Tyler Durden's picture

Japan Pre-Open: Equities Green, Bonds Red, Abenomics Blue

JPY is clinging sheepishly to the 101 level versus the USD almost as if there is an 'agreement'. It has been testing this level for a week now with many viewing the 100 line in the sand as a pass/fail mark for Abenomics. Tonight's heavy data flow is mixed. While we noted yesterday the inconsistencies in Abenomics, there are two interesting anecdotes this evening worth paying attention to. First, Household spending missed expectations by the largest amount in 18 months (not a good sign for real growth coming back); and second, in a brief moment on CNBC this afternoon, the CEO of Japan's mega corp Sony admitted that while, "the preconception is that a weaker Yen is good overall. Unfortunately for us, versus the USD, it goes the other way." Futures markets signal a green open (just like last night) for the equity markets and a slight red open for JGBs.

Tyler Durden's picture

When An FX Margin Clerk Flaps Its Wings In Japan, US Stocks Slide

Both VIX and credit markets decoupled to the downside soon after Europe closed as equities clambered higher amid lower and lower volumes. As we headed into the last hour though both markets snapped higher to catch up to stocks and that mini-capitulation seemed enough for the equity rally to run out of steam. With the JPY strengthening all day, equities ignored the message of the carry traders until the close - when a big sell-side imbalance (and reality) smacked stocks lower to catch down to the all-important VWAP level once again. The USD saw its worst two-days since Oct 2011 giving up 3 weeks of gains. Gold and Silver are up nicely on the week (1.6 to 2%), outperforming today. Equities still managed gains on the day (despite the late-day tumble) and (oddly) Treasuries also ended very marginally in the green. The last few minutes of the day - normally kept open for some levitating algo to save the day - was a cliff-dive as news of FX margin controls on the all-important JPY carry driver smashed all risk-assets lower.

Tyler Durden's picture

Yen Spikes On News Japan Set To Impose New Forex Margin Trading Rules

Moments ago the 101 USDJPY tractor beam was broken, sending the pair lower, as a red headline hit the tape saying that...


Which incidentally was long overdue: with the BOJ scrambling to contain bond (and stock, if only to the downside) volatility, it was always the FX market that was the primary uber-levered culprit moving both asset classes. As such, it was very surprising that in a world in which all correlated asset classes (just look at the USDJPY-ES relationship) are driven by FX, that currency leverage and margin rules have remained largely untouched by regulators and central bankers whose credibility is suddenly slipping away, alongside the surge in global market volatility in the past week.

williambanzai7's picture


You have your fear, which might become reality; and you have  Market Godzilla, which IS reality...

Tyler Durden's picture

This Won't End Well

With both the Real Estate and Banking equity indices in Japan already in bear markets (down over 20% from recent highs) and the broad indices down over 15%, just how much pain can the massive influx of foreign capital take before the exodus really takes hold. Today's 'news' of the GPIF's allocation shift won't be enough to stem the tide as 'foreigners' (who have flooded on an epic scale into Japanese stocks) step away to the next hot-money focus... this won't end well.

Tyler Durden's picture

Jeff Gundlach: "There Is No Such Thing As Economic Analysis Anymore"

"Since we're dealing with markets that are being manipulated by central bank policies, there is no such thing as economic analysis anymore. All you have is the imaginations of central bankers, and you don't know what they're going to do, so you have to be diversified."

Tyler Durden's picture

"No Warning Can Save People Determined To Grow Suddenly Rich"

At the height of the financial crisis (i.e. 2008) it was easy to despise just the bankers for their serial and colossal ineptitude and rank hypocrisy. Now, five years into one of history’s most alarming bubbles, it’s easy to despise just about everyone in a position of financial or political authority, and for the same reasons. The real black comedy lies in the manipulation of market prices that is now endemic throughout the global financial system. As Japan is now showing, even with the unrestrained commitment of a central bank and its magical powers to create money out of nothing, there are practical limits to market rigging activity. Last week’s price action within the Japanese government bond market and stock market suggests that both of these markets are in the early stages of shaking themselves to pieces. The fallout of unintended (counter-intended ?) consequences from massive market manipulation will be awesome.

Tyler Durden's picture

Gold Bar “Supply Constraints” In Singapore Sees Record Premiums

Traders and speculators are watching the $1,413/oz resistance level. A daily close above this level will likely trigger the beginnings of a short squeeze. Holdings in the largest bullion-backed exchange-traded product expanded yesterday for the first time since May 9. Strong premiums for gold bars in Asia show that jewellers and investors are busy buying bullion on this dip. In Singapore, Reuters reports that “supply constraints” have sent premiums to “all time highs” at $7 to spot London prices. Animal spirits are returning to the gold market in the ‘Land of the Dragon’ in this the ‘Year of the Snake’. The volume for the Shanghai Gold Exchange’s benchmark cash contract surged to 19,599 kilograms yesterday from 15,641 kilograms the day before. In two days the volumes have nearly doubled and surged from 10,094 kilograms to 19,599 or 94%.

