http://www.zerohedge.com/news/2013-10-18/ongoing-dollar-pounding-defines-overnight-session

Ongoing Dollar Pounding Defines Overnight Session

Submitted by Tyler Durden on 10/18/2013 07:11 -0400

While the US economic data reporting machinery slowly starts churning again following the "reactivation" of government, last night it was Asia's turn to report a slew of goalseeked economic items. Q3 GDP (+7.8% yoy), Industrial Production (+10.2% yoy), Fixed Asset Investments (+20.2% YTD yoy) and Retail sales (+13.3% yoy) for September all came in broadly in line with market consensus. The economy grew at a faster pace on a sequential basis with Q3 growth being 0.3ppts higher than Q2. Nonetheless, many observers forecast yoy Q4 GDP growth to decline due to the end of inventory restocking and the fade out of a major credit stimulus in the prior quarter, even as total Chinese debt continues to push ever higher into bubble territory. Speaking of China, however, it is worth noting that overnight the Chinese Yuan rose to the highest level against the dollar in 20 years. This happens as the USD tumbles to nearly a year low, which incidentally is the theme of the overnight session: the ongoing dollar poundage is reverberating across the globe, and the resulting unleashing of global funding carry trades looks set to take the S&P (and everything else) to fresh record highs on the back of even more generous Fed Kool Aid expectations.

Incidentally, now that the final defendant of a "fundamentally-driven" market is dead and buried, we remind readers what we pointed out last night: since the only thing that matters is the Fed's balance sheet, here is a snapshot of what the "sophisticated" market now expects the year end closing S&P print will be:

On the docket today are a couple more Fed speeches though specifically from Lacker, Tarullo, Evans, Dudley and Stein. If recent trends are any indication. So focus will be on Fed speak as well as the ongoing earnings season. 13 US companies are lined up to report today including Morgan Stanley and bell-weather General Electric.

Market Re-Cap via RanSquawk

European equities trade in the green across the board following on from a record high close on Wall Street, as participants continue to absorb the government shutdown resolution and factor in its impact on a Fed decision to taper QE.

While the initial European reaction to the fiscal quick fix in the US was not positive yesterday, US participants began to deduce that a renewed debt ceiling debacle could result in the Fed once again refraining from any plans to taper QE in December. This view is supported by the fact that Fed speakers have indicated the proximity to the debt ceiling did impact their decision to keep QE unchanged at the September meeting. With a similar situation being predicted in December, market participants have once again pushed back their view of when a cutback from the Fed will occur; many now see Q1 2014 as more likely.

This prediction of extended QE from the Fed has resulted in buoyant risk appetite, and stocks trading with broad gains, upside has been assisted by tier one Chinese data which came in line with market expectations.

Similarly fixed income remains bid as T-notes pull the rest of the complex higher with significant upside being seen in Bunds and Gilts for the second session running. The knock on effect of this fall in rates and Fed policy continuity for longer has caused USD weakness, adding to losses of more than a per cent in the USD-index yesterday’s session.

Overnight Highlights:

S&P 500 rallies to a record close as government reopens and markets push out expectations of a Fed QE taper.

Delayed data begins to be rescheduled, with September’s Nonfarm Payrolls due on Tuesday 22nd October.

Chinese annualized GDP grows 7.8% in Q3, alongside expectations.

Asian Headlines

Chinese GDP (Q3) Y/Y 7.8% vs. Exp. 7.8% (Prev. 7.5%)
GDP SA (Q3) Q/Q 2.2% vs. Exp. 2.1% (Prev. 1.7%, Rev. 1.9%)
Chinese Industrial Production (Sep) Y/Y 10.2% vs. Exp. 10.2% (Prev. 10.4%)
Industrial Production YTD (Sep) Y/Y 9.6% vs. Exp. 9.6% (Prev. 9.5%)
Chinese Retail Sales (Sep) Y/Y 13.3% vs. Exp. 13.5% (Prev. 13.4%)
Chinese Retail Sales YTD (Sep) Y/Y 12.9% vs. Exp. 12.9% (Prev. 12.8%)

China National Bureau of Statistics said economy growth shows signs of slowing in September. The NBS also stated that the Chinese economy is likely to see stable, fast growth in Q4 and that pro growth policies will continue to help economy.

S&P affirmed Japan at AA-; outlook negative. S&P said that the negative outlook indicates downside risks remain and that it will lower ratings if it perceives the government doesn't deliver reforms. However, S&P also commented that Japan PM Abe's measures have improved Japan's near-term economic outlook.

EU & UK Headlines

The French finance ministry is pushing to have a financial transaction tax eased in order to persuade French banks to take a stake in Euronext, according to sources.

Former Italian PM Monti has resigned from his post as leader of the Centrist party in protest of the budget law passed yesterday by the PM Letta's Cabinet.

ECB says banks to repay EUR 105mln from first 3y LTRO and EUR 5.094bln from second 3y LTRO.

BoE's Dale says very unlikely that BoE will raise bank rate in 2014 as they need to see sustained period of strong growth.

US Headlines

September jobs report is to be released on Tuesday October 22nd.

- US PPI report to be released on October 29th.
- US CPI report to be released on October 30th.

Moody's said a US rating downgrade is unlikely in the next two years. The rating agency said political uncertainty up to October 17th likely hit GDP growth and same GDP impact possible if agreement not reached in 1st quarter. Moody's added that yesterday's debt limit agreement contains credit positive elements.

Equities

European equities and US stock futures trade with gains as markets respond to the decreased likelihood of Fed QE tapering in the near-term. Chinese GDP came in line with expectations which has also provided a lift in sentiment.

