Perhaps the biggest shock following last night’s completely expected and very predictable (previewed here over a month ago) Japanese slide into triple- (actually make that quadruple) dip recession, is that it took the BTFTripleDip recession algos as long as they did to recover most of the overnight futures losses. Because after surging to 107 on a confused short squeeze kneejerk reaction, the USDJPY subsequently tumbled 150 pips to 105.50 as rationality briefly emerged, and the market wondered for a few brief hours if rewaring the destruction of one’s economy is actually a prudent thing. Then, however, when European traders started walking into work, the now default USDJPY levitation on no volume came right back, and with that the correlation algo buying of E-mini futures, no doubt helped by the Bank of Japan itself taking advantage of the CME’s ES liquidity rebate program. Because without confidence as expressed by the lowest and only common denominator left – global equities – there is nothing else.
Luckily, there was not if nothing on the plate in one after another Japanese press conference overnight, where we heard such brilliant pearls of Keynesian wisdowm as
- AMARI: ABENOMICS HASN’T FAILED
- HAMADA: CURRENT WEAK YEN IS PLUS OVERALL FOR JAPAN ECONOMY but…
- HAMADA: JAPAN IMPORTERS MAY BE SUFFERING FROM WEAK YEN
- SUGA: INVENTORIES, WEATHER, CONSUMER MINDSET CAUSED GDP FALL.
- HONDA SAYS GOVT SHOULD DISCUSS STEPS TO SUPPORT ECONOMY:REUTERS. Uhm, what was govt discussing in past 2 years?
- SUGA:ABE TO DECIDE ON ANY ECONOMIC MEASURES NEEDED AFTER RETURN. Is “quitting” one of them?
- and HAMADA: NO NEED TO WORRY ABOUT FUTURE OF JAPAN FINANCES. True: the outcome is quite clear
In short: Abenomics has failed miserably, and the only question is if there will be a “shocking” defeat of Abe at the coming impromptu elections (which Goldman believes will take place on December 14), as the re-peat PM just can’t wait to get the hell out, especially since he already used the “diarrhea” defense once…
In other news, the other greatly anticipated event overnight, the launch of the Chinese Stock Connect trading with Hong Kong was a dud: as Macquarie said “China Stock Connect trading volume “disappointing”).
Most H.K. stocks in the connect declined, with China investors taking ~17% of the 10.5b yuan daily quota, according to Bloomberg data after the market close. Keep in mind, 80% of brokers in a survey expected Shanghai quota to be filled; 50% expected H.K. quota to be filled. Another result: Shanghai Composite Index -0.2%; HSCEI -1.9%, down most in 2 mos.; HSI -1.2%, down most in 5 weeks. Because nobody buys stocks as good as central banks.
As while most eyes were on the Nikkei during Asian hours, European equities opened firmly in the red in sympathy with the Nikkei 225 (-2.96%) which saw its largest decline since August. Heading into the North American open, European equities remain in the red albeit off their worst levels, with stocks seeing some reprieve after comments from PM Adviser Honda who said that a sales tax hike is out of the question and the Japanese economy may require a JPY 3 trillion stimulus package. Further negative sentiment has also stemmed from the fallout of the G20 summit over the weekend that saw Russian President Putin leave the meeting earlier due to confrontations with other members, although German Chancellor Merkel has said she will continue to engage in negotiations with the Russian leader. Fixed income products have largely tracked the movements seen in equities with Bunds firmly in the green albeit off their best levels amid the mild recovery in equities. More specifically, the short-sterling strip contract is trading higher by around 1-8 ticks following dovish rhetoric from BoE members Carney and Haldane, with tier 1 investment banks continuing to push back their expectations for a rate-hike by the BoE.
Bulletin Headline Summary from RanSquawk and Bloomberg
- European equities feel the squeeze in-line with their Japanese counterparts as Japanese GDP falls well short of expectations.
- EUR/USD faces further downside after ECB’s Mersch said unconventional measures could theoretically include buying state bonds or other assets such as gold, shares or ETFs, while GBP is also seen lower following increasingly dovish rhetoric from BoE members.
- Looking ahead, attention turns towards US empire manufacturing and industrial production figures, as well as any comments from ECB’s Draghi, Coeure and Fed’s Evans.
