Two days ago, when QE ended and knowing that the market is vastly overstimating the likelihood of a full-blown ECB public debt QE, we tweeted the following:
It's all up to the BOJ now— zerohedge (@zerohedge) October 29, 2014
Little did we know how right we would be just 48 hours later.
Because as previously reported, the reason why this morning futures are about to surpass record highs is because while the rest of the world was sleeping, the BOJ stunned those few who were looking at Bloomberg screens with a decision to boost QE, announcing it would monetize JPY80 trillion in JGBs, up from the JPY60-70 trillion currently and expand the universe of eligible for monetization securities. A decision which will forever be known in FX folklore as the great Halloween Yen massacre.
In retrospect, the BOJ's announcement should have been anticipated. Recall that yesterday, the biggest non-story was the regurgitated headline that the Japanese Pension fund would boost its holdings of domestic and foreign stock from 12% to 25%, while slashing its Japan bond holdings from 60% to 35%, something that had been leaked previously. The full changes:
- Domestic stocks raised to 25% from 12%
- Japan bonds cut to 35% from 60%
- Overseas shares 25% from 12%
- Foreign debt 15% from 11%
But while Japan's eagerness to bet its retirees lifetime savings on GoPro had been well-known previously, it also meant that someone would have to step in and buy the hundreds of billions of JGBs the GPIF had to sell in what over the past year became the world's most illiquid bond market, often going for days without a single transaction.
That someone, a few hours ago, was revealed to be the Bank of Japan, which in addition to now clearly becoming the only buyer of only resort for Japanese bonds, has tipped its hands that it is going all in on pushing the Nikkei higher at all costs, even if it means crushing the domestic economy, something which even Keynesian "experts" say will be the outcome if the Yen continues to slide below 110 for the dollar.
So for all those wondering why futures are back to all time highs, here is the reason:
- ITALIAN SEPT. UNEMPLOYMENT RATE RISES TO 12.6%, MATCHING RECORD
No wait, sorry, that's reality - something that hasn't mattered to markets since 2008. Here is the reason, all thanks to CTRL-P:
- KURODA SAYS EASED TO MAINTAIN POSITIVE CHANGES IN EXPECTATIONS
- KURODA: TODAY’S DECISION SHOWS BOJ’S UNWAVERING DETERMINATION
In other words, several days after Larry Fink mysteriously visited Abe, the BOJ announced it would do everything in its power push the Nikkei into green for the year, which it did with its announcement overnight, and to truly crush the local population's buying power.
Kuroda also had some truly comedic one liners:
- KURODA: DON'T THINK EXIT FROM EASING WILL BE DIFFICULT
And now that Japan has gone all in on runaway inflation, we expect that Abe's reign of terror to be cut short as finally the people's anger at this Keynesian madman on top of it all will finally explode.
The good news in all of this is that the desperation is increasingly palpable, and since Japan is about to go pro in deflation exporting to the US and mostly Europe, expect even more violent reprisals from the world's other central banks and so on until finally it is only central banks left trading with each other. Much like today.
In the meantime, here is what is going on:
- S&P 500 futures up 1.2% to 2011.6
- Stoxx 600 up 1.4% to 335.5
- US 10Yr yield up 1bps to 2.32%
- German 10Yr yield down 1bps to 0.84%
- MSCI Asia Pacific up 1.3% to 142.2
And the punchline:
- Gold spot down 2.2% to $1172.3/oz
Because in the new normal diluting your currency even more is even more negative for undilutable currencies.
Some more details on what the latest massive central bank intervention did to what only laughably can one now call "markets" via BBG: European shares rise with the bank and financial services sectors outperforming and media, retail underperforming. Asian stocks rise led by Nikkei as Bank of Japan’s Kuroda raises stimulus to another record. Euro-area inflation data matched forecasts. Companies including RBS, WPP, IAG, Banco Popular, BNP, AB-InBev released results. German Xetra trading halted by computer malfunction. The French and Italian markets are the best-performing larger bourses, Swedish the worst. The euro is weaker against the dollar. French 10yr bond yields fall; Irish yields decline. Commodities decline, with silver, gold underperforming and natural gas outperforming.
Bulletin headline from Bloomberg and RanSquawk
- The BoJ takes centre stage overnight after unexpectedly increasing their QQE programme by JPY 10trl, sending the Nikkei 225 surging higher by 4.8% to its highest level since 2007, the e-mini S&P through 2,000, USD/JPY above 111.00 to its highest level since Jan’08 and spot gold to its lowest level since 2010.
- ECB’s Nowotny lifts Bunds after deviating from his usual hawkish script by adopting a never say never approach to an ECB QE programme.
- Looking ahead, attention turns towards US personal income & spending, Chicago PMI and Univ. of Michigan confidence.
- Treasuries extend second week of losses after Fed ends QE as Bank of Japan expands what was already an unprecedentedly large monetary-stimulus program, boosting stocks and sending the yen tumbling.
