Goldman Sachs

Futures Slide As A Result Of Yen Carry Unwind On Double POMO Day

Something snapped overnight, moments after the EURJPY breached 140.00 for the first time since October 2008 - starting then, the dramatic weakening that the JPY had been undergoing for days ended as if by magic, and the so critical for the E-Mini EURJPY tumbled nearly 100 pips and was trading just over 139.2 at last check, in turn dragging futures materially lower with it. Considering various TV commentators described yesterday's 0.27% decline as a "sharp selloff" we can only imagine the sirens that must be going off across the land as the now generic and unsurprising overnight carry currency meltup is missing. Still, while it is easy to proclaim that today will follow yesterday's trend, and stocks will "selloff sharply", we remind readers that today is yet another infamous double POMO today when the NY Fed will monetize up to a total of $5 billion once at 11am and once at 2 pm.

Even Goldman Can't Explain Away The Market Exuberance

From the start of 2012, the S&P 500 up over 40% with the bulk of that surge coming since QE3 (and 4EVA) was unleashed. Until that point, Goldman's global risk and macro models had stayed relatively well synced with stock market 'reality' but once that torrent of liquidity was released, all bets were off. As the following chart shows, more than half the equity market performance is due to factors unrelated to risk, macro fundamentals, or country-specific factors. So, BFTATH of course?

Guest Post: The World Is Stuck Between A Rock And A Squishy Place

The rock is reality. The squishy place is the illusion that pervasive racketeering is an okay replacement for an economy. The essence of racketeering is the use of dishonest schemes to get money, often (but not always) employing coercion to make it work. Some rackets can function on the sheer cluelessness of the victim(s).

Auction System Failure Forces US Treasury To Postpone 3, 6-Month Bill Auctions

While nobody is impressed by breaking equity and options markets anymore, since this has become a virtually daily ocurrence and the habituation level is high, bond markets, and especially the US government's "guaranteed" bond issuance machinery, are a different matter altogether. Which is why any time something out of the ordinary happens, people pay attention. Such as what happened moments ago when the US Treasury announced that it would delay the closing of the 3 and 6 month Bill auctions, originally scheduled to close today, to tomorrow. The reason: "an error that occurred during a test of Treasury's auction system."

Goldman Reveals "Top Trade" Reco #4 For 2014: Long China Stocks, Short Copper

In addition to its three previously announced so far "Top Trades" for 2014 (see here, here and here), just over an hour ago Goldman revealed its fourth top recommendation to clients. To wit: Goldman is selling China equities (via the HSCWI Index), while buying copper (via Dec 2014 futs), or at least advising its flow clients to do the opposite while admitting that "for the long China equity/short commodity pair trade to “work” best, these two assets, which are usually positively correlated, will have to move in opposite directions." For that and many other reasons why betting on a divergence of two very closely correlating assets will lead to suffering, read on. Finally - do as Goldman says, or as it does? That is the eternal question, one whose answer is a tad more problematic since the author in this case is not Tom Stolper but Noah Weisberger.

Overnight Carry Currency Weakness Has Yet To Translate Into Futures Ramp

Asian equities have gotten off to a rocky start to the week despite some initial optimism around the twin-Chinese PMI beats at the start of the session. That optimism has been replaced by selling in Chinese equities, particularly small-cap Chinese stocks and A-shares after the Chinese security regulator issued a reform plan for domestic IPOs over the weekend. The market is expecting the reforms to lead to a higher number of IPOs in the coming quarters, and the fear is that this will bring a wave of new supply of stock to an already-underperforming market. Indeed, the Chinese securities regulator expects about 50 firms to complete IPOs by January 2014 – and another 763 firms have already submitted their IPO applications and are currently awaiting approval. A large number of small cap stocks listed on Hong Kong’s Growth Enterprise Market were down by more than 5% this morning, while the Shanghai Composite is down by 0.9%. The Hang Seng (+0.4%), Hang Seng China Enterprises Index (+0.8%) are performing better on a relative basis, and other China-growth assets including the AUDUSD is up 0.5%. The Nikkei (-0.1%) is also a touch weaker after Japan’s Q3 capital expenditure numbers came in well below estimates (1.5% YoY vs 3.6% forecast). Elsewhere Sterling continues to forge new multi-year highs against the USD (+0.3% overnight).

Frontrunning: November 29

  • So much for the euphoria: Stores open early on Thanksgiving but shoppers in no rush (Reuters)
  • Get to work Mr. Chairwoman: Do-Nothing Congress Dithers on Budget as Deadline Nears (BBG)
  • FX to Libor Probes Leave U.K. Traders Looking for Lawyers (BBG)
  • Protesters Briefly Storm Thai Army Headquarters (WSJ)
  • Berlusconi accused of bribing witnesses in prostitution trial (Reuters)
  • Japan Price Gauge Rises Most Since ’98 in Boost to Abe (BBG)
  • S&P downgrades Netherlands’ AAA credit rating (FT)
  • GrainCorp Verdict Clouds Australia Open-For-Business Pledge (BBG)
  • Hertz Fix in Dollar Thrifty Deal Fails as Insider Warned (BBG)
  • Narrow Budget Agreement Comes Into View (WSJ)

5 Things To Ponder Over Thanksgiving

With the "inmates in charge of the asylum" during this holiday shortened trading week it seemed to be an apropriate opportunity to share a virtual cornucopia of topics to consider while enjoying the delicious delicacies, and subsequent tryptophan induced comas, of a traditional Thanksgiving.