FX
In FX markets, EUR/USD has been seen lower throughout the session amid the recovery in the USD, before being placed under further pressure and breaking below 1.2500 following comments from ECB’s Mersch who said unconventional measures could theoretically include buying state bonds or other assets such as gold, shares or ETFs. Elsewhere, GBP continues to get squeezed following further dovish rhetoric over the weekend from BoE’s Carney and Haldane with the latter saying he is watching “like a dove” for signs that expectations of very low inflation in Britain could become entrenched. USD/JPY has naturally been a key focus overnight after initially breaking above 117.00 for the first time since 17th Oct’07, before seeing an aggressive sell-off heading into the European open to break back below 116.00 on profit-taking and safe-haven flows. Thereafter, the pair has recovered off its lows amid continued hopes of further Japanese stimulus.
COMMODITIES
In the commodity complex, price action has largely been swayed by movements in the USD-index with Brent and WTI crude futures seen lower once again as global growth concerns continue to weigh on prices following the Japanese GDP release. More specifically, oil risk manager Nunan at Mitsubishi said the move to the downside has been exacerbated by yet ‘another bearish factor’. Bearish sentiment has also been enhanced by comments from West’s energy watchdog who said a quick return to high prices is unlikely. For precious metals, following the Japanese GDP release, spot gold managed to see some reprieve with prices supported by the subsequent safe-haven bid, while Iron ore futures saw steady overnight trade on expectations that Chinese steel mills will continue to replenish stockpiles after an output halt earlier this month.
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DB’s Jim Reid Concludes the overnight recap
It is a fairly busy week ahead. We’ll review it in full at the end but perhaps the biggest headlines will come out of Japan where Abe may dissolve the lower house this week ahead of snap elections, with the BoJ also meeting one month on from their surprise and narrow 5-4 decision to increase asset purchases. As DB’s James Malcolm pointed out over the weekend there is some evidence that Abe wasn’t privy to the coordinated BoJ/GPIF action and perhaps wasn’t appreciative of the pressure to go ahead with the sales tax that this move might have subtly encouraged. So will the BoJ be disappointed in the ever increasing likelihood of a delay to the sales tax and snap election? The likelihood of which has surely only been further enhanced this morning following a weak Q3 GDP print pushing Japan into a technical recession, the -0.4% qoq reading well below expectations of +0.5% for the quarter (-1.6% annualized versus +2.2% expected). The problems is that the longer the government leaves it to improve the fiscal situation the longer the BoJ’s asset purchases might have to last and the more it’s possible that the market will think the BoJ actions increasingly amount to monetising the debt. So this week’s decisions by Abe could have big implications further down the road and also shorter-term on the relationship between him and the BoJ.
Taking a quick look at price action in Asia this morning, markets are generally mixed with bourses reacting to the Japan data and the opening day of the Shanghai-Hong Kong Connect. This has generally dominated over headlines out of the G20 over the weekend with news that leaders have agreed to raise global growth by 2% over the next five years. With few details around the story, investors appear to be treating the news with caution although it’ll be interesting to see if we get any clarity around structural reforms associated with the plan. In terms of markets, the Nikkei is currently trading -2.7% whilst the Hang Seng and CSI 300 are -0.7% and +0.3% respectively. The latter boosted by a report in Bloomberg that Shanghai stock purchases through the link have exceeded Hong Kong buying by more than ten times over the first hour. This seems to have largely offset a reported increase in bad loans for China this morning, jumping by the most since 2005 in the third quarter to 776.9bn yuan. The JPY has recovered from the earlier weakness post the GDP print to now trade +0.58% stronger versus the Dollar.
Before we look at the rest of the day and week ahead, markets on Friday finished the week fairly subdued in the US with the S&P 500 virtually unchanged (+0.02%) on the day despite better than expected macro data, whilst 10y Treasuries closed 2bp lower and credit markets ended flat. In terms of data, the -1.3% mom import price index reading came ahead of the -1.5% mom expectations and marked the fourth consecutive monthly decline although this was somewhat influenced by lower oil prices and a rising dollar. Meanwhile the University of Michigan consumer confidence (89.4 vs. 87.5 expected) and business inventories (+0.3% mom vs. +0.2% mom) were other notable beats whilst the Dollar rallied following a strong retail sales print. The headline figure and ex. auto component were both a touch above consensus at +0.3% mom. Our US colleagues noted that the latter component was also revised up +0.2% in the previous month which should have the effect of contributing modestly to Q3 real GDP. The more material reading was the retail control figure which rose +0.5% in October along with a cumulative +0.3% revision in the previous month. This is a key input into GDP and our colleagues note that at the current level, retail control is +2.8% annualized compared to its Q3 average. Given low inflation this is consistent with real consumption growth well above last quarter’s +1.8% annualized reading. As mentioned the dollar rallied post the print, with the DXY index touching its highest level since June 2010 at 88.27, only to then settle lower later in trading closing -0.15% on the day. Away from the data releases we also had the usual Fedspeak, this time from Bullard who reiterated his forecast from his last statement of raising interest rates in the first quarter of next year, supported by rebounding inflation and strong jobs data. His comments a month ago about continuing with asset purchases seems to have been forgotten.
