Now that the 3:30 pm pump has been exposed to the world, and having been priced in and frontran (such as yesterday) it changed to the 3:30 dump, algos are desperately searching for another daily calendar trading opportunity. It appears the opening of Europe and Japan for trading are just these two much needed "fundamental" catalysts. As the charts below show, it appears there is nothing more bullish for the two key carry pairs, the USDJPY and the EURUSD, than Japan opening at 8pm Eastern, and then Europe opening next, at 3:30 am Eastern.
Here is a short quiz for you. Ready?
- What’s the current situation with Lindsay Lohan’s rehab?
- Who won the latest “Dancing With the Stars”?
- Name five celebrities with “baby bumps.”
- Explain how the Cypriot banking crisis could impact the European economy.
If you answered the first three questions but are clueless on the fourth, you’re in good company. Estimates are that up to half the population in America is ignorant about the situation in Cyprus. Oh sure, they hear snippets on the evening news, but since it’s far away and happening to other people, they don’t worry about it. There are many people who just can’t “see” anything wrong with our country. People continue to cling to the notion that our leaders are working for us, not for themselves. So people sit on their butts watching “American Idol” or reading about celebrity baby bumps. Can the U.S. economy crash? Nah. It can’t happen here.
I see Japan as a global aggressor, the country doesn't give a damn about where the chips fall outside of its borders.
- JPMorgan Leads Job Cuts as Banks Seek to Bolster Profit (BBG)
- North Koreans don't show for work at Kaesong factory park (Reuters), as NK urges foreigners to leave South Korea (FT)
- Lisbon Struggles to Close New Budget Gap (WSJ)
- Portugal may face delay to bailout funds (FT)
- Putin Squeezing Out UBS to Deutsche Bank Using Oligarchs (BBG)
- China's Xi Says Fast Growth Over (WSJ)
- Spain’s PM wants more powers for ECB (FT)
- Bernanke Says Interest on Reserves Would Be Main Tightening Tool (BBG)
- Bird Flu Claims 7th Victim in China (WSJ)
- Texting While Flying Linked to Commercial Helicopter Crash (BBG)... No, Bernanke wasn't the pilot
We started off the overnight session with various pseudo-pundits doing the count-up to a 100 in the USDJPY. It was only logical then that moments before the 4 year old threshold was breached, the Yen resumed strengthening following comments from various Japanese politicians who made it appear that the recent weakening in the currency may suffice for now. This culminated moments ago when Koichi Hamada, a former Yale professor and adviser to Japanese Prime Minister Shinzo Abe, told Reuters that level of 100 yen to dollar is suitable level from the perspective of competitiveness. The result has been a nearly 100 pip move lower in the USDJPY which puts into question the sustainability of the recent equity rally now that the primary carry funding pair has resumed its downward trajectory. Another result is that the rally in the Nikkei225 was finally halted, closing trading unchanged, and bringing cumulative gains since the morning before the BoJ’s announcement last Thursday to 8.9%. Over that the same time period, the TOPIX Real Estate Index is up an incredible 24%, no doubt reflecting the prospect of renewed buying of REIT stocks from the BoJ’s asset purchasing program.
Shanghai just can't catch a break - first it was floating dead pigs, then ducks, then black swans, then mass chicken exterminations, and now fish. From the Telegraph: " Just weeks after over 16,000 putrefying pigs were pulled from Shanghai's Huangpu river, more than 250kg of dead carp had to be retrieved from a river in the city's Songjiang district. Mystery still surrounds the cause of death, but numerous explanations have surfaced in the Chinese media since residents first complained about the foul-smelling fish last Monday. Theories reportedly include climate change, electrocution, an explosion or even a drug overdose. The Shanghai Daily quoted a local government official who "speculated" the fish could have been "drugged." So, in China things are so good, even the fish are ODing on sleeping pills? Hardly, but the fact that this is even floated "out there" just shows how miserably The Onion has missed its IPO window.
Q. What is your view on gold?
Soros: That’s a complicated question. It has disappointed the public, because it is meant to be the ultimate safe haven. But when the euro was close to collapsing in the last year, actually gold went down, because if people needed to sell something, they could sell gold. Therefore they sold gold. So gold went down together with everything else. Gold was destroyed as a safe haven, proved to be unsafe. Because of the disappointment, most people are reducing their holdings of gold. But the central banks will continue to buy them, so I don’t expect gold to go down. If you have the prospect of a crisis, you will have occasional flurries or jumps. So gold is very volatile on a day-to-day basis, no trend on a longer-term basis.
The week ahead is light on major market moving data releases. From a policy perspective and in light of the recent moves in treasuries, FOMC minutes are likely to be followed by markets. Retail sales in the US are likely to print below consensus both on the headline and on the core metrics. That said, this needs to be seen against the backdrop of first quarter retail consumer spending data surprising to the upside. Producer prices are also likely to come in on the soft side of market expectations. Finally, do not expect large surprises from the U of Michigan consumer confidence.
