Complete Recap Of Overnight's Volatile Markets

If yesterday’s price action in the moments following (and preceding) the FOMC announcement was just a little suspicious, with a seemingly endless supply of VIX selling originating as if from nowhere (or perhaps the 9th floor of Liberty 33) the morning after has so far been a snoozer. Perhaps this is to be expected following the third biggest one-day surge in the stock market in the year (1st =  Jan 2nd, 2nd = October 10th), or perhaps the market is finally focusing on Bernanke’s tongue in cheek suggestion that the taper may be lowered by $10 billion per month (we disagree as described previously). Or perhaps the creep higher in 10 Year yields, at 2.915% at last check and just shy of the 3.00% psychological level, is finally being noticed. Or perhaps the fact that China, very surprisingly, is also tapering concurrently is finally being appreciated as is the fact that despite all talk of preparedness, developing economies were hardly left unscathed following yesterday’s development. Whatever the reason, the euphoria this morning has “tapered.”

Here is where we stand currently, thanks to RanSquawk:

Stocks in Europe trade in positive territory after the Nikkei 225 printed a 6 year high following the Fed’s modest taper. Following this spot gold has been put under pressure as it’s demand as an inflation hedge falls and is currently trading just above the USD 1200/oz level, with prices not seen below this level since late June/early July and the YTD low at USD 1180.57/oz.

Elsewhere, following the 3 Month SHIBOR Interest rate fix at 5.4239% vs. Prev. 5.3850% and Chinese overnight 1-year interest rate swaps hitting a record high, the PBOC have injected liquidity via a short-term operation in an attempt to provide credit to banks. This follows concerns from the central bank wishing to avoid the liquidity issues seen in June.

Finally, the Euribor strip has continued to bull flatten as contracts continue to pull away from December lows as traders continue to eye a temporary pause in the ECB LTRO. The Eurodollar curve has bear steepened following yesterday’s decision by the Fed to taper, whilst the Short-Sterling strip has continued to weigh from yesterday’s lower than anticipated unemployment figure from the UK.

Overnight highlights from Ran and Bloomberg:

  • The USD 10bln taper (USD 5bln in each of Treasuries and MBS) was largely deemed non-aggressive and priced-in following last week’s sell-off in equities; stocks in Europe trade in positive territory after the Nikkei 225 printed a 6 year high following the Fed’s modest taper.
  • The PBOC have injected liquidity via a short-term operation in an attempt to provide credit to banks after the 1-year interest rate swaps hit a record high.
  • The Euribor strip has continued to bull flatten as contracts continue to pull away from December lows as traders continue to eye a temporary pause in the ECB LTRO.
  • Looking ahead there is the release of US weekly jobless data, Philadelphia Fed Business Outlook, Existing Home sales, 5y TIPS and 7y note auction.
  • Treasury yield curves flatten in partial unwind of bear steepening seen after Fed yesterday trimmed pace of QE purchases and said rates would stay exceptionally low until “well past the time” the jobless rate falls below 6.5%.
  • Week’s auctions conclude with $16b 5Y TIPS and $298b 7Y notes, yield 2.310% in WI trading; 5Y notes sold yesterday tailed 1pm WI level, with indirects lowest since Dec. 2008
  • Global banking regulators scaled back plans to boost capital requirements for banks holding asset-backed securities after lenders warned that an initial blueprint was too harsh and would have curtailed lending
  • China added funds to selected banks today after the benchmark money-market rate jumped the most since a record cash crunch in June
  • New Zealand’s economic growth accelerated to the fastest pace in almost four years in the 3Q, strengthening the case for the Reserve Bank to start raising interest rates next year
  • Brazil’s central bank will prolong its currency intervention program through at least the first half of next year after the real weakened yesterday on the Fed’s tapering announcement
  • Russia’s offer of a temporary 33% discount on natural gas prices for Ukraine may be extended for the long term, according to Russian President Vladimir Putin
  • North Korea’s execution of Kim Jong Un’s uncle and de facto deputy raises the risk the leader may take military actio against the South to demonstrate his authority after the purge
  • Credit Suisse Group AG defrauded investors of more than $1b by misrepresenting the risks of its RMBS, acting New Jersey Attorney General John J. Hoffman said in an interview
  • Sovereign yields mixed. EU peripheral spreads narrow. Nikkei gains 1.7% while Shanghai Composite falls ~1%. European stocks gain, U.S. equity index futures decline. WTI crude unchanged, gold and copper fall

FOMC Insights

Following on from the FOMC announcement last night we have compiled a full list of major bank research on the latest thinking and interpretation of the decision and thoughts on where we go from here.

Summary of highlights:

Goldman Sachs – Asset purchases are not on a pre-set course and the Committee’s decisions about their pace will
remain contingent on the Committee’s economic outlook for the labour market and inflation as well as its assessment of
the likely efficacy and costs of such purchases. (More)

UBS – CHF is likely to weaken as Fed tapering encourages investors to unwind safe-haven positions.

