 2012", and warned that it is only a matter of time before both China's GDP, extensively reliant on housing construction, as well as Chinese bank assets, vastly consisting of housing-related loans and other fixed income exposure, take a major hit. This happened yesterday, when in an exchange filing China's Industrial & Commercial Bank of China, the largest lender by assets in both China and the entire world, reported its biggest jump in bad loans since at least 2006. Specifically, ICBC’s nonperforming loans rose to 115.5 billion yuan in September from 105.7 billion yuan in June. The increase was the biggest since quarterly data became available.
When Chinese property developer Agile Property Holdings Ltd. said this month that its chairman was taken into custody by authorities, the disclosure was a shock to Western banks that lent the company money, according to China Spectator as the fog of ever-rising asset values suddenly evaporates into the reality of an opaque real estate credit market slap them in the face. The simple fact is "it is very difficult to get a handle on the financials of a Chinese company," as a local investigative consulting firm warns "in China, nothing is what it appears to be."
- "Soaring consumer confidence" - How the Economy Is Stoking Voter Anger at Incumbent Governors (WSJ)
- Euro zone deflation worries shield German Bunds from upbeat Fed (Reuters)
- Greece’s Euro Dilemma Is Back as Minister Sees Volatility (BBG)
- Ukraine gas supplies in doubt as Russia seeks EU payment deal (Reuters)
- Sterling Lads Chats Show FX Traders Matching Fix Orders (BBG)
- NATO Tracks Large-Scale Russia Air Activity in Europe (WSJ)
- U.K. SFO Charges Ex-Tullett Prebon Broker in Libor-Rigging Probe (BBG)
- Jerusalem on edge after shooting of rabbi (FT)
- Israeli police kill Palestinian suspected of shooting far-right activist (Reuters)
- Samsung seeks smartphone revamp to arrest profit slide (Reuters)
To summarize (even though with liquidity as non-existant as it is, this may be completely stale by the time we go to print in a minute or so), European shares erase gains, fall close to intraday lows following the Fed’s decision to end QE. Banks, basic resources sectors underperform, while health care, tech outperform. Companies including Shell, Barclays, Aviva, Volkswagen, Alcatel-Lucent, ASMI, Bayer released earnings. German unemployment unexpectedly declines. The Italian and U.K. markets are the worst-performing larger bourses, the Swiss the best. The euro is weaker against the dollar. Greek 10yr bond yields rise; German yields decline. Commodities decline, with nickel, silver underperforming and wheat outperforming. U.S. jobless claims, GDP, personal consumption, core PCE due later.
Last week we noted a near-record number of VLCC oil tankers sailing towards Chinese ports as we speculated that the world's largest economy looked to rebuild its strategic petroleum reserve at low-low prices. Now we know... as Bloomberg reports, China National United Oil Co., a unit of the country’s biggest energy company, bought the most ever cargoes of Middle East crude through a pricing platform in Singapore. "The big question is what China will do with all of these cargoes," notes one analyst, "It's very difficult for the market to know Chinaoil's strategy."
Based on the lessons of history, all empires collapse eventually; thus, the probability that the US empire will collapse can be set at 100% with a great deal of confidence. The question is, When? (Everyone keeps asking that annoying question.)
QE destroys societies, economies and financial systems, it doesn’t heal them. So maybe it’s a touch of genius that the great powers of global finance have first pushed Keynes into the academic world and then academics like Bernanke and Yellen into positions such as head of the Fed, making everyone blind to the fact that what they think is beneficial, including many who think they’re real smart, actually hurts them most. This whole thing is so broken and perverted it’s getting hard to understand why anybody would want to continue clinging on to it. But then, what does anybody know? 95%+ of people have been reduced to pawns in someone else’s game, and they have no idea whatsoever.
Pointing to “solid job gains” and a falling unemployment rate, the Fed said a range of labor market indicators suggest that labor market slack is “gradually diminishing.” In the process it struck from the statement an earlier assessment that labor market slack was substantial, a phrase investors have been watching closely for signs the Fed is becoming more confident about the economy. If all goes as they plan, officials will turn their attention in the months ahead to discussions about when to start raising short-term interest rates and how to signal those moves to the public before they happen. Many expect to move on rates by the middle of 2015.
U.S. Mint Gold Coin Sales Near 60,000 - "Islamic State, Ebola, Putin, Ukraine" and Swiss Gold InitiativeSubmitted by GoldCore on 10/29/2014 13:59 -0400
Smart money is willing to pay a small premium to own segregated and allocated coins and bars rather than have the exposure of an ETF or digital gold platform ... Prudent diversification into physical coins and bars will again reward those who take a long term view.
- Fed set to end one crisis chapter even as global risks rise (Reuters)... you mean, for the third time?
- Insider-Trading Probe Focuses on Medicare Agency (WSJ)
- He's sorry: Rajoy Apologizes as New Wave of Graft Allegations Hits Spain (BBG)
- China could 'punish' Hong Kong over protests, says ex-HK central bank chief (Reuters)
- Dubai Insists the Boom is Not a Bubble This Time Around (BBG)
- Bank-Data Sharing Accord Expands Push to Find Tax Cheats (BBG)
- Deutsche Bank Sinks to Third-Quarter Loss on Legal Costs (BBG)
- Kim Jong Un Executes 10 Officials for Watching Soap Operas (BBG)
- French drugmaker Sanofi sacks CEO Viehbacher (Reuters)
As Deutsche Bank observes, the Fed has been wanting to hike rates on a rolling 6-12 month horizon from each recent meeting but never imminently which always makes the actual decision subject to events some time ahead. They have seen a shock in the last few weeks and a downgrade to global growth prospects so will for now likely err on the side of being more dovish than in the last couple of meetings. They probably won't want to notably reverse the recent market repricing of the Fed Funds contract for now even if they disagree with it. However any future improvements in the global picture will likely lead them to step-up the rate rising rhetoric again and for us this will again lead to issues for financial markets addicted to liquidity. And so the loop will go on for some time yet and will likely trap the Fed into being more dovish than they would ideally want to be in 2015.