US Markets Closed On Fifth Anniversary Of Jerome Kerviel Day

To some, today is Martin Luther King day and as a result the US markets are closed, especially since today is also the day when Obama celebrates his second inauguration with Beyonce, Kelly Clarkson and James Taylor at his side (hopefully not on the taxpayers' dime). To others, January 21 is nothing more than the anniversary of the real beginning of the end, when five years ago a little known SocGen trader named Jerome Kerviel could no longer hide his massive futures positions and was forced to unwind them, sending global indices plunging resulting in the biggest single day drop in the Dax (-7.2%), and punking the Fed into an unannounced 75 bps cut. Luckily, today such cataclysmic unwinds are impossible as the market is priced perfectly efficiently, without central bank intervention, price transparency is ubiquitous and the Volcker rule has made prop trading by banks, funded by Fed reserves (which are nothing more than the monetization of excess budget deficits) and excess deposits, impossible.

Sarcasm aside, and hoping nobody will blow up forcing the Fed to cut rates by another 75 bps as a precaution to keeping markets float, as Deustche Bank summarizes we can expect a rather eventful calendar ahead for global macro despite the shortened trading week in the US. In Asia the much anticipated Bank of Japan 2-day meeting will conclude tomorrow where markets are expecting the central bank to embark on a more aggressive easing programme that could include inflation targeting. These hopes are somewhat dampened by the weekend comments from the government’s economic advisor Mr Hamada who said that the BoJ may need to slow the pace of easing if the effect on inflation and Yen “goes too far”. Overnight the Nikkei is about 1% lower while the JPY is off its 2.5 year low at 89.53 against the USD as we type.

In Europe, we have the Eurogroup/ECOFIN meetings on Monday and Tuesday. Wednesday sees the start of the five-day World Economic Forum in Davos where global leaders from Ms Merkel to Mr Dimon are set to speak/interact under the official theme of “Resilient Dynamism”. The same day will also see the IMF publish its updated outlook on the global economy. The Washington based group slashed its 2013 global GDP forecast to 3.6% from 3.9% in October so it’ll be interesting to see where they go from there. On the data front, flash PMIs from Europe, China and the US on Thursday will be the week’s highlights. The US earnings season shifts up a gear with 84 S&P 500 companies expected to report this week. Apple’s results on Wednesday will be a prime focus as market consensus is looking for its first year-on-year earnings decline since 2003. On that note, we also include our oft-updated earnings beat/miss tracker below as well as a recap of the stats for previous reporting season. The current earnings season is tracking rather well relative to the previous one.

Before we get to all that let’s recap the Asian session overnight. Equities are mixed despite the stronger finish to the US session on Friday. Gains in equities are being paced by the Hang Seng (+0.05%) and Shanghai Comp (+0.16%), while the KOSPI (-0.1%) is lagging but there aren’t too many catalysts in what has been a light session in terms of data. In credit markets, Asian bonds are quoted slightly tighter amidst better new issue performance and the Australian and Asian IG indices are marked flat to 1bp tighter.

It was a rather quiet weekend in terms of news flow, but one of the more interesting developments was the outcome of state elections in Lower Saxony on Sunday where the centre-left coalition scored what was described by the Spiegel as an “upset” victory. Early exit polls suggested that Angela Merkel’s CDU and its allies, the FDP, would manage to cling on to a one-seat majority, but that turned later in the evening after preliminary results gave the “red-green” alliance of the opposition SPD and Greens Party a total of 69 seats in the state parliament, against 68 for the CDU-FDP. Perhaps the silver lining for Merkel is that her allies, the FDP, polled much stronger than expected, after previously being in danger of falling below the 5% support threshold needed to retain seats in the state parliament.

The FDP ended up winning almost 10% of votes, however most of the gains came at the expense of Merkel’s CDU.

In other headlines, Bundesbank chief Jens Weidmann reiterated his opposition to the ECB’s OMT program. Weidmann added that it was “wrong and dangerous” to think of the ECB as the only able “crisis manager”. The IMF warned that the EU will need to come up with an additional EU10bn in funds for Greece even if the current programme stays on track, in a 260 page report issued on Friday (FT). In the UK, PM David Cameron’s office is expected to announce a date for his highly anticipated speech on the future of the UK’s relations with  the EU this week.

Briefly recapping the US session on Friday, the S&P500 rallied from the early lows to close moderately higher (+0.34%). Gains were broad-based with nine out of 10 industry sectors posting gains. The sole laggard was the tech sector (-0.36%) which was weighed by a  mixed result from Intel (-6.3%) which reported weak sales in the PC market and disappointed with its Q1 outlook. On the earnings front we had encouraging news as Morgan Stanley and GE both beat top and bottom line expectations. More broadly, the catalyst for the  midday turnaround in risk sentiment was a report that House Republicans are considering extending the US debt ceiling by three months in a bill to be considered next week. According to the Washington Post, the move is a retreat from earlier GOP demand that a debt  ceiling increase is matched by spending cuts. However in exchange for the concession, Republicans are expected to demand that a longer-term budget is passed by both houses of Congress by April 15th. The move was described as a means of forcing the Democrat-controlled Senate to pass a budget, which it hasn’t done in about four years. Over the weekend, Democrat Senator Charles Schumer responded that the Senate was working on a budget anyway which will include an overhaul to the tax code that is intended to raise  significant revenue over the next decade (NY Times).

Last but not least previewing the data calendar for the week we’ll have the German ZEW survey on Tuesday, Japanese trade data on Thursday, German IFO and Japanese inflation both on Friday. US existing and new home sales are out this Tuesday and Friday,  respectively. BoE minutes are out on Wednesday followed by the UK's advance Q4 GDP estimate on Friday.


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