Trade Balance

The main overnight event, which we commented on previously, was China's trade data which was a disaster. March numbers turned out to be well below market consensus with exports falling 6.6% YoY (vs +4.8% expected) and imports falling 11.3% YoY (vs +3.9% expected). The underperformance of imports caused the trade balance to spike to $7.7bn (vs -$23bn in Feb). Pricing on the Greek 5-year syndicated bond is due later today, with the final size of the bond boosted to EUR 3bln from EUR 2.5bln as order books exceed EUR 20bln (equating to a rough bid/cover ratio of over 6) as the final yield is set at 4.75% (well below the 5.3% finance ministry target and well above our "the world is a bunch of idiots managing other people's money" 3% target). Ireland sold EUR 1bln in 10y bonds, marking the third successful return to the bond market since the bailout. Also of note, this morning saw the release of lower than expected French CPI data, underpinning fears of potential deflation in the Eurozone.

The positive sentiment stemming from a positive close on Wall Street and saw Shanghai Comp (+0.33%), Hang Seng (+1.09%) trade higher, failed to support the Nikkei 225 (-2.10%), which underperformed its peers and finished in the red amid JPY strength as BoJ's Kuroda failed to hint on more easing. Stocks in Europe (Eurostoxx50 +0.32%) traded higher since the open, with Bunds also under pressure amid the reversal in sentiment.
Alcoa kicked off earnings season yesterday, with shares up 3% in after-market hours. Focus now turns to the release of the FOMC meeting minutes.

There is a reasonably quiet start to the week before we head into the highlights of the week including the start of US reporting season tomorrow, FOMC minutes on Wednesday and IMF meetings in Washington on Friday. On the schedule for today central bank officials from the ECB including Mersch, Weidmann and Constancio will be speaking. The Fed’s Bullard speaks today, and no doubt there will be interest in his comments from last week suggesting that the Fed will hike rates in early 2015.

Today’s nonfarm payrolls release is expected to show a "spring" renaissance of labor market activity that was weighed on by "adverse weather" during the winter months (Exp. 200K, range low 150K - high 275K, Prev. 175K). Markets have been fairly lackluster overnight ahead of non-farm payrolls with volumes generally on the low side. The USD and USTs are fairly steady and there are some subdued moves the Nikkei (-0.1%) and HSCEI (+0.1%). S&P500 futures are up modestly, just over 0.1%, courtesy of the traditional overnight, low volume levitation. In China, the banking regulator is reported to have issued a guideline in March to commercial banks, requiring them to better manage outstanding non-performing loans this year. Peripheral EU bonds continued to benefit from dovish ECB threats at the expense of core EU paper, with Bunds under pressure since the open, while stocks in Europe advanced on prospect of more easing (Eurostoxx 50 +0.14%). And in a confirmation how broken centrally-planned markets are, Italian 2 Year bonds high a record low yield, while Spanish 5 Year bonds yield dropped below US for the first time since 2007... or the last time the credit risk was priced to perfection.

• Russia says expects answers on NATO troops in eastern Europe (Reuters)
• Dealers say GM customer anxiety rising, sales may take hit (Reuters)
• China Unveils Mini-Stimulus Measure (WSJ)
• Londoners Priced Out of Housing Blame Foreigners (BBG)
• New earthquake in Chile prompts tsunami alerts (Reuters)
• Ukrainian Billionaire Charged by U.S. With Bribe Scheme (BBG)
• Chinese Investments in U.S. Commercial Real Estate Surges (BBG)
• Old Math Casts Doubt on Accuracy of Oil Reserve Estimates (BBG)
• US secretly created 'Cuban Twitter' to stir unrest (AP)

Being that markets are unrigged and all, at least according to every single proponent of HFT that is, futures have done their overnight levitation as they have every day for the past month driven by the one staple - the Yen carry trade - even if in recent days the broader market slump during the actual daytrading session mostly impacted biotechs yesterday. And since any news is good news, we don't expect today's main event, the ECB's rate announcement and Draghi press conference, both of which are expected to announce nothing new despite Europe's outright inflationary collapse which most recently dropped to 0.5%, the lowest since 2009.

After ramping in overnight trading, following the spike in Japanese stocks following another batch of disappointing economic data out of the land of the rising sun and setting Abenomics which sent the USDJPY, and its derivative Nikkei225 surging, US equity futures have pared some of the gains in what now appears a daily phenomenon. Keep in mind, the pattern over the past 6 consecutive days has been to ramp stocks into the US open, followed by a determined fade all the way into the close, led by "growthy" stocks and what appears to be an ongoing unwind of a hedge fund basket by one or more entities. Could the entire market be pushed lower because one fund is unwinding (or liquidiating)? Normally we would say no, but with liquidity as non-existant as it is right now, nothing would surprise us any more.

