http://www.zerohedge.com/news/2013-05-23/japans-words-advice-doomsayers-please-do-not-worry-and-maintain-fiscal-discipline

Japan's Words Of Advice To Doomsayers: "Please Do Not Worry" And "Maintain Fiscal Discipline"

Submitted by Tyler Durden on 05/23/2013 07:56 -0400

Japan

Six months ago, Japan's message to the Kyle Bassians of the world - was simple:

Q. If Japan has a financial collapse, what will happen to its government bonds?

A. Please do not worry.

Uhm, Ok.

The somewhat vague, if very reassuring, warning above has since been revised to provide some additional "information":

Q. If Japan fell into a financial crisis, what happens to government bonds? [note the slight change of "financial collapse"]

A. If you lose confidence, government bonds will fall due to a rise in rates. There is a "possibility that trouble may occur." And to avoid such a situation, "maintain fiscal discipline."

Well, we for one, feel much better already...

Source: Japan Ministry of Finance

http://www.zerohedge.com/news/2013-05-23/japan-stock-market-crash-leads-global-sell

Japan Stock Market Crash Leads To Global Sell Off

Submitted by Tyler Durden on 05/23/2013 06:51 -0400

10 Year Bond

Australia

Bond

Gross Domestic Product

Yesterday afternoon, following the rout in the US stock market, we made a spurious preview of the true main event:

So,  selloff in JGBs tonight?

3:52 PM - 22 May 2013

We had no idea how right we would be because the second Japan opened, its bond futures market was halted on a circuit breaker as the 10 Year bond plunged to their lowest level since early 2012, hitting 1% and leading to massive Mark to Market losses for Japanese banks, as we also warned would happen. That was just the beginning, and suddenly the realization crept in that the plunging yen at this point is not only negative for banks, but for the entire stock market, leading to what until that point was a solid up session for the Nikkei to the first rumblings of a risk-off.

Shortly thereafter we got the distraction of the Chinese Mfg PMI which dropped into contraction territory for the first time since late 2012, and which set the mood decidedly risk-offish, although the real catalyst may have been a report on copper from Goldman's Roger Yan (which we will cover in depth shortly) and whose implications may be stunning and devastating and may have just popped the Chinese credit bubble (oh, btw, short copper).

And then all hell broke loose, with the Nikkei first rising solidly and then something snapping loud and clear, and sending the index crashing a massive 1,143 an intraday swing of 9% high to low, leading to an over 200 pips move lower in the USDJPY, and leading to a global risk off across the world. Looks like Mrs Watanabe's infatuation with the "get rich scheme" known as the stock market is once again over, and it is time to start from scratch for Kuroda and Goldman proxy company.

Perhaps best summarizing things in the centrally-planned world is the chart of the overnight USDJPY:

... and offsetting this is our old friend, gold, which once again reminded that when the entire centrally-planned construct implodes, as it was on the edge of doing so in Japan last night, it will be the only thing standing:

But don't worry: the short covering squeeze we warned about last night hasn't started yet. Not even close.

All of this is hardly the ringing endorsement that central-planners have
everything under control despite all time highs in stock markets around
the world.

Speaking of stock markets around the world, what goes up always comes down. This is just the start:

Nikkei: -7.32%
Hang Seng: -2.54%
DAX: -2.64%
FTSE 100: -1.9%
CAC 40: -2.3%
FTSE MIB: -2.56%

And so on. And this excludes the plethora of secondary side-effects as US traders walk in and realize their positions have been devastated overnight, and that unless the PPT steps in, the world is facing a tsunami of index margin calls.

A quick summary of what happened from DB's Jim Reid

So at the closing bell, the S&P 500 was 32pts off the highs at 1655 and the UST 10-year yield was 15bps above the lows at 2.0395%. These are big intraday moves. Indeed we haven't seen such ranges for the S&P 500 and Treasuries since 7th November and 14th September last year, respectively. In other markets the US dollar clearly benefited from the hawkish interpretation of the Fed headlines with Dollar index up nearly 1.2% above the lows while Gold fell over 3% from the
intraday highs to close at $1370/oz.