GoldCore's picture

An important question is what exactly is Goldman's motivation for the peculiar gold deal? Does it wish to have access to Venezuela's gold reserves? There area many other innovative ways that Goldman could help Venezuela with its current economic travails that do not involve gold. Were Venezuela to default on the bonds would Goldman become the beneficial owner of Venezuela's gold reserves?

A Look Inside The New York Fed's Trading Desk: Then And Now

While we identified long ago the "wealth effect" nerve center of the New Normal, one thing largely unavailable, was pictures of this trading desk with seemingly no sell buttons. Until now: below, courtesy of Wall Street on Parade, we present a modest compilation of not only what the current NY Fed trading desk looks like but also compare it to its predecessor, as it appeared on vintage photos from the 1930s

Frontrunning: November 27

  • Winter storm lashes eastern U.S., threatens Thanksgiving travel (Reuters)
  • Fed Reveals New Concerns About Long-Term U.S. Slowdown (BBG)
  • Private equity keeps $789bn of powder dry (FT) - because they are "selling everything that is not nailed down"
  • Merkel and SPD clinch coalition deal two months after vote (Reuters)
  • Japan approves new state secrecy bill to combat leaks (BBC)
  • CLOs are the new black: Volatile Loan Securities Are Luring Fund Managers Again (WSJ)
  • Health website deadline nears (WSJ)
  • Norway Debates $800 Billion Wealth Fund’s Investment Options (BBG)
  • Set of global trade deals stalls (WSJ)
  • Berlusconi To Learn Fate In Senate  (Sky)
  • Silvio Berlusconi withdraws support from Italy’s government (FT)

Yen Carry Lifts Risk Around The Globe In Quiet Overnight Trade

In a carry-trade driven world in which news and fundamentals no longer matter, the only relevant "variable" is whether the JPY is down (check) and the EUR is up (check) which always results in green equities around the globe and green futures in the US, with yesterday's sudden and sharp selloff on no liquidity and no news long forgotten. The conventional wisdom "reason" for the overnight JPY underperformance against all major FX is once again due to central bank rhetoric, when overnight BOJ's Kiuchi sees high uncertainty whether 2% CPI will be reached in 2 years, Shirai says bank should ease further if growth, CPI diverge from main scenario. Also the BOJ once again hinted at more QE, and since this has proven sufficient to keep the JPY selling momentum, for now, why not continue doing it until like in May it stops working. As a result EURJPY rose above the 4 year high resistance of 138.00, while USDJPY is bordering on 102.00. On the other hand, the EUR gained after German parties strike coalition accord, pushing the EURUSD over 1.36 and further making the ECB's life, now that it has to talk the currency down not up, impossible. This is especially true following reports in the German press that the ECB is looking at introducing an LTRO in order to help promote bank lending. Since that rumor made zero dent on the EUR, expect the ongoing daily litany of ECB rumors that the bank is "technically ready" for negative rates and even QE, although as has been shown in recent months this now has a half-life measured in minutes as the market largely is ignoring whatever "tools" Draghi and company believe they have left.

Stock Futures Rise To New Record Highs On Carry-Currency Driven Ramp

Another day, another carry currency-driven futures melt-up to daily record highs (the all important EURJPY soared overnight on the return of the now standard overnight Japanese jawboning of the JPY which sent the EURJPY just shy of a new 4 year high of 138 overnight), and another attempt by the ECB to have its record high market cake, and eat a lower Euro too (recall DB's said the "pain threshold" for the EUR/USD exchange rate - the level at which further appreciation impairs competitiveness and economic recovery - is $1.79 for Germany, $1.24 for France, and $1.17 for Italy) this time with ECB's Hansson repeating the generic talking point that the ECB is technically ready for negative deposit rates. However, with the halflife on such "threats" now measured in the minutes, and soon seconds, the European central bank will have to come up with something more original and creative soon, especially since the EURJPY can't really rise much more without really crushing European trade further.

A (Visual) Tale of 25 Cities (And Half The World's GDP)

With more people in the world living in cities than ever before, cities’ share of global GDP is rising: 25 cities account for approximately 50% of the world’s GDP. But not all cities can be winners, and not all are destined for greatness. The following smorgasbord of charts highlight how successful cities have typically had natural advantages such as location, time zone and resources; but more importantly, to remain successful they need education, a skilled workforce, strong property rights, a broad base of industries and in some cases, policies aimed at attracting capital and talent. Conversely, As Goldman notes, when cities fail it tends to be either because of an overreliance on an industry that has seen a dramatic shift in its profitability, or as a result of the vested interests of those that control them.

iArb

Given the following chart, it is perhaps no surprise that the demand for iPhones in the US is higher than in the rest of the world. Forget about reaching for yield in CCC-rated cov-lite leveraged loans, ignore the latest internet no-profits-but-lots-of-eyeballs IPO, the real way to make money in the new normal is the 'iArbitrage'.