Zero Hedge
0
All posts from Zero Hedge
Zero Hedge in Zero Hedge,

Latest Central Bank Sticksave Halts Futures Slide, Sends E-Mini Soaring After ECB Said "Looking To Buy Bonds"

Another day, another central bank sticksave.

Moments after Europe's open, when once again the equity futures complex was threatening to break the upward trendline, after USDJPY took out stops and sliding below 106.3, pushing bonds both in Europe and the US to intraday highs, and the ES to session lows just above 1890, and then... here comes the ECB rumor cavalry, this time in the face of Reuters which blasted the tape with:

  • ECB LOOKING TO BUY CORPORATE BONDS ON SECONDARY MARKET: REUTERS

And because in this centrally-planned market no amount of GPIF or ECB doing what everyone knows they are doing headlines can not surprise the algos, ES has soared over 20 points from the overnight lows and is now solidly above the 200 DMA which was the clear intention of this latest sticksave.

Ironically, this happens even as the "pundits" interpret yesterday's stronger than expected Chinese data as indicative of more China stimulus, not less! As Bloomberg summarized, "stronger-than-estimated economic data failed to convince analysts that China’s authorities will refrain from introducing more targeted measures."

So first it was China reported better than expected goalseeked GDP "data" (if still the worst since 2009) which was evidence of more stimulus, not less, and then Reuters leaked today's central bank "all green to buy stocks" headline.

To summarize: the S&P 500 is now almost 100 points higher from last Tuesday as the global central bank plunge protection team of first Williams and Bullard hinting at QE4, then ECB's Coeure "ECB buying to start in a few days", then China's latest $30 billion "targeted stimulus", then the Japanese GPIF hinting at a 25% stock rebalancing in the pension fund, and finally again the ECB, this time "buying of corporate bonds on secondary markets", rolls on and manages to send stocks into overdrive. Even as absolutely nothing has been fixed, as Europe is still tumbling into a triple-drip recession, as Emerging Markets are being slammed by a global growth slowdown and the US corporate earnings picture is as bleak as it gets.

Because "fundamentals."

In other news,  Asian markets are broadly flat-to-down as we write, with the Shanghai Composite and Hang Seng posting moves of -0.7% and 0.1% respectively whilst Japanese equities are notably underperforming, and dropping 2%, following the 4% rise yesterday on news that the GPIF would increase its allocation to domestic equities. The other main event post the US market close last night was the impressive results from Apple with early hints at strong demand for the new iPhone 6 following earnings beats on revenues, profit and phone sales. Shares rose in afterhours trading.

FIXED INCOME

Bund futures opened higher this morning in sympathy with the gains in T-notes overnight as Asia equities declined on the back of concerns over growth in China, and a pullback in yesterday’s sharp gains in the Nikkei 225. However, the release of latest source comments, which indicated that the ECB is considering buying corporate bonds, and that the buying is already well under way, saw bund futures spike lower in the best volumes of the day.
Goldman Sachs and JPMorgan have cut their 10yr Treasury yield forecast to 2.5% (Prev. 3%), and 2.45% (Prev. 2.7%) respectively. (WSJ)

EQUITIES

Asian sentiment was weighed upon by the release of Chinese GDP, which although topped analysts’ forecasts, showed that the economy expand at its slowest pace since Q1 of 2009. In addition, Nikkei 225 (-2%) lost some of yesterday’s GPIF-inspired shine amid a bout of profit taking and JPY strengthening O/N. Furthermore, Japan's welfare minister Shiozaki, who oversees the pension fund, said he “absolutely has no knowledge” regarding yesterday’s GPIF reports, which was also attributed to the weakness in the index. UK and European markets trade in positive territory boosted by positive earnings reports with the likes of ASOS (+15.5%), Actelion (+7%) and Akzo Nobel (+4.5%) all trading sharply higher. Stocks in general, especially the periphery, got a further lift after the latest source comments suggest that the ECB may target corporate debt in addition to the covered and ABS programmes that have already been announced.

FX

EUR weakness on the back of the latest ECB source comments have dictated the main moves in the FX market this morning. As such the USD has also recovered from its lows seen at the European open which in turn has pressured cable lower. Looking elsewhere the AUD is still holding onto gains seen overnight where the currency welcomed the release of Chinese GDP coming in higher than expected.

COMMODITIES

WTI and Brent crude futures are both trading higher into the North American open finding some solace that Chinese Q3 GDP and Industrial Production exceed expectations overnight. Meanwhile, spot gold traded around 5-week highs overnight but has since come off the highs as the USD has recovered off its lowest assisted by aggressive selling of EUR following the latest source comments.