Tyler Durden's picture

Frontrunning: May 30

  • Japan’s Stocks Correction Raises Stakes for Abe’s Growth Plan (BBG)
  • China Failure to Grow With $1 Trillion Is Warning to Li (BBG)
  • Blankfein Leads Bank CEO Pay With $26 Million Deemed Overpaid (BBG)
  • IMF says ‘no evidence yet’ of Abenomics hurting other economies (FT)
  • Europe Seeks CFTC Delay in Imposing Swaps Rules on Banks (BBG)
  • Fed's Rosengren: 'Modest' QE3 cut may make sense in a few months (Reuters)
  • Who’s who of Obama lobbyists pushes Keystone pipeline (FT)
  • China to Study Joining U.S.-Led Trade Accord After Japan Added (BBG)
Tyler Durden's picture

Here Are The Holdings Of The Japanese Public Pension Fund

Presenting the key assets JPY108 trillion ($1.16 trillion) GPIF pension fund as of September 2012:

  • JPY 68.3 trillion in government bonds: 64%
  • JPY 12.6 trillion in foreign stocks: 12%
  • JPY 12 trillion in Japanese stocks: 11%
  • JPY 9.6 trillion in foreign bonds: 9%

In other words, the fact that the GPIF's overall domestic equity allocation will not decline from 11%, or a little over $100 billion, is the main catalyst for today's move.  Putting $100 billion in context: this is how much liquidity the BOJ injects in the stock market in under two months.

Tyler Durden's picture

Nikkei Plunges Another 5% But "Unsourced" Stick Save Arrives Just In Time

One look at the 5%+ plunge in the Nikkei overnight and one would be allowed to wonder if this was it for Abenomics: with a 15% drop from recent highs, and the TOPIX Real Estate index down by more than 20%+ since mid-April, entering a bear market, what's worse is that even the "wealth effect" Mrs Watanabe fanatics would be excused from having much hope going forward. The problem, however, is that in a world in which only the USDJPY matters as a risk signal, and only the stock market remains as a last bastion of "hope", the overnight weakness pushing the dollar yen to just 50 pips above 100 threatened to crush the manipulated rally and force everyone to doubt the sustainability of central planning. So, sure enough, literally seconds we got the much needed stick save without which everything could have come tumbling down, namely based on an unsourced article out of Reuters that Japan's Public Pension Fund is considering a change to its portfolio strategy that could allow domestic equity share of investments to rise in rallying market. The immediate result was an instantaneous surge in the USDJPY which in turn dragged global risk higher across the board, simply due to what algos deemed as yet another procyclical last minute rescue. More importantly this was nothing but a squeeze catalyst coming at just the right time before market open to prevent a rout in global equities. Ironically, that we are back to the Reuters "sticksave" unsourced article, indicates just how weak the reality behind the scenes must be.

Tyler Durden's picture

Sean Corrigan: "Abenomics Is Riddled With Inconsistencies"

Abenomics is riddled with inconsistencies. He wants the world's biggest bond market to sit still while he tells them they are going to lose money year-after-year (if his inflation goals are met). He wants to spark a renaissance by lowering the JPY and creating inflation but he doesn't want real wages to drop. Of course, the CNBC anchor's ironic perspective that the 80% domestic bond holdings of JGBs will 'patriotically sit back and take the loss' is in jest but it suggests something has to give in the nation so troubled. In fact, as Diapason's Sean Corrigan notes, that is not what has been happening, "every time the BoJ is in, the institutional investors are very happy to dump their holdings to them." On the bright side, another CNBC apparatchik offers, this institutional selling will lead to buying other more productive assets to which Corrigan slams "great, so we have yet another mispriced set of capital in the world, that'll help won't it!" The discussion, summarized perfectly in this brief clip, extends from the rate rise implications on bank capital to the effect on the deficit, and from the circular failure of the competitive devaluation argument.


Tyler Durden's picture

Volcker On Bernanke's Grand Monetary Experiment: "Good Luck In That"

The Federal Reserve, any central bank, should not be asked to do too much to undertake responsibilities that it cannot responsibly meet with its appropriately limited powers,” Volcker said. He said a central bank’s basic responsibility is for a “stable currency.” “Credibility is an enormous asset,” Volcker said. “Once earned, it must not be frittered away by yielding to the notion that a little inflation right now is a good a thing, a good thing to release animal spirits and to pep up investment.”  “The implicit assumption behind that siren call must be that the inflation rate can be manipulated to reach economic objectives,” according to Volcker. “Up today, maybe a little more tomorrow and then pulled back on command. Good luck in that. All experience demonstrates that inflation, when fairly and deliberately started, is hard to control and reverse.

Tyler Durden's picture

Understanding Gold Market Dynamics

To an extent that reveals a thorough misunderstanding of the market forces, the financial media has failed to consider the different motivations and beliefs that drive the different types of investors who are active in the gold market. By treating the gold market as if it were comprised of just one type of investor, analysts have drawn false conclusions about the recent volatility.

Tyler Durden's picture

What Happens After a 70% Stock Market Rally In 6 Months?

What happened in Japan last week (a 14% decline after a 85% rally since last fall) is an example of markets getting ahead of the facts on the ground. How much optimism was priced into the success of Japan’s monetary policy bazooka? As JPMorgan's Michael Cemblaest notes, P/E multiples rose from 11x to 17x since last Labor Day, and breakeven inflation implied by (admittedly thin) Japanese JGB-i bond markets rose to 2%, a level Japan has not seen consistently since 1990. On top of that, net long positions on the Tokyo Stock exchange were close to the highest levels in 20 years, and foreign participation in Japanese equity markets was also elevated. It did not take much detailed market research to see that Japan had become a crowded and popular trade. But what happens next? After a 70% run-up over 6 months, how have stocks performed? The answer may surprise many...

Syndicate content
Do NOT follow this link or you will be banned from the site!