Citi – The yuan will gain about 1% against the dollar next year as Fed tapering is likely to restrain capital inflows and may
even cause some outflows.

SocGen – EUR/USD’s knee-jerk reaction to QE tapering may not follow through to the downside unless 2Y Treasury yields
head off to 0.5%.

Nomura – Strong relationship between risk markets and Italian, Spanish spreads should trigger tightening again after
Fed’s decision to taper QE purchases.

Fed watcher Hilsenrath – Notes four take away points in summary – 1: Bond buying trimmed, 2: inflation is the caveat,
3: rates to be low a long time, 4: consistent view on growth. (More)

PIMCO’s El-Erian – This is particularly good news for equity markets in the short-term, building on what already has
been a great performance year. It also contains the disruptions to bonds. (More)

Asian Headlines

Initially during session, the PBoC did not conduct open market operations for the 5th consecutive session today, and were
net flat for the week vs. a CNY 37bln net drain last week. At the same time, money market rates increased with the 3
Month SHIBOR Interest rate fix at 5.4239% vs. Prev. 5.3850%, while the 1-year interest rate swaps hit a record high.
This led the PBOC to extend interbank market trading hours to 5pm. The PBOC then said that they injected an unspecified
amount of CNY 200bln in SLOs cash into interbank market via short-term liquidity operation.

EU & UK Headlines

EU finance ministers agreed on a new system to centralize control of failing Euro-zone len
ders, in the hope that it will stop
expensive banking crises from ruining the finances of entire countries.

BoE’s McCafferty commented ‘no sudden rate hike next year’ and said the MPC will only consider lifting interest rates above their historically low level of 0.5% until joblessness drops to at least 7%.

UK Retail Sales Ex Auto (Nov) M/M 0.4% vs. Exp. 0.3% (Prev. -0.6%, Rev. -0.7%)
UK Retail Sales Ex Auto (Nov) Y/Y 2.3% vs. Exp. 2.4% (Prev. 2.3%)
UK Retail Sales Incl. Auto (Nov) M/M 0.3% vs. Exp. 0.3% (Prev. -0.7%, Rev. -0.9%)
UK Retail Sales Incl. Auto (Nov) Y/Y 2.0% vs. Exp. 2.2% (Prev. 1.8%)
UK November mortgage lending M/M GBP 17bln vs. Prev. GBP 17.6bln – gross mortgage lending rises 30% on the year to

Eurozone Current Account NSA (Oct) M/M 26.2bln vs Prev. 14.0bln (Rev. 15.2bln)
ECB Current Account SA (Oct) M/M 21.8bln vs Prev. 13.7bln (Rev. 14.9bln)

Fitch affirmed the UK at AA+; outlook stable.

Italian economy to contract 1.8% in 2013, according to Confindustria.

Swiss SECO sees 2014 GDP growth at 2.3% vs 2.3% in September’s forecast.
Swiss Trade Balance (Nov) M/M 2.11bln vs Exp. 2.80bln (Prev. 2.43bln, Rev. 2.28bln)

US Headlines

Goldman Sachs says the Fed may not raise interest rates until unemployment falls as low as 5%.

Moody’s said the wind-down of US Fed’s QE program will likely lead to interest rates increasing globally and added that it sees a move towards normalization of monetary policy in the US, having a relatively finite and temporary impact.


Equities across the European session have been green across the board following on from positive sentiment in the Asian session as a result of the non-aggressive taper from the Fed which saw the Nikkei 225 print a six-year high. In terms of the outperformers this morning, the IBEX is leading the way being supported by Spanish banks. Whilst G4S are putting pressure on UK stocks after reports that the UK government have referred the Co. to the serious fraud office on ‘concerns’ G4S contracts.


In FX markets, USD gains are relatively modest despite seeing upside following last nights taper decision.
However, overnight USD/JPY struck a five year high at 104.37. Despite the relatively rangebound trade throughout
the session so far, NZD was briefly supported by a better than expected GDP reading, however, this was short lived as
participants took this opportunity to buy the USD against NZD as the countries’ monetary policies begin to converge.
Elsewhere, EUR has been trading relatively flat this morning with little in the way of economic commentary to guide


Energy markets trade broadly flat heading towards the NYMEX pit open with little news-flow to determine price action following the volatility seen after the Fed began tapering their asset purchases at yesterday’s meeting.

Iraq November crude exports rise to 2.38mln bpd according to oil minister.

Iran has resumed pumping crude to Turkey’s Ceyhan Port via an alternative pipeline due to a fault in the main link.

Libya’s Messla oil field will reopen next week along with the Sarir refinery according to a report posted on the Co.’s website.

French Foreign Minister Fabius said has doubts over reaching a final deal with Iran over its nuclear program, citing doubts about the country’s willingness to definitely abandon its nuclear ambitions.


via Zero Hedge Tyler Durden

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