As of this moment, US equity futures are perfectly unchanged despite what has been an almost comical reactivation of the 102.000 USDJPY tractor beam. Considering the pair has been trading within a 75 pips of the 102.000 level for the past month, one has to wonder when and what the next BOJ Yen equilibrium level will be reset to. Oddly enough, even as the USDJPY is very much unchanged, the Nikkei continues to rise suggesting that, as Nikkei reported, the GPIF is already investing Japanese pension funds in stocks. Which is great for the Nikkei catching up with the global bond bubble, what is not so great is what happens when the market realizes that the largest holder (excluding the BOJ) of JGBs is dumping, and the world’s most illiquid major sovereign bond market rushes for the exits. Just recall the daily halts of Japanese bond trading from the summer of 2013 – we give it 3-6 months before it returns with a vengeance.
In other news, there have been no material geopolitical updates, which added with the fact that it is Friday, means there will be a now traditional VIX slam into the last minutes of trading to close stocks out at the day’s, and a new record, highs. Unfortunately for the NY Fed (in conjunction with Citadel) trading team, the VIX will enter single digits soon: how much lower it can be pushed from there becomes a critical issue. Under normal (as in not centrally planned) circumstances today’s quad witching and S&P rebalance would mean volatility would rise as would volume. Which likely means that both vol and volume will tumble, thanks to aunt Janet, converting the market into something only a central-planner/banker could love.
Asian equities trade weaker paced by the KOSPI (-1.1%) and ASX200 (-0.4%). The Nikkei (+0.3%) is outperforming and has continued its strong run, led by reflation favourites such as real estate (+1.7%) and consumer services (+1.7%) stocks. Dollar-yen was largely unchanged for much of the session, then ground higher as the 102 tractor beam was activated. The Nikkei newspaper notes that Japanese stock prices have been rising while USDJPY remains within a narrow band around 102, fuelling chatter that the GPIF’s funds are already flowing into domestic equities as a part of early portfolio rebalancing. On the topic of reflation, the same newspaper reported that the number of Japanese millionaires surged by over 20% in 2013, nearly five times the annualised growth in the previous six years, citing the latest World Wealth Report.
European shares mixed with the basic resources and health care sectors outperforming and banks, telcos underperforming. The Swiss market is the best-performing larger bourse, Italian the worst. Swedish, Finnish markets closed for Midsummer holiday. The euro is little changed against the dollar. German 10yr bond yields rise; U.K. yields increase.
Commodities little changed, with gold, soybeans underperforming and zinc outperforming.
There is nothing on today’s US event calendar, no POMO either.
Market Summary
- S&P 500 futures up 0.1% to 1951.5
- Stoxx 600 up 0.2% to 348.8
- US 10Yr yield up 0bps to 2.62%
- German 10Yr yield up 2bps to 1.34%
- MSCI Asia Pacific down 0.4% to 144.8
- Gold spot down 0.7% to $1311.2/oz
US Event Calendar
- Nothing
- No POMO
Bulletin Headine Summary from RanSquawk and Bloomberg
- Profit taking related flow following yesterday’s FOMC inspired gains dominated the price action in Europe this morning.
- Gold remains above USD 1,300 level, with analysts at UBS noting that yesterday’s surge was short-term trend.
- No tier-1 data releases on tap later, but today marks the quadruple witching day and the S&P rebalance.
- Treasury yields little changed; FX, bond and stocks volatility remain near FOMC inspired lows, supporting higher-yielding assets; no U.S. data due today.
- U.S. is sending as many as 300 special operations personnel as well as reconnaissance planes to help repel Sunni insurgency in Iraq for at least several weeks, giving country’s Shiite leaders time to form a new government that can command support across sectarian lines
- Fighting between Ukrainian troops and insurgents cast a pall over government efforts to declare a cease-fire in the east as NATO condemned Russia for once again massing soldiers on the two nations’ border; Russia said it’s strengthening border security, not building up troops
- Russia central bank chairman said economic slowdown is structural, cannot be solved by monetary policy; spent >$40b in 1H on intervention vs $27b total last year
- China’s Premier Li, on a visit to Greece, says country opposes behaviors that disturb peace on sea
- A second Chinese oil rig is due to arrive at a location closer to Vietnam today, two days after the end of high- level talks aimed at defusing tensions between the two countries over a current drilling operation
- U.K. budget deficit was little changed in May compared with a year earlier, when figures were flattered by a tax payment related to a deal with Switzerland; net borrowing was GBP13.3b vs GBP12.6b a year ago; excl. Swiss tax deal, gap narrowed by GBP200m; median est. was for GBP12.2b
- BOE’s Haldane said BOE is not under pressure to raise rates
- BOJ’s Kuroda sees CPI gains picking up in 2H2014, will keep policy easy until inflation stable at 2%; adjust as needed
- Japan cabinet office raises view on consumption, maintains overall assessment of “moderate recovery trend†in June economic report
- Bank of America Corp. must face the DOJ’s lawsuit accusing it of misleading investors about the quality of loans tied to $850m in RMBS, judge ruled
- The swift Republican election of a new U.S. House leadership team won’t heal the party’s divisions though lawmakers say it does provide insulation from a challenge to Speaker John Boehner after the midterm election
- German and Dutch finance ministers said more information was needed on proposed euro-area bank levy; E.U. finance ministers agreed on closing a tax loophole but delayed talks on a more general anti-abuse rule
FDI into E.U. was EU326b in 2013, led by U.S. with EU313b, Eurostat said - Sovereign yields mostly higher. EU peripheral spreads little changed. Chinese stocks gain, while most other Asian stock markets decline; European equity markets, U.S. stock futures higher. WTI crude, copper higher, gold lower after yday’s 3.3% jump
