New Zealand

While New Zealand's stock market is the 3rd smallest among AsiaPac exchanges, it is not immune from the "glitches" even the largest exchanges have become used to in the new normal era of 'liquidity providers'. For the 2nd time this month, equities trading in New Zealand (the entire market) is halted after a "technical fault" at the operator of the exchange. As one trader noted understatedly, "there seems to be a reasonably regular occurrence of issues, which is a bit of concern."

Following yesterday's S&P surge on the worst hard economic data (not some fluffy survey conducted by a conflicted firm whose parent just IPOed and is thus in desperate need to perpetuate the market euphoria) in five years, there is little one can comment on how "markets" react to news. Good news, bad news... whatever - as long as it is flashing red, the HFT algos will send momentum higher. The only hope of some normalization is that following the latest revelation of just how rigged the market is due to various HFT firms, something will finally change. Alas, as we have said since the flash crash, there won't be any real attempts at fixing the broken market structure until the next, and far more vicious flash crash - one from which not even the NY Fed-Citadel PPT JV will be able to recover. For now, keep an eye on the USDJPY - as has been the case lately, the overnight USDJPY trading team has taken it lower ahead of the traditional US day session rebound which also pushes the S&P higher with it. For now the surge is missing but it won't be for longer - expect the traditional USDJPY ramp just before or as US stocks open for trading.

• Obama Administration Widens Export Potential for U.S. Oil (BBG)
• WTI Pares Gains as U.S. Export Ruling Seen Limited (BBG)
• Senator Cochran defeats Tea Party rival in Mississippi Republican runoff (Reuters)
• Militants attack Iraq air base, U.S. assessment teams deploy (Reuters)
• Maliki rules out national emergency govt (AFP)
• Koch to Start EU Power Trading as It Plans LNG Expansion (BBG)
• Obama Said to Ready Sanctions on Russian Industries (BBG)
• Ghana Sends Plane With $3 Million to Calm World Cup Team (BBG)
• Ghana’s First Hedge Fund Planned by Ex-Exchange Regulator (BBG)
• SEC Is Gearing Up to Focus on Ratings Firms (WSJ)
• Abe Declares Deflation End as Growth Plan Confronts Skeptics (BBG)

Simple overview of the week ahead.  

One month ago we showed that when it comes to the cost of basic (and not so basic) health insurance, the US is by far the most expensive country in the world and certainly among its "wealthy-nation"peers. It would be logical then to think that as a result of this premium - the biggest in the world - the quality of the healthcare offered in the US among the best, if not the best, in the world. Unfortunately, that would be wrong and, in fact, the reality is the complete opposite: as a recent study by the Commonweath Fund, looking at how the US healthcare system compares internationally, finds, "the U.S. fails to achieve better health outcomes than the other countries, and as shown in the earlier editions, the U.S. is last or near last on dimensions of access, efficiency, and equity." In other words: most expensive, yet worst in the developed world.

Following the initial de-dollarization meeting, there has been a slew of anti-dollar moves around the world (including Gazprom's shift of 90% of its clients to non-dollar payments). However, on the heels of the "anti-dollar alliance" discussions yesterday, DW reports that China would start direct trade between the renminbi and the British pound on Thursday. China's Foreign Exchange Trade System (CFETS) confirmed Sterling and yuan would be directly swapped without using the US dollar as an intermediary.

• Currency Probe Widens as U.S. Said to Target Markups (BBG)
• Battle for Iraq refinery as U.S. hesitates to strike (Reuters)
• Ukraine forces battle separatists after truce 'refused' (Reuters)
• Fed Dots Ignored as Investors Focus on Yellen’s Message (BBG)
• Retirees Suffer as $300 Billion 401(k) Rollover Boom Enriches Brokers (BBG)
• American Apparel ousts CEO; source says Dov Charney 'will fight like hell' (LA Times)
• House Panel Is Subpoenaed as Trading Probe Heats Up (WSJ)
• GM Officials Ignored Alert on Car Stalling (WSJ)
• Russia’s $20 Billion Bond Void Filled by China to Mexico (BBG)

This week brings some key events and releases in DMs, including US FOMC (Goldman expects $10bn tapering, in line with consensus), IP, CPI, and Philly Fed (expect 13.5), EA final May CPI (expect 0.50%), and MP decisions in Norway and Switzerland (expect no change in either).

It is difficult to talk about the dollar in the abstract, especially when it is falling against the dollar-bloc and rising against the euro bloc.  Dispassionate overview.  

Thumbnail sketch of an overview of next week.  

Anyone reading the regular Federal Open Market Committee press releases can easily envision Chairman Yellen and the Federal Reserve team at the economic controls, carefully adjusting the economy’s price level and employment numbers. The dashboard of macroeconomic data is vigilantly monitored while the monetary switches, accelerators, and other devices are constantly tweaked, all in order to “foster maximum employment and price stability." The Federal Reserve believes increasing the money supply spurs economic growth, and that such growth, if too strong, will in turn cause price inflation. But if the monetary expansion slows, economic growth may stall and unemployment will rise. So the dilemma can only be solved with a constant iterative process: monetary growth is continuously adjusted until a delicate balance exists between price inflation and unemployment. This faulty reasoning finds its empirical justification in the Phillips curve. Like many Keynesian artifacts, its legacy governs policy long after it has been rendered defunct. 

It is highly likely that bond markets come under pressure and interest rates rise within the next five years. Do you have an insurance policy against that?

Until yesterday, a piece of the global spying puzzle was missing: not because it did not exist, but because certain of Snowden's preferred outlets had refused to reveal it. That piece, as Duncan Campbell of The Register (incidentally Campbell has been breaking exclusives for more than three decades: he was the first journalist to reveal the existence of GCHQ in 1976) revealed yesterday, is the GCHQ's (and thus indirectly the NSA's) top secret middle eastern Internet spy base located in Seeb, Oman (officially known as Oman Comms Link Site 1), smack in the middle of the middle east, located southwest of the Straits of Hormuz, and in close proximity to America's closest petroleum-exporting "friends": Kuwait, Saudi Arabia, and the United Arab Emirates.

The complete implosion in volume and vol, not to mention bond yields continues, and appears to have spilled over into events newsflow where overnight virtually nothing happened, or at least such is the algos' complete disregard for any real time headlines that as bond yields dropped to fresh record lows in many countries and the US 10Y sliding to a 2.3% handle, confused US equity futures have recouped almost all their losses from yesterday despite a USDJPY carry trade which has once again dropped to the 101.5 level, and are set for new record highs. Perhaps they are just waiting for today's downward revision in Q1 GDP to a negative print before blasting off on their way to Jeremy Grantham's 2,200 bubble peak after which Bernanke's Frankenstein market will finally, mercifully die.

With China's push for an international physical exchange, physical demand will begin to have a stronger influence, thereby ending gold manipulation. This will allow gold to rise to a more appropriate price given the scale of macroeconomic, systemic, geo-political and monetary risks of today.