Futures Refuse To Remain Grounded, Unlike Global Boeing Fleet

Same overnight pattern, different day. After a late day ramp in the US market, followed by a selloff in the futures after hours, taking the ES to trading session lows, we get the European trading crew which day after day sends the EURUSD soaring as Europe opens, pushing futures to unchanged or even green and easily negating the key news event of the day, in this case the full grounding of the entire global Boeing fleet which will once again weigh on the stock and DJIA. In the meantime, the big rotation behind the scenes in FX land continues, with the ongoing and very sudden pounding of the Swiss Franc taking the EURCHF to 1.2450, or the highest, since 2011. Same with the USDJPY which after another attempt to fall, rallies on more of the same regurgitated rumors. Not to mention the EURUSD of course, which as mentioned above has surged some 100 pips since the European open. In other words the overnight beating of the USD is enough to push the US stock market high enough in nominal terms, avoiding that there is no incremental cash flow. Then again, who needs cash flow when you have "multiple expansion."

Elsewhere, Spain sold 30 year bonds for the first time, as the Social Security Fund pillaging continues. As a result, the Spanish pensions will soon be solely in the form of SPGBs - this is great as long as the Spanish bond complex is rising, but once the plunge resumes, there will be some very unhappy pensioners.

Germany's Economy minister Roessler said a word or two out of place, and was promptly roasted by SocGen for daring to remind the world that all the "growth" is courtesy of central banks. To wit: "It scarcely seems possible but the words ‘ECB rate rise' were muttered by German economy minister Roesler yesterday in the margin of the government's presentation of the economic outlook for 2013. Having cut the real GDP estimate back to 0.4% from 1.1% previously, hardly a growth path that justifies monetary tightening (even with the debt crisis easing), nudging the debate in the direction of ‘higher' interest rates should be a long way off. It is the latest example (it has been a while it must be said) of a flawed and incoherent communication strategy that has beset the eurozone over the past few years. Earlier in the day yesterday, outgoing Eurogroup chairman Juncker had fired his shot in the currency war after having taken to the wires saying that the euro exchange rate was ‘dangerously high', to which Roesler later responded he didn't see any danger in euro strength. Clearly there will be lots of currency discussions planned at the next G20 FinMin meeting in February, but from a eurozone perspective the disjointed nature of the rhetoric is back and perhaps is the clearest testimony to the optimism among officials that the world is moving on. The path is thus open for officials to return to their more individual ways and brings with it the danger of misinterpretation. Fortunately Mr Roesler's words do not carry much weight (as junior partner in CDU/CSU coalition) given that his chances to survive in the post of economy minister later this year have been greatly diminished considering his party's flagging popularity in the election polls."

Finally, the US debt ceiling X-Date is now under a month away. The market is still convinced this is a non-event.

More from DB:

European equities initially started the day on the back foot, with the Stoxx600 trading about half a percent lower at the halfway mark before a solid set of earnings from JPMorgan and Goldman Sachs turned risk sentiment around in the second half of the session. Both banks beat estimates on the top and bottom line and investors took comfort from the 20% q/q revenue growth recorded in each banks’ investment banking businesses which offset double digit declines in FICC and equities trading revenues. More broadly, the US earnings season has started strongly with the running total showing that 15 of 21 S&P500 companies have beat EPS estimates so far, with the same proportion of companies beating revenue estimates – although it’s still clearly early days.

On the data front, there were generally a benign set of economic releases in the US. The NAHB Homebuilder sentiment index was a touch below consensus (47 vs 48 expected) but remains at the highest level since April 2006. December industrial production was in line with estimates (+0.3%mom) and would have been better if not for unseasonably warm weather which weighed on utility output. The December CPI headline was unchanged following a -0.3% decline in November and just a 0.1% increase in October.

Turning to the overnight session and risk assets are generally trading softer ahead of a big day of Chinese macro data tomorrow including Q4 GDP, December industrial production, fixed asset investment, property prices and retail sales. The Hang Seng (-0.2%), KOSPI (-0.2%) and Shanghai Composite (-0.7%) are all edging lower as we type and the ASX200 (+0.38%) is the only major index managing to trade higher on the day. The Nikkei is underperforming at -0.8%, not helped by the third consecutive day of yen appreciation against the greenback. Following recent comments suggesting official concern at the pace of yen depreciation, Japan’s trade minister Motegi sought to assure markets that there has been no change in stance to tackle the strong yen and overcome deflation. Meanwhile in the credit space, the attention continues to be on the recent patchy performance of new issues which is driving the benchmark Australian and Asian credit indices 1-2bp wider.

Reviewing some of the European headlines, the WSJ reported that the head of the ESM believes that allowing the fund to directly recapitalise banks  would deplete its lending capacity much faster than extending loans to governments.

Officials are now discussing whether the home government should retain a stake in additional recapitalizations, echoing a similar report by the FT earlier in the week. Such national stakes could absorb the first round of losses on capital investments and protect the ESM and the rest of the eurozone (WSJ). ECB Governing Council member Ewald Nowotny said he did not share Juncker’s concern about the euro’s strength, adding that the ECB targeted price stability rather than exchange rates. Juncker said on Tuesday that the euro was “dangerously high” which helped cause a 0.6% selloff in EURUSD.

Returning to the US, the debt ceiling took a back seat to the gun control debate in Washington, but there was an interesting poll published by the Washington Post which indicated that Republican voters are divided on the GOP’s strategy of tying a debt ceiling increase to spending cuts. 48% of Republican supporters say any increase in the debt limit should be tied to cuts, while nearly as many, 45%, say that the two issues should be isolated, discrete issues. Overall, 58% of voters say spending cuts should be a separate matter to the debt ceiling, versus 36% who say that the two issues should be considered together. (Washington Post).

Looking at today’s calendar, the European data docket looks relatively light. Spain will sell 2015, 2018 and 2041 bonds while France will issue EUR7-8bn of two to five year bonds. The ECB also publishes its monthly report today. It will be another full day of data in the US with the Philly Fed, jobless claims, housing starts and building permits all scheduled.


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