Same slide, different day, as the crude crash continues, with both WTI and Brent tumbling to multi-year highs, below $49 and $52 respectively. This happened despite the news overnight that China is accelerating 300 infrastructure projects valued at 7 trillion yuan ($1.1 trillion) this year, suggesting that China will focus more on fiscal policy than monetary easing, which in turn led to much confusion in the SHCOMP, which fluctuated up and down for the day several times before finally closing unchanged. There was no confusion about the stops slamming USDJPY, and its Nikkei225 derivative which tumbled 3%, sending Japanese Treasury yields to fresh record lows. Record low yields were also seen in Germany, Austria, Belgium, Netherlands, Finland, France (and many other places), which in turn forced the US 10 Year to finally dip back under 2.00%. In fact, taken together, the average 10Y bond yield of the U.S., Japan and Germany has dropped below 1% for the first time ever, according to Citi.
The impetus for today's panic bond buying was a report in Dutch Het Financieele Dagblad which says the ECB is considering three possible options for QE, all of which would naturally lead to lower yields, and further pricing in of well over 100% of any easing program the QE may launch (recall that Goldman and MS both said ECB's QE had been fully priced in as long ago as October).
The Euro weakened again overnight, and is now flirting with the 1.19 level after another month of disappointing Eurozone PMI, as the final Composite PMI missed expectations. From Goldman: The December Euro area final composite PMI came in at 51.4, 0.3 pt below the Flash (and Consensus) estimate. Relative to November, the composite PMI rose by 0.3pt. The weaker Final composite PMI was driven partly by flash/final downward revisions to the French manufacturing PMI. The most notable country developments in December were that the Italian Composite PMI weakened substantially by 1.9 (the other ‘big 4' countries, most notably France, all recorded gains in December).
But while the deflation story is well known, the bigger problem for the mainstream media is that even NBC is starting to hint that stocks are sliding for all the “wrong reason”, namely sliding oil. This crushes the narrative that lower oil is good for the economy, as it makes one wonder just why is the market dumping when it should be discounting a stronger US economy. As such everyone will again be following every tick of crude, and certainly Russia whose 5 year CDS jumped over 50 bps to about 610 bps. the widest since March 2009 as increasingly more are worried about Russia's default risk.
Meanwhile, jittery global stocks, lacking any visibility on the multiple expansion front (because EPS are now guaranteed to decline with the energy rout assured to crush the EPS of at least 15% of the S&P), continue to trade as a derivative of either the USDJPY or the EURJPY carry pair: whichever one is higher and/or igniting upward momentum at any given moment.
Some more detail on the overnight action from RanSquawk:
WTI and Brent crude future prices continue to decline which in turn, has weighed once again on global equities with the DJIA and S&P 500 posting its worst losses in 3 months as well as the Nikkei (-3.02%) printing its largest decline in 10 months. As such, this has filtered through to European bourses coupled with the negative sentiment in Europe with energy being the worst performing sector. The dampened risk appetite in the market provided support to USTs as the US 10 yield broke back below 2% for the first time since October 2014, prompting the German 10yr yields to also fall back below 0.5%. Analysts at IFR have noted that the correlation between oil and US breakevens shows that much of a rally is about expectations of lower inflation with the EUR 5y5y forward swap rate now down to a new record low.
In Eurozone related news, reports suggested that the SYRIZA party are not looking to trigger an exit should they win the Greek snap-election after the sources say that the ECB plan to discuss the implications of a possible Grexit tomorrow in their non-monetary policy meeting, although the news has had little impact on the market.
In Eurozone related news, reports suggested that the SYRIZA party are not looking to trigger an exit should they win the Greek snap-election after the sources say that the ECB plan to discuss the implications of a possible Grexit tomorrow in their non-monetary policy meeting, although the news has had little impact on the market.