HSBC's recently aquired sub-prime lender, Household International, have been ordered by a U.S. district judge to pay investors USD 2.46bln in a class-action lawsuit, a move that comes several years after a jury found the co. liable for securities fraud.

Google shares trade higher by 8% premarket after they reported Q3 non-GAAP EPS USD 10.74 vs. Exp. USD 10.36.

Advanced Micro Devices shares trade lower by 7% despite reporting Q3 Adj. EPS USD 0.04 vs. Exp. USD 0.02 as they annouced they saw PC shipments falling 10% this year and same in 2014.

Notable premarket earnings have been seen from General Electric who's shares have moved higher by nearly a per cent premarket after Q3 Operating EPS USD 0.36 vs. Exp. USD 0.35. Schlumberger also reported Q3 Adj. EPS USD 1.29 vs. Exp. USD 1.24.

USD has again seen broad weakness in the European morning amid falling rates and the prediction of the Fed continuing to purchase USD 85bln of MBS and Treasuries until the early next year as the US government's fiscal problem's have only been resolved for the next three months.

RBA Governor Stevens said lower AUD would be helpful to re-balance the economy and that the direction of AUD is not surprising. Stevens then added that the higher AUD is still sustainable. Goldman Sachs forecasts RBA to cut rates by 25bps in March 2014 vs. Previous forecast of rate cut in November 2013. Goldman added it sees RBA tightening rate cycle from November 2014.

Commodities

SPDR Gold Trust GLD said its holdings fell 0.37% to 882.23 tonnes on Thursday from 885.53 tonnes on Wednesday.

Goldman Sachs sees significant downside in gold, copper.

Goldman Sach's have forecasted a recovery in the WTI-Brent spread, with earlier weather issues that caused an increase in the spread are beginning to recede.

China's NDRC are to begin looking at reforms to fuel prices.

As part of the ongoing discussions with Iranian senior officials, the US are weighing easing Iranian sanctions, and may free up assets.

* * *

In conclusion, as always, is the Jim Reid recap of all key overnight items

Following the near-term fiscal resolution in Washington and the reopening of federal government agencies, investors’ attention should increasingly shift towards the upcoming data flow. We do have some gaps to fill after the two plus week of government shutdown but the main focus will likely be on September’s employment report. On that note we did receive some clarity from the Bureau of Labor Statistics overnight with a revised data schedule (http://www.bls.gov/bls/updated_release_schedule.htm). The September’s payrolls will now be released on the 22th October while October’s payrolls will be delayed by a week to 8th November. The employment report aside, PPI and CPI reports for September will be released on the 29th and 30th of October, respectively.

Staying on data theme we are waking up this morning to a fairly decent round of data from China. Q3 GDP (+7.8% yoy), Industrial Production (+10.2% yoy), Fixed Asset Investments (+20.2% YTD yoy) and Retail sales (+13.3% yoy) for September all came in broadly in line with market consensus. The economy grew at a faster pace on a sequential basis with Q3 growth being 0.3ppts higher than Q2. While many observers forecast yoy Q4 GDP growth to decline due to the end of inventory restocking, DB’s Jun Ma believes that there is a good chance that Q4 GDP will stay at 7.8% or rise to 7.9%. Asian equities are reacting positively to this with bourses in Hong Kong and China up +0.6% and +0.4%, respectively as we go to print. That said, Asian credit markets are largely in consolidation mode after a strong performance over the last few days which saw the Asia iTraxx about 10bps tighter than where it was a week ago.

The overnight moves are also partly helped by a decent session for risk assets yesterday. The S&P 500 (+0.67%) gained for the second consecutive day to close at an all-time high while DM IG credit spreads were about 2-3bps tighter. Investors are also more comfortable in adding EM risks and are certainly not shying away from duration either. Much of this is perhaps a reflection of the solid performance in US rates over the last few days as expectations of a tapering delay continue to creep higher. This drove the 10-year yield 7bps lower to a 10-week low of 2.589%.

As Jim discussed yesterday, it seems highly unlikely that the Fed will risk tapering in December or January assuming the next budget negotiations go close to the wire again and it could be March at the earliest for tapering. Along similar lines, Fed’s Evans yesterday said that the QE taper should be delayed as data flow has been disrupted during the shutdown and the September’s data were inconclusive. This is also a view shared by our US economists. Joe Larvogna is concerned about the integrity of the late data releases and to the extent data collection is muddied, he argues that financial markets will not trust the data, and neither will the Fed. The upshot is therefore an elongation in the timing of QE tapering. This is clearly not a universal view for now as Fed’s George was on the tape yesterday and still thinks the central bank should start taper soon while the FT is also predicting that the Fed could start taper in December.

Away from macro developments, yesterday’s corporate earnings were overall pretty good although the day was somewhat overshadowed by a disappointing quarter at Goldman Sachs. GS’ EPS ($2.88) topped official Bloomberg consensus ($2.47) but fell short versus whispers of $3. Revenue also came below market and much of that was attributable to weakness in its FICC business amid a slow period of client activity. Google’s post-market results were solid though as the company exceeded both earnings and revenue estimates on new advertising channels. In summary the round of earnings yesterday was largely a continuation of the trend that we’ve seen so far in which earnings are outperforming revenue beats. Of the 24 firms that reported yesterday, about 79% of those delivered better-than-expected EPS performance but only 58% of those managed to beat analysts’ revenue estimates.

Looking at the day ahead we have no major data releases scheduled on both sides of the Atlantic. We will have a couple more Fed speeches though specifically from Lacker, Tarullo, Evans, Dudley and Stein. So focus will be on Fed speak as well as the ongoing earnings season. 13 US companies are lined up to report today including Morgan Stanley and bell-weather General Electric.

Catharsis Ours

Friday, October 18, 2013

Ongoing Dollar Pounding Defines Overnight Session

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