- Finally the MSM catches up to reality: Workers Stuck in Disability Stunt Economic Recovery (WSJ)
- China opens Aussie dollar direct trading (FT)
- National Bank and Eurobank Fall as Merger Halted (BBG)
- Why Making Europe German Won’t Fix the Crisis - The Bulgarian case study (BBG)
- Nikkei hits new highs as yen slides (FT)
- Housing Prices Are on a Tear, Thanks to the Fed (WSJ)
- Why is Moody's exempt from justice, or the "Big Question in U.S. vs. S&P" (WSJ)
- Central banks move into riskier assets (FT)
- N. Korea May Conduct Joint Missile-Nuclear Tests, South Says (BBG)
- North Korea Pulls Workers From Factories It Runs With South (NYT)
- Illinois pension fix faces political, legal hurdles (Reuters)
- IPO Bankers Become Frogs in Hot Water Amid China Market Halt (BBG)
- Portugal Seeks New Cuts to Stay on Course (WSJ)
With every modestly positive datapoint being desperately clung to, now that even Goldman's Hatzius has once more thrown in the economic towel after proclaiming an economic renaissance in late 2012 just like he did in late 2010 only to issue a mea culpa a few months later (and just as we predicted - post coming up shortly), the key prerogative is to ignore the elephant in the room. That, of course, is that the JPY 1 quadrillion bond market had to be halted for the second day in a row as the Japanese capital markets are fast becoming a very big and sad joke. The resulting flight to safety from Japanese investors, who sense that their own bond market is on the verge of breaking down completely, has managed to send French and Belgian bonds to record lows, the Spanish 2 Year to sub 2%, the German 6 month bill negative in the primary market, the US 10/30 year constantly bid and so on. The immediate result is that the bond-equity disconnect continues to diverge until one day we may get negative 10 Year rates coupled with an all time high stock market. Gotta love the fake New Normal market, in which the Japanese penny stock market was up another 2.8% to well over 13,000 even as the Shanghai Composite plumbs ever redder territory for 2013 on fears the birdflu contagion will hurt the already struggling economy even more.
A big picture look at the drivers of the global capital markets.
How do you know when the people "just say no" to chicken over rampant bird flu concerns? When even McDonalds is forced to slash chicken-related prices, in this case the 20 piece McNuggets, from CNY 36 to CNY 20. Pretty soon not even giving away the McMystery meat will clear out the shelves of all chicken-related fast food first in Shanghai and soon elsewhere in China. Finally, we dread to imagine the horrors that will befall Yum (read China KFC sales), now that after so much pain, the fast-food chain had finally reported a modest bounce in Chinese sales. So much for that.
While Kyle Bass notably remarks that pinpointing the end of a 70-year debt super-cycle is naive, the combination of the resurgence of nationalism (impacting trade with China) and the dreadful impact of the earthquake/tsunami (drastically changing Japan's supply chain) has secularly shifted Japan's trade balance for the worst at a time when the current account is already negative. "They are all in denial," Bass notes as the government has failed to deal with its problems over the last 20 years. Simply put, Japan needs a Schumpeterian 'creative destruction' moment instead of the constant rolling of debts and expanding of government balance sheets to paper over the cracks. The 'moment' feels like it is now, he notes, expanding that "JPY could hit 200," as they lose control; following two decades of volatility-smoothing, the chance of a disorderly collapse are high. Critically, he fears, "the social fabric of Japan will tear," as with one-third of the nations at retirement age, the fallout from the policies of Abe-Kuroda could cause them to "lose 30-50% of their life savings." What is perhaps even more concerning, he adds, "you are starting to see the central banks not trust each other." At a certain point in time, "nationalist interest takes over the global [G7] kumbaya," and that is occurring now. "The insidious nature of a runaway inflation is that it bankrupts the middle class... leading to social unrest globally."
"Livid" Top Chinese Economists Call BOJ Decision "Monetary Blackmail", Demand "Currency War" RetaliationSubmitted by Tyler Durden on 04/07/2013 14:25 -0400
The Chinese Central Bank has so far stoically endured the monthly injection of $85 billion in boiling hot money for the past seven months, lovingly delivered by the inhabitants of the Marriner Eccles building, even if it meant a proportionate hawkish response which has pushed the Shanghai Composite red for the year, and having to deal with a property market that is on the verge of another inflationary blow off top. But while the PBOC will grudgingly take this kind of monetary abuse from Bernanke, now that it has to deal with another de novo created $70+ billion in monthly central bank liquidity (poetically called Carry-O-QE by Deutsche's Jim Reid), this time coming from that loathed neighbor and one time invader across the East China Sea, China won't take it any more. As the SCMP reports, "Many of China's top economists are livid at what they view as an effective currency devaluation by Japan and are calling on the People's Bank of China to retaliate by weakening the yuan to defend itself in what they see as a new currency war."
Chinese H7N9 Bird Flu Strain Found In Chickens, Poultry Markets Closed, Culled As Epidemic Concerns SpreadSubmitted by Tyler Durden on 04/06/2013 12:09 -0400
When we updated last on the most recent happenings in Shanghai (and now various adjoining provinces) as a result of the spread of the H7N9 bird flu, which has so far taken 6 lives, we warned that it is "starting to have major spillover effects on the broader economy, such as mass slaughter of poultry at local markets - a move which will have certain inflationary effects to an economy already on the cusp of losing the war with the G-7's hot money." Indeed, while the human casualties may be promptly contained, it will be the downstream effects on the economy that will have long-term reverberations. As SCMP reports, following yesterday's spot checks at various closed Shanghai poultry markets, the H7N9 strain has been found to have infected local chickens. "The ministry said last night that 10 chicken samples from two markets in the Minhang district of Shanghai and at the Huhuai Farm Products Market in the adjacent Songjiang district had tested positive for H7N9. The virus was also found in two pigeon samples and seven environmental samples collected from these markets, out of a total 738 samples tested." The result has been widespread culling of chickens both in Shanghai and elsewhere, and while the government has been "generous", promising to pay vendors "compensation equal to at least 50% of the market price of the poultry slaughtered", the result is a complete collapse in all chicken-related sales.