If a broken window is good for the Keynesian economy, then today's broken market (worse than the 2013 Nasdaq blackout) was certainly good for stocks as exchanges broke left and right, futures volume exploded and S&P almost hit 2,000 all on the back of a 2-week old headline from Japan. Today's market was volatile... everywhere. Silver and gold were smashed lower (-2.2% & -4.1% on week); US Dollar was pumped higher (+0.5% on the week) but weakened after GDP; Treasury yields unch today, notably flatter on week (30Y unch - almost broke 3.00% today, 5Y +9bps); HY Credit wider in whippy range (+10bps on week). VIX tested to 14 but closed near 15. Stocks end mixed: Trannies -1.2% (worst in a week), Nasdaq unch, Dow +1.1% (V +145 of Dow's 220pts). Post-FOMC - Energy is down 1%, Utes/Healthcare +1.6%.
To 'prove' that the end of QE3 is not a negative for stocks and to 'confirm' the Fed's narrative that the economy is surging (despite all the unsustainable one-offs in the GDP print), algos are tearing stocks higher, targeting the crucial 2,000 S&P level... thanks to 2-week old headlines from Japan, a broken options market, and the NYSE unable to report trades... As Nanex notes "this is a bigger event than the 2013 market blackout."
Day after day after day this 'market' is manipulated and managed by headlines that memory-less machines read and act upon. Today - yet again - at 210am Japan time, Nikkei news decides it is time to print these headlines:
*JAPAN GPIF TO CUT JAPAN DEBT ALLOCATION TO 35%, RAISE DOMESTIC STOCK ALLOCATION TO 25%: NIKKEI
And sure enough JPY explodes instantly in an attempt to spark momentum. This is not news (it's a constant headline every day since October 19th) as Abe sacrifices his economy and his people's economic future for an uptick in stocks. S&P e-minis just posted the record for most contracts traded in a second!!!
Of the last 150 years of developed market monetary policy, we suspect nothing will prepare market participants or Fed members for the twisted terms and double-speak the FOMC will try to unleash today as they attempt to 'end' the most extreme policy measures ever. Goldman Sachs' 'base-case' for today's FOMC is a "steady as she goes" message with few substantive changes in language and asset purchases ending on schedule... but Goldman warns, recent macro and market action might bias the Fed dovish.
10Y Russian bond yields have broken above 10%, trading at the highest yields since 2009 as the Ruble plunges once again to fresh record lows against the dollar. These significant moves come on the heels of two notable headlines overnight. First, German exports to Russia slumped 26.3% YoY in August (down a stunning 16.6% year-to-date with vehicle exports plunging 27.7%) as sanctions batter bilateral trade. Secondly, Rosneft has proposed what is being described as "radical" reactions to the West's sanctions, which the Kremlin has (for now) denied.
Having confirmed earlier that Ebola Czar Ron Klain did not take the weekend off, and ensured the American public knows the decisions on what Chuck Hagel called "quarantine-like" isolation (though obviously not quarantine because the polls suggest that word would not play well with core liberal voters) are still under discussion; we anxiously await President Obama to explain how the mixed messages from various government entities and individual states (with Christie re-flopping to strict quarantines again today) all make sense and are not, as Christie said "incredibly confusing."
This week we will find out the answer to whether the Federal Reserve will end its current quantitative easing program or not. Today was the last open market operation of the current program, and our bet is that it will be the last, for now. Here are three reasons why we believe this to be the case.
For those who follow the Fed's daily intervention in the stock market, today is a historic, if bittersweet day: this is the day when the Permanent Open Market Operations (or POMO) as a result of the QE3 program launched in December 2012, finally die (at least until they are reincarnated yet again). Today, at 11:00 am, the NY Fed's market desk will conclude its 933rd POMO since August 25 of 2005, when it will inject just about a $1 billion in the stock market in the form of a $0.85-$1.05 billion buyback of long-end bonds. And with that, Simon Potter's open market operations desk located on the 9th floor of Liberty 33, will be put on temporary hiatus.
Over the last few weeks, the markets have seen wild vacillations as stocks plunged and then surged on a massive short-squeeze in the most beaten up sectors of energy and small-mid capitalization companies. While "Ebola" fears filled mainstream headlines the other driver behind the sell-off, and then marked recovery, was a variety of rhetoric surrounding the last vestiges of the current quantitative easing program by the Fed. “You will know that the financial markets have reached peak instability and volatility when Britney Spears rings the opening bell.”
"Ebola seems like a lame excuse, frankly, but it’s a widespread one. Assuming that everyone in the market has above-average intelligence we don’t think they’ll trade Ebola headlines" - CRT's David Ader
When markets broke on Wednesday, XIV soared, stocks followed and the volumeless levitation was praised by all as evidence that the world was once again fixed. Yesterday we also saw NYSE Euronext 'break' into the European melt-up close, and later that day, as Ebola headlines hit, the market once again broke numerous times with various exchanges declaring self-help against one another as stocks tumbled on heavy volume. If you are wondering how it is that "the great stock markets in the world" can break so often (and be so ignored by financial media), Nanex exposes the act... as massive quote spamming yesterday sent OPRA to full capacity (broke the efficient flow of data in markets) 13 times...
DRAGHI CALLS FOR STIMULUS: CNBC
DRAGHI SAYS JOINT EFFORT NEEDED TO AVOID RECESSION: CNBC
DRAGHI SAYS INFLATION TO REMAIN LOW IN THE NEAR TERM