- BOJ, which also cut its forecasts for inflation and growth, voted to raise annual target for enlarging the monetary base to JPY80t ($724b), up from JPY60t-JBP70t
- Japan’s $1.1t Government Pension Investment Fund announced it will put half its holdings in local and foreign stocks, start investing in alternative assets and cut its domestic bond allocations to 35% of assets from 60%
- Euro-area inflation rose 0.4% in October, up from a five-year low in October and in line with median estimate in Bloomberg survey; a separate report showed unemployment holding at 11.5% in September
- Russia’s central bank increased its key interest rate to 9.5% from 8%, more than forecast, bringing it to the highest level since it was introduced 13 months ago to halt a currency run that’s stoking inflation
- Chinese bank deposits dropped following a crackdown on lenders manipulating their numbers and “illicit” means of attracting money, threatening to weigh on credit growth and hinder efforts to reignite the economy
- Hong Kong protesters said they may attempt to visit Beijing next week to seek talks with China’s top leaders while the nation plays host to a global summit
- Lloyds Banking Group Plc may still register Scottish Widows Plc, its 200-year-old Scottish insurance division, in England even after voter rejected independence in a referendum last month, said two people with direct knowledge of the deliberations
- Critics and allies agree Israel PM Netanyahu has much to gain on home front by defying Obama; the latest falling-out was sparked by Israel’s plan to build more than 1,000 homes for Jewish residents in areas of Jerusalem the Palestinians claim for their hoped-for state
- Sovereign yields mostly lower. Asian stocks surge, led by Nikkei +4.8% to highest in seven years. European stocks, U.S. equity-index futures gain. Brent crude lower, copper -1.1%, gold -2.2%
US Event Calendar
- 8:30am: Employment Cost Index, 3Q, est. 0.5% (prior 0.7%)
- 8:30am: Personal Income, Sept., est. 0.3% (prior 0.3%)
- Personal Spending, Sept., est. 0.1% (prior 0.5%)
- PCE Deflator m/m, Sept., est. 0.1% (prior 0.0%); PCE Deflator y/y, Sept., est. 1.5% (prior 1.5%)
- PCE Core m/m, Sept., est. 0.1% (prior 0.1%); PCE Core y/y, Sept., est. 1.5% (prior 1.5%)
- 9:00am: ISM Milwaukee, Oct., est. 60 (prior 63.18)
- 9:45am: MNI Chicago Business Barometer (purchasing managers), Oct., est. 60 (prior 60.5)
- 9:55am: UofMich. Consumer Sentiment Index, Oct. final, est.86.4 (prior 86.4)
JGBs trade up 6 ticks at 146.68, after paring their earlier sharp gains as Japan's GPIF panel approved cutting JGB allocation to 35%, according to sources. Prices touched a fresh record high after the BoJ unexpectedly increased its JGB purchases by JPY 30trl per year. The Nikkei 225 closed up 4.8%, at its highest level since 2007, after the BoJ unexpectedly increased their QQE program. Furthermore, the index was also supported by reports that Japan's GPIF panel approved raising domestic stock holding to 25%, according to government sources. The Hang Seng closed up 1.3% after opening at its best levels since Sep. 25, while the Shanghai Comp closed up 1.2%, both indices bolstered by several upbeat corporate earnings.
FIXED INCOME & EQUITIES
The aforementioned action taken by the GPIF very much set the tone for the European open, with cash futures opening firmly in the green (Eurostoxx 50 currently +1.7%). On a sector specific basis, financial names lead the way for Europe following strong earnings reports from RBS (+3.4%) and BNP (+3.9%). However, gains for the sector have been capped following further downward momentum for Italian banks after Moody’s have initiated a review for a potential downgrade on various peripheral banks.
Despite opening lower, the downside for Bunds was short-lived following some comments from ECB’s Nowotny who went against the grain of his usual hawkish rhetoric, more specifically, the central banker said never say never to QE in Eurozone, while refusing to rule out expanding the purchasing programme to include more corporate bonds. This saw a gradual turnaround in Bunds as they broke above 151.00, with further positive sentiment provided by, a weak German retail sales report and the fact that the GPIF have increased ratio of foreign bonds to 15% vs. Prev.11%.
The main focus for FX markets today has been the broad-based USD strength which has dominated a bulk of the price action in FX markets and pushed JPY lower against its major counterparts with USD/JPY breaking above 111.00 to reach its highest level since Jan’08. Elsewhere, NZD saw some strength overnight after Fonterra announced that China has lifted its temporary suspension on base powder exports which has been in place since August 2013. Despite initially, being out-muscled by the greenback, the RUB clawed back some ground after the Russian central bank unexpectedly hiked rates by 150bps, with the market looking for just a 50bps cut. However, the move lower in USD/RUB was capped by the bank not abolishing rule-based interventions.
Movements in the USD-index have dictated the state of play for the commodity complex, with spot gold falling to its lowest level since 2010, while both WTI and Brent crude futures reside in the red. For base metals, copper is poised for its first monthly advance since July ahead of tomorrow’s Chinese official PMI release with the red metal benefitting from improved Asian investor appetite. More specifically for energy prices, Brent crude is heading for a sixth consecutive loss which would be the longest decline since 2002 as global supplies and the stronger USD continue to weigh on investor sentiment.