Nikkei 225 (+1.04%) outperformed overnight, buoyed by S&P 500 posting a new all-time high, a dovish BoJ’s Tankan inflation survey and reports that the GPIF is to invest in funds specializing in Japanese stocks with high returns. Overall, another quiet session this morning as market participants continued to position for the upcoming ECB meeting, with Bunds under pressure amid further unwind of expectation of more policy easing by the central bank. According to ECB sources, there is no clear consensus at present on policy action, intense debate seen on Thursday after March HICP data, adding that it fears “over-interpretation” by market of QE possibility.
And now on the real news: after turning its back on HFT (and fully endorsing IEX), Goldman again shocked traders overnight when it announced it is selling its infamous Designated Market Maker Unit at the NYSE (the topic of many posts on Zero Hedge in the early days), confirming a major overhaul is currently in place regarding market structure. Because if Goldman has said enough to the current regime, its days are numbered. Guaranteed. And more importantly, as the crackdown on HFT accelerates, first it will be stocks that are impacted and then, finally, it will be FX – the locus of all the real market rigging. Bloomberg reported overnight that firms using the ultra-fast strategies getting scrutiny thanks to Michael Lewis’s book “Flash Boys†account for more than 35% of spot currency volume in October 2013, up from 9% in October 2008, according to consultant Aite Group; it’s the opposite of equities, where their proportion shrank to 50% in 2012 from 66% four years ago, according to Rosenblatt Securities.
Soon regulators will put two and two together, and if Goldman gives the go ahead the HFT scourge will be eliminated not only from stocks but from FX. Then things like the now daily Yen-carry driven overnight levitation will be a thing of the past. For now however, FX-Spoo correlation pair manipulation is all the rage.
Overnight markets are trading with a positive tone led by the strong finish to the S&P 500 yesterday. There was a bit of market volatility after news that a magnitude 8.2 earthquake struck off the coast of Chile overnight at 9pm local time. Already there are reports of 1.5m to 2m waves hitting the Chilean coastline and coastal areas are currently being evacuated. The extent of damage is so far unclear but there have been reports of power outages in a number of Chilean towns. Japan’s meteorological bureau said that a tsunami may reach the coast of Japan over the next 24 hours. COMEX copper futures traded as high as +1.3%, on fears of supply disruptions from Chile, but they have given up most of those gains to trade +0.4% as we type. In Asia, the Nikkei is outperforming the rest of the region after getting a boost from an article in the Nikkei saying that Japan’s Government Pension Investment Fund will be targeting high yield stocks as part of an overhaul of its investment strategy. Indeed, a number of the yield sensitive sectors such as banks (+2.3%) and real estate (+3.8%) have been beneficiaries today. The BoJ said today that latest inflation expectations from Japanese enterprises point to a pickup in prices to 1.7% over three years, and price rises of 1.5% over the next twelve months – though this is somewhat lower than the central bank’s own inflation targets. Elsewhere Chinese stocks are posting modest gains (Shanghai Comp +0.6%) led by property developers with domestic newswires saying that a number of large cities are considering easing property market purchase restrictions.
In other news, early this morning as part of the Hollande’s ongoing overhaul of France’s cabient resulting from the socialist drubbing in this weekend’s municipal elections, Hollande appointed Michel Sapin finance minister Wednesday, a post he filled in the early 1990s, as the administration prepares a new drive against austerity policies in Europe. Mr. Sapin, who celebrates his 62nd birthday next week, inherits an economy that is struggling to pick up from a lengthy period of stagnation and is saddled with record high public debt.
