Military Plant In East Ukraine Devastated By Massive Explosion; Kiev Accuses Russia Of Using Tactial NukeSubmitted by Tyler Durden on 09/20/2014 20:40 -0400
Last night's headlines crowed in bright red flashing text that Russia and Ukraine had (once again) agreed a cease-fire and terms over the borders between the two nations. Perhaps not surprisingly, mere hours later, Ukraine is claiming that Russia has broken the truce... with the use of a tactical nuclear weapon at Luhansk airport. This comes on the heels of claims by the pro-Russia separatists that Kiev forces destroyed a massive military plant in Donetsk. Russia's defense ministry flatly denies the 'nuclear strikes' adding that "no reasonable person will take them seriously." This truce-breaking action has once again raised calls among Ukrainians for the nation to get its nuclear status back; something Russia is clearly strongly against.
So much for any Scottish referendum vote "surprise": the people came, they voted, and they decided to stay in the 307-year-old union by a far wider margin, some 55% to 45%, than most polls had forecast, even as 3.6 million votes, a record 85% turnout, expressed their opinion. The gloating began shortly thereafter, first and foremost by David Cameron who said "There can be no disputes, no re-runs, we have heard the settled will of the Scottish people." Queen Elizabeth II, who is at her Scottish castle in Balmoral, is expected to make a rare comment on Friday. But while a No vote was where the smart betting money was ahead of the vote anyway, and is thus hardly a surprise, the most curious thing overnight was the complete roundtrip of cable, which was bought on the rumor and then sold off on the news, roundtripping by nearly 200 pips.
For the first time since July 2011's plunge, and with almost half its components already in bear market, the Russell 2000 looks set to experience a 'death cross' in the next few days (50-day moving average crossing below the 200-day). But don't look at that - the S&P 500 and Dow hit new record highs (despite market internals slumping) today ahead of the BABA IPO to keep the dream alive just a little longer ahead of tomorrow's quad-witching malarkey. Today's action was dominated by dismal housing data (demolishing yesterday's exuberance in homebuilders), Poroshenko's "Ukraine invasion" headlines, and hopes ahead of BABA and Scottish votes. USD down on the day, commodities down, bonds unch, stocks... UP.
- House votes to arm Syrian rebels (Reuters).... aka ISIS
- Fed Plots Cautious Course on Rate Rises (Hilsenrath)
- Scots vote in independence referendum to seal the United Kingdom's fate (Reuters)
- Yes or No, the Winner of the Referendum Is Brand Scotland (BBG)
- Draghi Loan Plan Missing Estimates Hampers ECB Stimulus (BBG) - get with the spin, it simply means "Moar QE"
- Obama Plans to Tightly Control Strikes on Syria (WSJ)
- IMF warns of risks from 'excessive' financial market bets (Reuters)
- Russia Praises Ukraine's Autonomy Law for Rebel Areas (WSJ)
During the FOMC pregame show, they punctually trotted out Johnny Waterboy Hilsenrath via SpreeCast, the sparkling new-media darling interactive webcast platform, to serve up another fresh jug of spiked reinvigorating Gatorade to his favorite NY Stock Market team.
Those 4 C’s are: Confirmation, Crisis, Contagion, Catastrophe.
Despite celebrations of de-escalations and truce in US equity markets (by asset-gathering commission-takers), the situation continues to go from bad to worse in the nation almost forgotten now that ISIS is stealing American headlines. The Hryvnia plunged 7.5% this morning - its biggest single-day drop on record - following the release of a scathing IMF letter and devaluation warnings from BofA. The IMF blasted Ukraine's "premature emission of extra money," and demanded it "immediately halt these gross abuses," as BofA warns of risk of "10-20% devaluation" in the next year is high given reserves are at a "critical level."
Overnight weakness in Asia and Europe was shrugged off. The Dow hit all-time record highs (first since July) and the S&P broke back above 2,000 following headlines proclaiming a "stealth QE" from China (which actually hit the news during the Asia session) and chatter from WSJ's Hilsenrath that The Fed will leave the words "considerable period" in the statement tomorrow. Early weakness in stocks was ripped 25 points higher in the S&P on the back of a 97% correlation to AUDJPY (China-driven), the USD dumped to unch for the week (worst day since May), commodities all took off higher (led by Copper and Oil), and Treasuries flip-flopped to end steeper (5Y -5bps, 30Y +1bp on the week). "Most Shorted" stocks squeezed higher. HY credit compressed with stocks rally but decoupled later in the day. The Nasdaq and Russell (nearing death-cross) remain red on the week despite today's exuberance. VIX was smashed back under 13 (which makes perfect sense because there is no uncertainty this week at all). S&P closed below 2,000 and The Dow "off the highs".
From copper to high-yield credit and from stocks to bonds and gold, markets are reacting violently to the headlines from China that they are unleashing another 500bn Yuan "stealth QE"... everything is rallying.. except the USD (biggest drop since May).
The last week has been dominated by sell-side strategists raising hawkish concerns about this week's FOMC with a focus on the drop of the "considerable time" language describing the period from the end of QE to the start of rate hikes. The Wall Street Journal's Fed-whisperer Jon Hilsenrath just dropped a rather large hint that that the "considerable period" language will remain... “Given the economic backdrop, they don’t want to send a signal right now that rate increases are imminent." Here's what the street thinks...
Because what's two weeks between propaganda spewing friends?
Following last month's biggest plunge in 2 years to 4-month lows, it is likely no surprise that the soft-survey-based Empire Fed index exploded to 27.5 (smashing 15.71 expectations) to its highest since October 2009. Of course - away from the headline exuberance, employment plunged to its lowest since 2013, the average workweek slipped, and new orders barely rose (while Prices Received soared). Seems like seasonal adjustments played a strong hand in this exuberance... given hardly any sub indices jumped.
When you see the headlines touting strong retail sales, you need to consider what you are actually seeing in the real world. RadioShack will be filing for bankruptcy within months. Wet Seal will follow. Sears is about two years from a bankruptcy filing. JC Penney’s turnaround is a sham. They continue to lose hundreds of millions every quarter and will be filing for bankruptcy within the next couple years. Target and Wal-Mart continue to post awful sales results and have stopped expanding. And as you drive around in your leased BMW, you see more Space Available signs than operating outlets in every strip center in America.
What will $1 million buy in New York City? A diamond-encrusted Cartier men’s watch. A small fleet of 2014 Bentley Continentals. Or maybe your very own parking spot in SoHo... "Parking is in serious demand and has proven an excellent investment with no sign of a decline."
For the 3rd day in a row, the USDollar flatlined as JPY & AUD weakness offset GBP & EUR strength (following Kuroda's speech this morning). Stocks dipped-and-ripped once again - as they always do into and after the EU close - with the S&P managing to scramble back into the green (but not 2,000 for 3rd day in a row) in a late-day buying panic (after some Draghi headlines saying nothing new). Not everyone was drinking the same bounce-back juice as stocks with HY credit, and JPY-carry not supportive at all. Stocks seemed to track WTI crude most closely today as oil jumped higher (abov $93) compressing the Brent-WTI spread to $5. Gold, silver, and copper slipped lower once again. The Treasury curve continued to bear flatten led by 5Y weakness.