Following yesterday’s abysmal employment and service data which led to an unchanged close it quite clear that the market has returned to a mode where it ignores all newsflow – at least the bad, which is due to the weather, the good news is due to the recovery – and instead is simply driven by such “fundamental drivers” as the momentum and position of the Yen carry trade. And overnight the USDJPY positively exploded following news that the Japan advisory committee has decided the nation’s pension fund, the GPIF, does’ t need a domestic bond focus. Implicitly this means that the GPIF will soon be able to purchase stocks like Facebook and Tesla, which is a guaranteed way of generated short-term gains and longer-term total losses for the Japanese pensioners. Of course, when the latter happens, nobody will have been able to foresee it and some scapegoat somewhere will be summarily fired. As for what this means for futures, the drift higher has made SPOOs rise once more and at last check was just below if not at new all time highs on an ongoing barrage of increasingly negative macro news.
Stocks in Europe gapped higher at the open in reaction to positive close by the Nikkei 225 index which as noted benefited from comments by Japan’s advisory committee that the GPIF doesn’t need domestic bond focus, but gradually moved off the best levels as market participants positioned for a slew of risk events. Nevertheless, financials remained the best performing sector, while health care underperformed and was largely weighed on by German listed Merck following earnings release pre-market. At the same time, Bunds failed to benefit from the looming risk events and after gapping lower at the open, prices remained under selling pressure as further alleviation of fears surrounding Ukraine/Russia encouraged flows into riskier assets.
There was little in terms of tier 1 macroeconomic releases this morning, but both France and Spain successfully tapped capital markets and going forward, apart from digesting monetary policy announcements by the BoE and the ECB, attention will also be on the weekly jobs and US factory orders reports.
Bulletin news summary from RanSquawk and Bloomberg
- Japan’s health ministry advisory committee said the GPIF doesn’t need domestic bond focus and that there is no need for the fund to focus on passive investments
- All analysts surveyed expect the Monetary Policy Committee to keep the bank rate at 0.50% and the Asset Purchase facility at GBP 375bln, due at 1200GMT/0600CST
- 6 out of the 54 surveyed analysts are calling for a cut in the main ECB refi rate to 15 bps, 8 are calling for a cut to 10bps and the other 40 are expecting rates to stay on hold at 25bps, due at 1245GMT/0645CST
- Treasuries steady, 10Y yields holding near midpoint of range seen over last two days as market awaits tomorrow’s payrolls report, est. 146k, unemployment rate holding at 6.6%.
- Goldman and Deutsche Bank cut payrolls estimates after yesterday’s weaker than forecast ISM Svcs, ADP reports
- EU leaders will consider repercussions for Russia at an emergency meeting today on the Ukraine crisis, after Russia’s foreign minister spurned a U.S. effort to ease tensions in the Crimean peninsula
- China’s Finance Minister Lou Jiwei said growth as low as 7.2% would meet this year’s target of “about†7.5% as he tried to moderate expectations for an economy at risk from swelling debt
- German factory orders rose 1.2% in January vs. median estimate for 0.9% gain in Bloomberg survey
- ECB meets today, with rate decision due at 7:45am ET, Draghi presser 8:30am; stronger-than-expected output and inflation and rising economic confidence might spare the bank from radical steps such as negative rates 40 out of 54 economists in a Bloomberg News survey expect no change in benchmark rate
- Bank of England also meets today, decision due at 7:00am; expected to keep official rate at 0.50%
- China is beefing up spending on high-tech weapons and upgrading combat readiness as it throws its military weight behind territorial claims that have stirred tensions with Japan and Southeast Asian neighbors
- Sovereign yields higher. EU peripheral spreads narrow. Asian equities higher, Nikkei +1.6%; Shanghai Composite +0.3%. European equity markets, U.S. stock-index futures decline. WTI crude, gold and copper little changed