The FOMC minutes that came later was also viewed to be less dovish than the Fed commentary we’ve seen recently as the minutes noted that “a number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently stronger and sustained growth”. Markets clearly seized upon the hawkish tone from yesterday’s Fed headlines even though the Chairman himself at the Q&A session made it clear that a step to reduce the flow of purchases will not be an automatic mechanistic process of ending the program
but rather that any change in the flow of purchases would depend on incoming data and Fed’s assessment of the outlook. Whilst a slowing of QE is possible in a few months we can’t help to think that the Fed could be forced to restart its QE in a beggar-thy-neighbour environment where central banks in most part of the developed world are still largely on an easing bias in order to steel a share of the global GDP. We think QE or derivations thereof will be around for many years to come.

Back to markets, the overnight session is basically seeing a continuation of the risk-off flow that dominated the second half of the US session. Asian equities are mostly in the red and the latest Chinese flash PMI is clearly not helping. The HSBC May Flash PMI for China fell to a 7-month low of 49.6 versus a final April reading of 50.4. The May print was not only the first sub-50 print in 7 months but also extends the downward trend that we've seen since the end of Q1 as for this particular series the final reading for March, April and May were 51.6, 50.4 and 49.6 respectively. The rise in Treasury yields is also having an impact on Asian
rates markets which saw the 10-year part of the Australia and Japanese curve trace 8bp and 1bp higher. Asian and Australian credit spreads are also 2-4bp off overnight as markets digest the disappointing Chinese PMIs. Other Chinese growth related assets including copper (-2.2%) and AUDUSD (-0.6%) are also coming under selling pressure. The AUD in particular is at its lowest level versus the USD since Q3 2010.

Turning to the day ahead, the flash Euroarea manufacturing and service PMIs for May will be a focal point of the European session. The consensus is for a small 0.2 to 0.4pt improvement in PMIs across the Euroarea, France and Germany. The UK’s Q1 GDP revisions and Euroarea advance consumer confidence data are also worth watching. Across the Atlantic, the US preliminary PMI is out today together with April new home sales, the house price index for March and weekly jobless claims. Mario Draghi and the Fed’s Bullard will be speaking today in London – Draghi’s speech is scheduled towards the end of the US session.

and.......

http://www.zerohedge.com/news/2013-05-23/what-has-happened-so-far

What Has Happened So Far

Submitted by Tyler Durden on 05/23/2013 07:21 -0400

Once again: The FOMC minutes had nothing to do with overnight's events, especially since both Ben Bernanke and Bill Dudley made it very clearpreviously that for any tapering to occur (and which is supposedly bullish according to David Tepper, who may finally be done selling to momentum chasers) if ever, the economy would have to be be stronger (which is of course a paradox because it is the Fed's QE that is making the economy weaker). If anything, the minutes reminded us that there is a mutiny in the FOMC with finally someone having the guts to say on the record that Bernanke is blowing a bubble - something never seen before on the official FOMC record. And after all, the Nikkei opened way up, not down. It was only after the realization of what soaring bond yields mean for, wait for it, stocks (despite central planner promises that it is soaring bond yields that are a good thing - turns out, they aren't) that the sell-off really started. That, and of course copper, and the end of the Chinese Copper Financing Deals arrangement that has been China's illicit cross-asset rehypothecation scheme for years (more shortly). So in a nutshell, here is what has transpired so far, courtesy of Bloomberg.