Iran’s oil minister has reiterated that an emergency meeting is not necessary to discuss the slide in prices. (Shana)

JPMorgan has lowered gold and copper price forecasts, citing more muted global growth which is offset by lower supply growth

Bulletin Headline Summary from RanSquawk and Bloomberg

  • EU stocks seen higher after latest source comments suggest the ECB is looking at buying corporate bonds
  • Chinese GDP, which although topped analysts’ forecasts, showed that the economy expand at its slowest pace since Q1 of 2009
  • Apple (AAPL) traded higher after market, following a beat in expectations on revenues, earnings, and iPhone sales for Q4 ? Looking ahead we have tier 1 data from the US in the form of Existing Home Sales (Sep), with large cap corporate earnings to come from Coca-Cola, Verizon and McDonalds

DB's Jim Reid concludes the overnight event recap:

After the hostile skirmishes in financial markets last week the battle seems to have moved more onto a chess board this week. As central bankers started to become more dovish as last weekend approached, so markets stabilised. However this makes actual dovish action less likely as markets take some of the pressure off the authorities. Indeed following Bullard's recent conversion to the dovish side late last week we've subsequently seen Rosengren, Williams and yesterday Fisher all play down last week's volatility and its impact on the US economy. So we might be at a bit of a stalemate until newsflow allows one side to declare check!! It'll probably be a while before anyone can declare checkmate though as still weak global macro fundamentals battle it out with the probability of more liquidity to come.

The main focus overnight has been on China as the country released a host of economic stats. Q3 GDP came in at 7.3% YoY, a modest beat over expectations of 7.2% but still the lowest read seen since early 2009. China also reported strong September industrial production growth of 8% (7.5% exp.), rebounding off August lows whilst retail sales and fixed asset investment were slightly short of market consensus at 11.6% and 16.1% respectively.

In response Asian markets are broadly flat-to-down as we write, with the Shanghai Composite and Hang Seng posting moves of -0.3% and 0% respectively whilst Japanese equities are notably underperforming following the 4% rise yesterday on news that the GPIF would increase its allocation to domestic equities. The other main event post the US market close last night was the impressive results from Apple with early hints at strong demand for the new iPhone 6 following earnings beats on revenues, profit and phone sales. Shares rose in afterhours trading.

Before all this, yesterday saw the S&P 500 close up +0.9%, helped by a pre-earnings +2% gain in Apple. This gain came in stark contrast to some other big tech names yesterday as shares in SAP (down -5.8%) in Europe and IBM (down -7.2%) in the US both ended the day significantly lower after their Q3 earnings reports. US credit followed the lead from the equity markets and as CDX IG closed -1bp tighter whilst CDX HY tightened -11bps.

Over in Europe yesterday was another weak day even as US equities managed to rise for the third day in a row. The Stoxx 600 closed the day down -0.5% as the CAC and DAX fell -1% and -1.5% respectively. Credit also struggled with iTraxx Main and Crossover widening by +3bps and +11bps respectively. These moves came even as European data on the day beat expectations, with Italian August Industrial Orders MoM rising +1.5% (vs expectation of a -0.2% fall).

Staying in Europe, yesterday saw the ECB begin their purchases of covered bonds in the market. We will get their updated balance sheet numbers every Monday afternoon (starting next week) where we'll get a good idea how successful they are going to be at getting close to their soft target for the balance sheet. So every Monday's release will now be important in this regard but for now we had some early indications from the FT which suggested that the ECB purchases included Spanish, German and French issues. These purchases weren't enough to stabilise peripheral debt as Italian, Spanish and Portuguese 10Y yields rose +10bps, +9bps and +18bps respectively whilst German and US 10Y yields both fell slightly, by -1bp and -5bps respectively.

Looking to the day ahead we will get UK government borrowing data, with public sector net borrowing expected in at £9.4bn for September and also US September existing home sales data which consensus estimates put at 5.1M. Portugal’s finance minister is expected in Parliament this morning to speak about the 2015 budget proposal, whilst the EU, Russia and Ukraine’s energy ministers’ are holding Gas talks in Berlin. On these talks, yesterday, “a Russian government source close to gas talks” told Reuters that, “The devil is in the details. I don't think that Russian gas will be delivered soon to Ukraine.” In other news, as US earnings season continues we will get results from Coca-Cola, McDonald’s, Lockheed Martin and Verizon among others