H/Ts Harvey Organ , Bloomberg and Zero Hedge ....
CME Hikes Turkish Lira, Nat Gas Margins
Submitted by Tyler Durden on 01/24/2014 19:00 -0500
Once upon a time, the only CME margin hike releases the investing population cared about were those for gold (because no matter how high the E-Mini went, the CME never seemed too bothered). Now, the CME has more "important" things to worry about - such as preventing the "heating bill shock" that will come in February when the majority of the population opens their electricity and heating statements for January (sorry, there goes the discretionary retail spending cash). And of course, the ongoing deterioration of the emerging markets, in this case led by Turkey and the absolute collapse in the Turkish Lira. Which is why about an hour ago, the CME decided to hike both TRY (to both the USD and EUR) and Nat Gas margins, by 14 and 20% respectively. Will this normalize some of the vol seen around these products on Monday remains to be seen. Oh well, if not - the CME can just hike some more the same day, until it gets the desired outcome.
Emerging Market CDS Blow Out
Submitted by Tyler Durden on 01/24/2014 07:44 -0500
The last time markets scrambled for protection against sovereign defaults was over European country collapse in the summer of 2012 around the time Mario Draghi introduced a non-existent measure to allow Europe's nations to engage in zero reforms while their bond yields plunged. This time it is the emerging markets.
- Argentina +139bps at 2562.07bps, hit highest since Sept.
- Venezuela +81bps at 1398.19bps, highest since 2010
- Turkey +11.6bps at 276.7bps, highest since June 2012
- South Africa +10bps at 236bps, highest since Sept.
Of course, CDS aren't telling us anything (capital-controlled) FX hasn't already made quite clear.
Risk Off: Yen Soars, Equity Futures Tumble As EM Revulsion Escalates
Submitted by Tyler Durden on 01/24/2014 07:00 -0500
It's Risk Off time.
It all started early in the session when China’s banking regulator ordered regional offices to increase scrutiny of credit risks in coal-mining industry, signaling not only government concern about possible defaults but the implication that possible defaults especially in the much-discussed Trust product which may default as soon as a week from today. This caused a hiccup in the USDJPY which until that point was being pushed higher by Japanese banks hoping to reverse recent losses by adding to their losing long positions. But then things got really out of control, and the USDJPY plunged by some 150 pips in the matter of hours, plunging as low as 102, driven by unfavourable interest rate differential flows amid heightened concerns over EM nations, in particular TRY and ARS which also supported bid tone in USTs. This also saw spot TRY rate print fresh record high, while 5y Turkish CDS rate advanced to its highest level since June 2012, while at the same time Argentina announced it would life currency controls and dollar purchases in the aftermath of the ARS devaluation by 13%.
And since everything tracks the JPY carry pair as we have been showing for the past year, futures once again plunged overnight, for now held by 1810 support, Treasurys are bid throughout, with the same treasury yields that have "no where to go but up" sliding to 2.71% from 2.87% at the beginning of the week, while gold is finally spiking as the realization that absolutely nothing has been fixed, that apparently nobody got the taper is priced in memo, and that soon the Fed will have to untaper, begins to spread. Are the central planners finally starting to lose control?
More details from RanSquawk
Heading into the North American open, stocks in Europe are seen lower across the board, as concerns over EM markets continued to weigh heavily on investor sentiment. As a result, Argentina exposed BBVA shares fell 4% after Argentinian central bank devalued the ARS the most in 12 years as the central bank scaled back its intervention in a bid to preserve international reserves that have fallen to a seven-year low, which in turn saw the Spanish IBEX-35 underperform its peers.
Negative sentiment, together with touted month-end related flows has supported flows into fixed income assets, with UK Gilts also better bid in spite of the bear steepening of the short-sterling curve in reaction to press reports by FT which wrote that Carney has signalled scrapping of forward guidance target. This in turn ensured that despite the flight to quality, with GBP initially outperformed its peers, however, a retracement of these gains amid a stronger EUR following higher than expected LTRO repayment has seen GBP/USD trade lower.
Touted profit taking ahead of the Chinese New Year, together with renewed concerns over EM markets and consequent short-covering of positions saw the JPY swap curve aggressively bull flatten overnight. While JGBs are expected to be supported next week by BoJ conducting JGB purchasing ops, comments by the President of the GPIF, who said that the fund will not buy more Japanese government bonds and that there is limited room for JGB prices to increase may weigh on sentiment. (BBG)
BoJ's Kuroda says Japanese economy is on track; after sales tax hike and economy will continue to grow around 1.5%. (RTRS)
We conclude with Jim Reid's usual overnight recap
The jury is still out on whether yesterday’s selloff was caused by the US data, poor corporate earnings or the Chinese PMI. Whatever the reason, the real damage was in done in EM where the rumblings from Turkey, Argentina and Venezuela cumulated in another very weak day for EM sovereigns. Even with the fall in the USD and rally in UST yields (-9bp to 2.78%), there was little to cheer in EM sovereign credit as the dual worries of inflation and potential BoP issues provided a common thread yesterday. All this provides a fairly nervous lead-in to next week’s FOMC where the consensus appears to be that another $10bn in tapering will result.