Treasuries higher as global stock markets fell on concerns over rising interest rates in wake of Bernanke’s testimony yday and evidence that China’s economy may be slowing.
Japan’s Topix index fell almost 7%, the most since the aftermath of the March 2011 tsunami and nuclear disaster; financial firms slid amid rising bond yields
10Y JGB yields erased earlier losses as stocks fell after yields touched 1%, the highest in a year
UST domestic trading volumes were highest in 5yrs yday, FTN’s Jim Vogel wrote. 10Y yield rose as high as 2.062%, highest since March 14; TY traded 3m contracts yday, busiest day for 1st contract on record, according to Bloomberg data to 1982
Economy Minister Amari said there’s no reason to be concerned over stock market decline, economic recovery on track
China’s HSBC flash manufacturing PMI stood at 49.6 for May, contracting for 1st time in 7 mos. and adding to signs of slowing economic growth in 2Q
Bond buying should respond to economic data, Fed’s Bullard said in speech in London; Fed should “continue with the present quantitative easing program, adjusting the rate of purchases appropriately in view of incoming data on both real economic performance and inflation”
The euro area’s manufacturing PMI for May rose to 47.8, services to 47.5; composite index at 47.7, est. 47.2; Germany’s manufacturing PMI 49.8
U.K. GDP +0.3% in 1Q, confirming initial estimate, on inventories, consumer spending; exports declined sharply in quarter
Surge in Japanese bond yields since early April would push up Prime Minister Abe’s budget bill by about $3 billion, a possibility that’s prompting central bank Governor Haruhiko Kuroda to pledge more focus on curbing debt-market swings * Deutsche Bank AG, continental Europe’s biggest bank, said some investors are probably underestimating the ramifications of the European debt crisis and a political stalemate over the U.S. debt ceiling
Bond investors don’t perceive the six biggest U.S. banks as “too big to fail,” according to a report from one of those lenders, Goldman Sachs
U.S. bankers and insurers are trying to use trade deals, which can trump existing legislation, to weaken parts of the Dodd-Frank Act designed to prevent a repeat of the 2008 financial crisis
China will tighten rules on bond sales by polluters, local government financing vehicles with higher debt levels and companies in industries with overcapacity as the government seeks to redirect the economy
BofAML Corporate Master Index OAS steady at 141bps, tight for year, as $14.05b priced. Markit IG at 71.6bps, YTD low 69bps. High Yield Master II OAS tightened to 427bps from 435bps; $1.59b priced yesterday. CDX High Yield fell to 106.63 from 107.13
Sovereign yields mixed; euro-area peripheral yields higher; core G-4 yields lower. Asian stocks fell across the board; European stocks, U.S. stock-index futures lower. WTI crude, metals lower, gold gains 1.4%

And SocGen's recap:

The 7.3% collapse in the Nikkei and the sharp intra-day volatility
yesterday in bonds and currencies shows the formidable task facing the
Fed (and other central banks) as they prepare to take the first steps of
ending the policy of extreme accommodation. A tapering of asset
purchases is by no means a tightening in policy, but the wild reaction
to the faintest indication that the Fed is preparing to start dialling
back, possibly as soon as September, demonstrates how tricky it will be
for policymakers to wean markets off liquidity without causing a tremor.
However, Bernanke in his prepared remarks could not have been clearer
yesterday: he is in no hurry to change monetary policy. While he
acknowledged afterwards that the pace of asset purchases may slow over
the next few meetings, the Fed Chairman was unequivocal that so far,
economic indicators and fiscal considerations do not yet make that an
option. The job market's recovery does not yet make it an option. He
clearly does not want a change in monetary policy to push up interest
rates and endanger the real estate market's recovery. Today, we will be
watching the initial claims and new home sales data.

In
the short term, pro-risk strategies are likely to be favoured still but
the days of remorseless gains may well be numbered for stocks after the
drubbing for the Nikkei. A
possible change of tack by the Fed and a simultaneous weakening in
China will spur further profit taking, ending a blistering rally.
USD/JPY hit 103.45 yesterday but the subsequent pull back overnight
shows the JPY still has its admirers when risk goes in reverse.

The
EUR/USD trend is more muddied. In the euro zone, the manufacturing and
services PMI indices announced today will give us some more information
on the outlook for activity in Q2, but the focus will be on the speech
by ECB president Draghi. We are hoping that the string of unpleasant
surprises will slow, giving some modest support to EUR/USD. Support runs
at 1.2797 and 1.2775. The trend in US 10-year bond yields should
dictate the path as illustrated in our chart.

Across the
Channel, will the downward pressure on EUR/GBP resume as UK growth
outpaces that of the euro zone, or will EUR/GBP get caught up in the
woes affecting other EUR exchange rates? We still prefer fading
short-term gains.

