Overnight Summary: No More SSDD

Something is different this morning. Whether it is the aftermath of yesterday's inexplicable 10 Year auction demand spike, or more explicable plunge in the ECB's deposit facility usage, or, the fresh record low yield in the supreme risk indicator, Swiss 2 Year bonds, now at under 0.5%, market participants are realizing that the status quo is changing, leading to fresh 2 year lows in the EURUSD which was at 1.2175 at last check, sliding equity futures (those are largely irrelevant, and purely a function of what Simon "Harry" Potter does today when the clockworkesque ramp at 3:30pm has the FRBNY start selling Vol like a drunken sailor), and negative yields also for German, French, and Finland, with Austria and Belgium expected to follow suit as the herd scrambles into the "safety" of the core (which incidentally is carrying the periphery on its shoulders but who cares about details). Either way, Europe's ZIRP is finally being felt, only not in a way that many had expected and hoped and instead of the money being used to ramp risk, it is further accelerating the divide between risky and safe assets. Look for the Direct take down in today's 30 Year auction: it could be a doozy.

More on the overnight action from Bank of America:

Market action

For a sixth day in a row, Asian stocks fell as Australia's employers shed workers pushing up the unemployment rate. The unexpected interest rate cut by the South Korean central bank couldn't help lift stocks. Investors are worried that additional monetary policy will be unable to counter the global slowdown. The MSCI Asia Pacific Index fell 1.6%.

Looking at the individual Asian markets, the worst performer was the Korean Kopsi down 2.2% followed by the Hang Seng off 2.0%. Rounding out the markets in the red were the Japanese Nikkei and the Indian Sensex down 1.5%. On the flip side, the Shanghai Composite rose 0.5%. 

In Europe, equities are down 1.1% in the aggregate while at home, futures are pointing to a 0.9% drop in the S&P 500 later today. Bloomberg headlines are suggesting that the sell off is due to investor's disappointment that the Fed did not explicitly call for more QE in the FOMC minutes. In our view, the Fed left the door open to additional policy action. 
Treasuries are bid across the curve. The five year yield is down 2bp while the 10-year and long bond are down 3bp. The 10-year yield is currently trading at 1.48%. In Europe, we continue to keep an eye on Italian and Spanish yields, both of which rose today. Italian 10-year notes are up 6bp to 5.84% and Spain's 10-year is 11bp higher to 6.61%. 

The dollar is strengthening in the currency market. The DXY index is up 0.2%. Dollar strength is generally bad for commodity prices and we are seeing that play out today. WTI crude oil is down $1.17 to $84.61 a barrel and gold is up $12.30 an ounce to $1,564.08

Overseas data wrap-up

Overnight, the Bank of Japan left its monetary policy stance unchanged. The policy board voted unanimously to maintain
interest rates of 0% and leave its asset purchase program unchanged at 70 trillion yen. Slightly tweaking its economic projections, the central bank now expects growth of 1.7% and a 0.7% rise in consumer prices for the next fiscal year. Note that 0.7% yoy increase in consumer prices is below the BoJ's own target of 1% inflation. That suggests that the bank should
do more monetary policy stimulus. 

In Australia, employers cut payrolls helping push up the unemployment rate in June. Australia shed 27,000 jobs in June basically fully offsetting the revised +27,800 jobs created in the previous month. The increase firings helped push up the jobless rate for a second month in a row which now stands at 5.2%. Expectations for a 25bp rate cut is growing, traders are now pricing in a 78% chance the RBA will cut rates next month. 

Late yesterday, Brazil's central bank cut its benchmark interest rate by 25bp to 8.00%. That was in line with consensus expectations. The cut is the eight straight for the central bank and the CB signaled that it will continue to cut interest rates in the months ahead as it tries to stimulate the domestic economy that is weakening due to a slowing global economy. 

Industrial production in the euro area continues to weaken falling 2.8% mom in May building on the revised lower 2.4% drop recorded in the prior month. The euro area's manufacturing sector should continue to weak as the economy falls further into recession.