Today’s nonfarm payroll number is set to be a virtual non-event: with consensus expecting an abysmal print, it is almost assured that the real seasonally adjusted number (and keep in mind that the average February seasonal adjustment to the actual number is 1.3 million “jobs” higher) will be a major beat to expectations, which will crash the “harsh weather” narrative but who cares. Alternatively, if the number is truly horrendous, no problem there either: just blame it on the cold February… because after all what are seasonal adjustments for? Either way, whatever the number, the algos will send stocks higher – that much is given in a blow off top bubble market in which any news is an excuse to buy more.
So while everyone is focused on the NFP placeholder, the real key event that nobody is paying attention to took place in China, where overnight China’s Shanghai Chaori Solar defaulted on bond interest payments, failing to repay CNY 89.9mln (USD 14.7mln), as had been reported here extensively previously. This marked the first domestic corporate bond default in the country’s history – indicating a further shift toward responsibility and focus on moral hazard in China. Whether or not this is China’s “Bear Stearns” moment remains to be seen, however nearly a dozen deals were postponed or canceled in the aftermath of this development meaning that as expected the entire bond market is set for a repricing now that moral hazard may have to be taken out of the equation – the end result will be yields that are hardly lower which for a $12 trillion corporate bond market can only spell bad news. But since the market has long ago lost its discounting capabilities, expect to feel the impact of future bond defaults in real time.
In the meantime, copper (futures down over 2.0% this morning) which is heavily used for debt financing in China specifically, and Shanghai Chaori Solar’s failure to repay is being seen as a warning shot that many more could follow, as the Chinese authorities pull away from their previous policy of bailing-out-at-all-costs. As such, copper prices have fallen in tandem with a declining appetite for credit in China.
Stocks in Europe traded lower this morning, with Bunds also better bid as market participants positioned ahead of the release of the latest jobs report by the BLS later on in the session. Despite the absence of apparent appetite for risk, it was the health care related stocks that led the move lower which indicates that the price action was largely result of investor positioning and not a fundamental shift in the outlook. Still, safe haven related flows supported JPY which in turn weighed on the USD and ensured that EUR/USD and GBP/USD traded in the green.
Going forward, apart from awaiting the release of the latest jobs report by the BLS, market participants will also get to digest the release of the latest jobs report from Canada.
Bulletin news summary from Bloomberg and RanSquawk
Treasuries steady, long end leads, before report forecast to show U.S. economy added 149k jobs in February while unemployment rate held at 6.6%.
The U.S. and EU put Russia’s Vladimir Putin on notice that they will be united on imposing sanctions if he’s unwilling to defuse the Ukraine crisis and pursue a negotiated solution
The crisis in Ukraine is putting the question of Poland’s accession to the euro back on the agenda as the military standoff stirs memories of the Cold War
German industrial production rose 0.8% in January, the third consecutive monthly gain and in line with median estimate in Bloomberg survey
EUR/USD rose as much as 0.35% to 1.3909, strongest since October 2011
Shanghai Chaori, a Chinese solar-cell maker failed to pay full interest on its bonds, leading to the country’s first onshore default and signaling the government will back off its practice of bailing out companies with bad debt
California Governor Jerry Brown, who decries a widening gulf between rich and poor, is campaigning for a fourth and final term presiding over a state that’s outpacing the U.S. in producing both millionaires and food-stamp recipients
Gary Cohen, the top U.S. health insurance regulator accused by congressional Republicans of misleading them before the troubled start of the Obamacare website, will resign
Sovereign yields mixed. EU peripheral spreads narrow. Asian equities mixed, Nikkei +0.9%; Shanghai Composite little changed. European equity markets decline, U.S. stock-index futures gain. WTI crude and gold little changed, copper falls