Closer to home, the Stoxx 600 was similarly subdued, closing -0.07% at the end of play. This was despite marginally better than expected GDP data out of the region with the overall Eurozone print +0.16% qoq, a tad above the +0.1% consensus. In terms of regions, Germany (+0.1% qoq) and Italy (-0.1% qoq) were in line with expectations whilst France surprised to the upside (+0.3% qoq vs. +0.2% expected). Our European colleagues noted that the print, similar to October PMI’s suggests that the growth outlook is stabilizing somewhat (albeit at low levels) following downward surprises in recent months. Elsewhere the HICP reading for the eurozone turned out to be fairly non-eventful with both the headline and core in line with consensus at +0.4% yoy and +0.7% yoy respectively.
Wrapping up the market moves on Friday, WTI and Brent pared back some of the losses over the week, climbing +2.17% and +2.48% respectively on the day with sentiment improved after Bloomberg reported that the slump in oil prices will force OPEC to act ahead of its meeting at the end of the month. WTI and Brent are currently trading -0.45% and -0.59% respectively this morning.
Looking at the day ahead, this morning looks like it’ll be fairly quiet with just trade data expected out of the Eurozone. This afternoon however, will likely be highlighted by Draghi’s quarterly testimony to the Committee on Economic and Monetary Affairs. Over in the US, industrial production, capacity utilization and empire manufacturing are the key releases for today.
In terms of the rest of the week ahead, we’ve got a fairly packed calendar in the US highlighted by the FOMC minutes on Wednesday and CPI print on Thursday. In terms of the former DB’s Joe LaVorgna notes that the minutes could potentially be a market-moving event given that the statement from that meeting was much more hawkish than what the market expected, whilst the Fed was also upbeat over comments around the economy and labour market. However we note that there was no mention to a stronger dollar or tightening financial conditions so conceivably these items could be mentioned in the minutes. With regards to the CPI reading, our US colleagues are expecting an energy related -0.1% decline in the headline and a housing related +0.2% increase in the core. Elsewhere tomorrow kicks-off with October property price data out of China – this comes after new home prices fell in all but one city in September so it’ll be interesting to see what the reading shows. We then follow this up with the ZEW survey in Germany and CPI and output prices out of the UK. In the US session we will be keeping an eye on the PPI print which we expect to continue to be depressed by lower energy costs whilst our US colleagues note to keep an eye on the healthcare component of the reading given it’s used to estimate the comparable component of the PCE deflator (the Fed’s preferred measure of inflation).
Later on Tuesday we will also get the homebuilders’ sentiment index out of the US. Away from the highlighted FOMC minutes on Wednesday, we will also get housing starts data of the US. Before all this in Asia we will be keeping an eye on developments out of the Japan, particularly with regards to Prime Minister Abe with the possible dissolving of the lower house potentially coming to fruition ahead of the well-publicised potential snap elections. Of course we will also have the results from the BoJ monetary policy statement. In the UK we will be casting a keen eye over the BoE monetary policy minutes. There’s no shortage of highlights on Thursday and we start the day in Asia with the November HSBC flash manufacturing PMI prints in China as well as machine tool orders out of Japan. We then follow this up with the ever important flash PMI’s out of Europe as well as consumer confidence and UK retail sales. Later in the day and on the other side of the pond, as well as the much anticipated CPI we will also be anticipating the Philadelphia Fed survey print, existing home sales and finally leading economic indicators, so certainly a lot for the market to digest.
Following a busy Thursday, the market will be perhaps be happy to hear that Friday is particularly data-light, with the main highlights being potentially comments out of the ECB’s Draghi and Nouy. We will also be getting our usual dose of Fedspeak with Dudley, Plosser, Williams and Mester due to speak at various points so there will certainly be enough to keep the market busy.
via Zero Hedge http://ift.tt/1wNfJjj Tyler Durden