Japanese Stocks Halted; Plunge 1500 Points To Close Down 7.3% - Biggest Drop In 26 Months

Submitted by Tyler Durden on 05/23/2013 - 00:33

UPDATE 1: They are panicking... BOJ injected 2 trillion yen ($19.4 billion) into the financial system to stem volatility following a circuit breaker in JGB futures trading.

UPDATE 2: Nikkei 225 is now down 1500 points from its highs and down 1150 (over 7%) from yesterday's close

UPDATE 3: The Final closing data is a disaster with JPY surging back to 101.50 (carry trades getting baumgartner'd everywhere), stocks down over 7%, and 10Y JGBs swinging from +11bps at the open to -6bps at the close for the second biggest range day in a decade...

All the time it is just the quadrillion JPY second-largest bond market in the world that is experiencing volatility on an unprecedented scale, the BoJ and her partners in crime are more than willing to 'officially' say "please do not worry." But when the equity market - that barometer of everything good and holy about Abenomics starts to crater, you can bet the excuses will come fast and furious. Today's drop of over 1500 points (over 9%) from the earlier highs is the largest drop for the Nikkei 225 since March 2011. The Nikkei 225 just lost the all-powerful 15,000 level and is suffering another VaR shock with a 6-sigma move today. In fact given the price levels this drop is on par with the post-Lehman moves in 2008. The question now (with US equity futures also fading fast -20 points and JPY crosses getting hammered) is how will the Japanese risk appetite for peripheral European crap hold up with this crimping in their plan as Japanese bonds and stocks dump?

Chinese Economy Enters Contraction With First Sub-50 PMI Print Since October

Submitted by Tyler Durden on 05/22/2013 - 22:04

For the first time since October 2012, HSBC's China PMI (Flash) printed at a sub-50 level (49.6) missing expectations (50.4) quite notably. This is the worst two-month drop in 17 months. This is problematic for the PBoC who are being arbitraged left, right, and center and know that any stimulus will merely serve to exacerbate the problems they face (as we noted here that China simply cannot function with 'moderate' growth). Every one of themain index's 11 sub-indices is signaling 'problems' - from slower rates of output, slower new orders, employment dropping at a faster rate, stocks rising, and output prices falling. As HSBC notes, "The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds. A sequential slowdown is likely in the middle of 2Q, casting downside risk to China’s fragile growth recovery."

http://www.zerohedge.com/news/2013-05-22/japanese-bond-market-halted-open-selling-purge-goes-airborne

Japanese Bond Market Halted At Open As Bond Selling Purge Goes Global

Submitted by Tyler Durden on 05/22/2013 20:18 -0400

Bond

International Monetary Fund

Nikkei

Japanese government bonds (JGB) futures have been halted once again this evening as the market opens down over 1 point. 10Y yields smash 11.5bps higher to 1.00% and 5Y yields add 6bps to 47bps. These are quite simply unprecedented moves in what 'was' a safe asset class and impresses yet another VaR shock on the market (as we detailed here). What this means practically is that Japanese banks push further into insolvency land (as we explained here) today's move wipes out another 1.5% of blended Tier 1 capital off the entire Japanese banking industry. Since the 10Y JGB yield lows of 32.5 bps on April 5, the move is rapidly approaching a full percentage point, or the parallel shift amount that the IMF warned would lead to 10% and 20% MTM losses for regional and major banks respectively. Today's jump in 10Y yields continues the post-BoJ regime of greater-than-six-sigma moves... something no risk model can withstand for three weeks. Just a good job the BoJ didn't have anything at all to say about this totally disorderly fiasco yesterday.

JGB Futures plunge to two-year lows...

leaving yields spiking...

10Y yields have now tripled from the post-BoJ meeting lows (in 7 weeks!!)

JPY is being sold like there's no tomorrow (which for the Japanese may well be true)

Meanwhile the Nikkei 225 is tearing hiugher once again - now up ovcer 85% from its Oct 2012 lows...

Charts: Bloomberg

Catharsis Ours

Wednesday, May 22, 2013