Analysis suggests that commentators and policymakers need to better distinguish between the ways in which the US shale gas boom constitutes a ‘revolution’ and the ways in which it does not. The US unconventional energy boom has reversed the decline of domestic production, significantly lowered oil and gas imports, reduced gas costs for consumers, and created a political space for tougher regulations on coal-fired power plants. But it is not a panacea. Even if current estimates of production turn out to be accurate, the benefits to the US economy in the long run are relatively small, and the benefits to manufacturing competitiveness in most sectors are even smaller.

"It's always darkest before the dawn," we are sure will be the next idiotic (and wholly unsupported) bullshit line from various Japanese leaders about yet another round of disastrous Japanese data. Aside from June 2013, this is the biggest monthly drop in Industrial Production since the Tsunami - and biggest miss since Abenomics began. Good news right? More stimulus right? Not with inflation surging thanks to the collapsed currency. But wait, there's more 'great' news, Markit PMI just had its biggest 2-month drop in 20 months and is at its lowest in 6 months. For now, JPY is confused (and so is the Nikkei) but US futures aren't, they are rallying; because, well - why not, the casino is still open for now.

In the 16 months since Japanese Prime Minister Shinzo Abe launched his bold plan to reflate Japan’s shrinking economy the yen has depreciated by 22% against the dollar, 28% against the euro and 24% against the renminbi. The hope was to stimulate trade and push the current account decisively into the black. Yet the reverse has occurred. Japan’s external position has worsened due to anemic export growth and a spiraling energy import bill: in January it recorded a record monthly trade deficit of ¥2.8trn ($27.4bn). Having eked out a 0.7% current account surplus in 2013, Japan may this year swing into deficit for the first time since 1980. So why is the medicine not working?

As gold completes its golden cross today and remains by far the best-performing asset of 2014, we thought it intriguing that Goldman Sachs' commodity group would issue a strong "sell your gold" recommendation... of course, when Goldman's clients are selling, who is buying? As a reminder, the last time the bank was extremely bearish on gold (about a year ago), our skepticism at the time was well warranted as Goldman was in fact the largest buyer of gold in the following quarter.

In an overnight session that had little in terms of macro and news flow, the most notable event was that the Dollar-Renminbi finally crossed above 6.20 which as a reminder is the suggested "max vega" point beyond which even more max pain lies for levered accounts long the Yuan. However, in a world in which nothing is discounted and in which no news matters, the "market" broadly ignored this significant development (which as we explained further yesterday means an accelerated unwind of Chinese Commodity Funding Deals, and a potential drop in global commodity prices), and eagerly awaited today's non-event of an FOMC conference, where nothing new will be announced save for the novelty of it being Yellen's first appearance before the press as the head of the Fed. And of course the Fed will almost certainly scrap the 6.5% employment threshold, as the FOMC scrambles to make the economy appear worse than it is reported to be, in a stark reminder that the biggest optically manipulated tool meant to boost confidence in the recovery was nothing but a number meant to serve political purposes.

After trading well above the Dow at last year's peak (and equal with it at 2013 year-end), the Nikkei 225 is now almost 2000 points below the level of the Dow - a 13-month low. Trading not far off the EM-crisis lows of January, Japanese stocks are fading as JPY can't sustain any offer and carry-trades are unwound. Not helped by yet another in a long and illustrious list of mssed trade balance figures since Abe took the helm. Elsewhere in Asia, USDCNY traded up to almost 6.20 (the Maginot line for many derivatives trades) and does not look like the PBOC has it under control and copper has dumped from earlier US exuberance; iron ore is flat; and Chinese stocks are down (along with US futures fading modestly).

A dispassionate discussion of the major forces impacting the investment climate in the week ahead. 

It has been a relatively quiet overnight session, aside from the  already noted news surrounding China's halt on virtual credit card payments sending Chinese online commerce stocks sliding, where despite an ongoing decline in the USDJPY which has sent the Nikkei plunging by 3.3% (and which is starting to impact Abe whose approval rating dropped in March by a whopping 5.6 points to 48.1% according to a Jiji poll), US equity futures have managed to stay surprisingly strong following yesterday's market tumble. We can only assume this has to do with short covering of positions, because we fail to see how anyone can be so foolhardy to enter risk on ahead of a weekend where the worst case scenario can be an overture to World War III following a Crimean referendum which is assured to result in the formal annexation of the peninsula by Russia.