Confused why in the lack of any horrible economic news (unless of course someone leaked a worse than expected November payrolls print which would put QE4 right back on the table) futures are higher, especially in the aftermath of yesterday's disappointing ECB conference? Then look no further than the Yen which has now lost pretty much all control and is in freeplunge mode, rising some 25 pips moments ago on no news, but merely as wave after wave of momentum ignition algos now make a joke of the Japanese currency, whose redline of 123 (as defined by SocGen)is now just 240 pips away. At this pace, Japan's economy, which as reported yesterday has just seen a record number of corporate bankruptcies due to the plummeting yen, may well be dead some time next week. Which, with Paul Krugman as its new and improved economic advisor, is precisely as expected. RIP Japan.
Venezuela "Boosts" Reserves With Rocks, Other "Easily Converted To Cash" Stuff; Suffers Major BlackoutSubmitted by Tyler Durden on 12/04/2014 14:05 -0400
With its bonds trading at 50% of face value, CDS implying an 84% chance of default, a black-market FX rate that signals massive devaluation is likely, and a teetering-on-the-brink of social unrest population entirely dependent on President Maduro's generosity (and the military junta), it is perhaps not entirely surprising that they are trying any trick in the book to bolster reserves. The Venezuelan Central Bank issued a statement today (akin to Europe's hookers-and-blow GDP adjustment) that enables them to count a whole new set of 'assets' as potential international reserves including "stones" and "precious metals held in their vaults on behalf of foreign financial institutions." Hey presto... new reserves. And if that wasn't enough, a massive blackout just hit Caracas...
Today we'll learn more about whether Mr Draghi becomes Super Mario in the near future as the widely anticipated ECB meeting is now only a few hours away. We will do another summary preview of market expectations shortly, but in a nutshell, nobody really expects Draghi to announce anything today although the jawboning is expected to reach unseen levels. The reason is that Germany is still staunchly against outright public QE, and Draghi probably wants to avoid and outright legal confrontation. As DB notes, assuming no new policy moves, the success of today's meeting will probably depend on the degree to which Draghi indicates the need for more action soon and the degree to which that feeling is unanimous within the council. Over the past weekend Weidmann's comment about falling oil prices representing a form of stimulus highlights that this consensus is still proving difficult to build. It might need a couple more months of low growth and inflation, revised staff forecasts and a stubbornly slow balance sheet accumulation to cement action.
Venezuela CDS is surging once again this morning, even as oil prices stabilize on the day, to its highest since January 2009 as traders increase hedges or speculation that the nation will be forced to default on its bonds. Current prices imply around an 85% chance of default (likely not helped by President Maduro's insistence that all is well and that he will try to destrout the black market for dollars that implies a massive devaluation is afoot for the Bolivar)
Following yesterday's dead-cat-bounce, oil prices resumed their downward push today, closing just shy of the flush lows on Friday back to a $66 handle for WTI. Gold also slipped modestly with copper and silver flat as the USD surged higher (+0.75% on the day). Stocks just melted up all day long (supported by USDJPY pushing to new cycle highs over 119), stop-hunting the whole way (with the S&P breaking back above its 5-day moving-average and back into the green on the week briefly). Yesterday's losers (Trannies and Small Caps) were today's BTFD winners. Treasury yields rose notably once again (up 11-13bps on the week) as we suspect oil-producers are selling to help support their collapsing currencies. VIX closed below 13 - slammed into the close to scrape the S&P back above its 5DMA.
A few days of near-record crude volatility (which the CME is scrambling to reduce following 2 crude margin hikes in the past week) is giving way to the New Normal default thinking: that central banks will soon take care of everything. And sure enough, just an hour earlier, US equity futures had jumped 8 points on virtually zero volume, wiping out all of yesterday's losses, driven higher by that new "old favorite", the USDJPY, which has once again resumed its climb higher, briefly rising above 119.00 once again and sending the Nikkei and the Topix to fresh 7 year highs, perfectly oblivious to both yesterday's Moody's downgrade and now open warnings from both Eisuke Sakakibara and Goldman Sachs that further declines in the Yen will accelerate the collapse of the Japanese economy. And, since there is also zero liquidity in the market, that entire gain was also just as promptly wiped out with futures now practically unchanged from yesterday's close.
It is no wonder Venezuela is suffering... Venezuelan bond prices have collapsed around 51 - the lowest close in at least 5 years as yields surge to around 21% yield. The market is pricing in extremely high probability of default (around 63% over 2Y, and 80% based on 5Y CDS) which, as Bloomberg reports, is surging as "every $1 drop in oil is around $770 million of lost revenue, so their ability to pay has taken a big hit."
Who Are the Worst Looters?
Another day, another case of central banks, not one but two this time, dictating "price" action.
Stability is a myth yet it’s what we humans strive for...
They may be able to engineer a stock market rally to further enrich themselves, but they can not propel the real economy of 318 million people. Our consumer society is dying – asphyxiated by debt – shorter of breath and one day closer to death. I’d love to offer some sage advice on how to fix this problem, but it’s too late. Too many people missed the starting gun.
Four years ago, bankers, politicians, and traders were patting themselves on the back after Petroleo Brasiliero (Petrobras) raised a stunning $70 billion in the world's largest share sale, as Bloomberg reported at the time, investors bet on its plans to double output within a decade by tapping offshore fields. Things haven't worked out so well...
JPMorgan Cazenove's global equity strategy group has decided enough is enough - the underperformance of the Eurozone is getting stretched (they note), and are upgrading Euro equity allocations to Overweight at the expense of an Underweight in US stocks. Here are the fives reasons why they made the shift...
Moments ago, Bloomberg released a stunning update that Europe's largest bank is exiting the single-name, both IG and HY, CDS product line, which for years was one of its biggest revenue generators and a product in which DB was for a long time one of the best and deepest CDS trade axes. As Bloomberg reports, Deutsche Bank AG will stop trading investment-grade and high-yield credit default swaps on single credits and will instead focus on trading corporate bonds, according to a spokeswoman.
As Europe gets hungrier and hungrier for a feel-good story, as Brussels longs more and more for a poster child for its 'crisis management' efforts of 2008-2013, as Dublin politicians get closer and closer to facing the crisis-hit electorate, the sunshine being lavished by politicians and the media onto Ireland's economy is likely to get only brighter. It might not feel much warmer, though, on the ground. Nor will it stave off the onset of winter.