zerohedge.com / by Tyler Durden / 06/11/2014 07:01 -0400
Yesterday’s market action was perfectly predictable, and as we forecast, it followed the move of the USDJPY almost to a tick, which with the help of a last minute VIX smash (just when will the CFTC finally look at the “banging the close” in the VIX by the NY Fed?) pushed the DJIA to a new record high, courtesy of the overnight USDJPY selling which in turn allowed all day buying of the key carry pair. Fast forward to today when once again we have a replica of the set up: a big overnight dump in USDJPY has sent the dollar-yen to just over 102.000. And since Nomura has a green light by the BOJ to lift every USDJPY offer south of 102.000 we expect the USDJPY to once again rebound and push what right now is a weak equity futures session (-8) well above current levels. Unless, of course, central banks finally are starting to shift their policy, realizing that they may have lost control to the upside since algos no longer care about warnings that “volatility is too low”, knowing full well the same Fed will come and bail them out on even the tiniest downtick. Which begs the question: is a big Fed-mandated shakeout coming? Could the coming FOMC announcement be just the right time and place for the Fed to surprise the market out of its “complacency” and whip out an unexpected hawk out of its sleeve?
Around the world, overnight Chinese equities pulled back from yesterday’s inflation-inspired gains (Hang Seng -0.25%), with outperformance in the Nikkei 225 (+0.50%) after the MSCI decided not to reclassify Taiwan and South Korean equity markets as ‘developed’, which has allowed Japanese equities to continue their dominance of east Asian market share. Deutsche wonders if perhaps Chinese authorities have shifted from weakening the RMB as a form of stimulus to more targeted measures such as RRR cuts. This shift in policy bias likely stems from the fact that the objectives set out by the authorities in the beginning of the squeeze are gradually being achieved. Speculative flows are reducing and corporates are starting to hedge their risk more appropriately. The Nikkei is higher on the back of more headlines around corporate tax reforms and GPIF asset re-allocation.
In Europe, Deutsche Lufthansa was notable underperformer in Europe this morning, after the company cut forecast, in turn dragging the rest of the sector lower. Allied with this, Vallourec’s profit warning dampened sentiment, with losses observed across the continent. Absence of any positive catalysts meant that heading into the North American open, stocks are broadly lower, with the more defensive sectors such as healthcare outperforming.
Turning to the day ahead, there’s very little on the data docket outside of weekly US mortgage applications and the monthly budget statement. The US treasury’s 10 year auction will be closely watched today, following a fairly lacklustre 3 year auction yesterday and with 10 year yields at around 1 month highs.
