Was that it for the “reflation” aka Bund-rout trade? One look at German bonds this morning and the sharp, panic selloffs seen in recent days are completely gone making one wonder if the CTAs who were riding the momentum train have all been squeezed out of their long positions and now the trend back to -0.20% can resume only to be followed by another abrupt 6-sigma move as the ECB once again sells inventory to buy itself more monetization runway. As a reminder, the ECB has to buy debt until September 2016 and it won’t be able to if the 30-Year Bund is at -0.20% in a few months (or weeks).
Not helping the “reflation” trade is that that other momentum trade, higher oil, may have reached a peak as sanity and rational though once again prevail as the market notices that US production is once again rising crushing Saudi’s stated claim that it won the war on shale. Don’t be surprised if today’s Baker Hugher oil rig report shows the first rebound in 2015. Some of the smartest money is already betting on the next oil downturn, one which would promptly send global Treasury yields sliding back to recent tights.
In the meantime, while mutual fund and ETF flows continue to exit equity fund, stocks maintain their lower volume levitation, with S&P futures printing at new record highs this morning, as Europe rises on another newsless, volumeless overnight session. We already documented that the worse the US economy is, the higher stocks rise…
… which makes us wonder (as we have all along since 2009), if a US depression, coupled with everyone pulling their money out of the markets, will push the S&P to all time central-bank and stock buyback forced highs? The answer: sure, why not. Under central planning nothing at all makes sense.
Asian equities trade mixed with the Nikkei 225 (+0.8%) and ASX 200 (+0.7%) taking the impetus from a strong Wall Street
close. This was after the S&P 500 finishing at an all-time closing high following poor US PPI data adding to calls for a
delay in Fed rate lift off, with weak JPY also supporting Japanese stocks. Shanghai Comp (-1.6%) underperformed amid
liquidity concerns ahead of a CNY 3trl lock up of shares with 20 IPOs due to begin issuance next week. Meanwhile the Hang
Seng (+2%) rallied into the close after rumours began to emerge that the date for the Shenzhen link may be pushed
forward. KOSPI (-0.5%) declined after the BoK disappointed outside calls for a rate cut.
Today’s session has provided relatively subdued trade, as European equities trade higher after taking the lead from record closes the in the US amid heightened calls for a delay in a Fed rate hike. Elsewhere in Asia, the Hang Seng rallied into the close to finish the session higher by 2% after unconfirmed reports suggested that the date of the Shenzhen link will be brought forward, however, the Hong Kong Exchange refused to comment on the rumours.
Bunds (+82 ticks) have edged higher after the moves seen yesterday in UST’s following the lacklustre US PPI data, as investors continue to focus on today’s upcoming US data in the form of US Empire Manufacturing, Industrial Production and Univ. of Michigan sentiment to gauge whether the US can break the recent stream of weak data.
The USD-index (+0.3%) is on track to halt its fourth consecutive daily fall this week as it recovers after printing a 3 month low yesterday. Meanwhile, major pairs trade marginally lower against the USD with little fundamental news driving price action as EUR/USD retreats from 3 month highs and drifts towards yesterday’s lows 1.1344. Elsewhere, NZD/USD remains near its session lows after Fonterra lowered its whole milk powder offer forecast and as such, AUD/USD followed in sympathy to come off 4 month highs. Elsewhere, USD/JPY moved higher after reports that the BoJ are said to assess the cutting of their Reserve rate as a possible option, however such a move will be met with scepticism as some officials believe that this would hinder the central banks efforts to increase their monetary base.
All that matters for FX is that while last week a stronger dollar was good for stocks and yesterday a weaker dollar was also good for stocks, today the important thing will be that a strong dollar is again good for stocks.
WTI and Brent crude remain relatively unchanged alongside the broad market trend, while spot gold eases off highs not seen since the middle February, albeit above its 200DMA at 1217.62. Meanwhile, copper prices were mildly lower as the lack of demand from China’s property sector weighs on the red metal, while Dalian iron ore futures were also weaker despite port inventories and declined to a 19 month low as sentiment in the market remains weak.