To put yesterday’s EM performance in perspective, the CDX EM and JPM EMBI credit indices widened by more than 15bp apiece in the worst one-day performance since the turbulent summer of 2013. Starting with Argentina, the peso suffered its biggest one-day fall in more than a decade (-13%) after the country’s central bank decided to pull its support for the currency in order to preserve its FX reserves which had fallen by almost a third over the past year.
Our EM strategists point out that unfortunately neither the Central Bank nor Treasury is doing much to contain the pass-through to inflation by tightening policy. Thus, more volatility is almost guaranteed in the short term and the stability will only be established once the peso is weak enough – probably at a level one Peso or two away from yesterday’s closing. In Turkey, the Central Bank intervened directly in the FX market yesterday for the first time in just over two years, by selling USD3bn in support of the lira. Our EM team’s bottom line here is that the CBT does not have enough reserves to credibly mount a sustained defense of the lira by selling FX. Net reserves do not fully cover short-term external debt and provides only about two months of import cover, and are also not enough to cover the risk-weighted measure of potential drains on reserves developed by the IMF. In Brazil, the lower than expected IBGE inflation reading (0.67% M/M vs 0.79% consensus) was a welcome development, but this didn’t stop the IBOVESPA from losing 2% while Brazil CDS and bond yields closed about 5bp higher on the day.
Turning to the Asia, equity markets are experiencing another pullback today as worries in EM weigh on risk sentiment across the region. The Nikkei is trading 2.2% lower as it drifts further away from the 16,000 mark and as yesterday’s 1.2% drop in dollar-yen drags on Japanese exporters. Chinese A-shares are the only major market trading in positive territory today (Shanghai Comp +0.8%) but it appears to be driven by one or two sectors – namely tech stocks – after it was reported that PC giant Lenovo (+2.25%) may acquire IBM’s low-end server business. A sharp fall in Chinese money market rates is also providing a tailwind for Chinese equities. Overnight it was reported that China’s banking regulator had issued an alert on credit risks in the country’s coal sector (Bloomberg). This comes after Chinese bank ICBC’s chairman reiterated yesterday that it won’t be bailing out investors in a troubled $500m wealth management product that matures in one week’s time. In Asian sovereign credit, the spreads on higher beta names such as Indonesia (+8bp) and the Philippines (+5bp) are being marked wider while the benchmark Asia IG index is 5bp higher.
Taking a brief look at the data flow yesterday, the selloff appeared to gather momentum with the release of some uninspiring US data. December existing home sales (4.87M vs 4.93M) were modestly below expectations, but the details of the report suggests weather may have impacted sales in the month. Indeed, weakness was concentrated in two regions of country particularly prone to adverse winter weather, namely the Northeast (-1.5% vs. -3.0%) and the Midwest (-4.3% vs. -4.9%), while the South (+3.0% vs. -4.4%) and the West (+4.8% vs. -11.1%) both registered modest gains. Our US economists point out that since last July, existing home sales have declined -9.7% - the lack of supply on the market being one of the reasons for the decline. The US Markit PMI fell to 53.7, well below the 55.0 Bloomberg consensus estimate. Initial jobless claims for the week of January 18 increased +1k to 326k after the prior week was revised down -1k to 325k. This leaves our economists calling for +200k for January’s payrolls. Euro-zone flash PMIs increased by 1.1 to 53.2 (vs 52.4 expected), the highest reading since June 2011, which provided a brief reason for markets to rally. The stronger Euro PMI was led by firm manufacturing readings in France (48.8 vs 47.5 expected) and Germany (56.3vs 54.6 expected). On the earnings front, there was disappointment with Lockheed Martin’s (-3.93%) earnings despite a strong earnings beat and management predicting that US defence spending will be soon bottoming out.
Starbucks was also cause for worry after Dec quarter same store sales growth rose 5%, which was less than the consensus estimate of 5.9%. In other headlines, the BoE’s Mark Carney gave a series of television interviews yesterday on the sidelines of the World Economic Forum downplaying the idea of rate rises were around the corner given the fall in the jobless rate to 7.1%. Carney joined his BoE colleagues McCafferty and Fisher in saying that the 7% threshold was merely a marker to then "begin to think about" raising rates. The FT was more forthcoming in its interpretation, saying that Carney was potentially signaling that he was scrapping forward guidance as he was against “unnecessarily focusing on one indicator”. We may get more detail on Carney’s thoughts later today when he speaks at the WEF in Davos.
Turning to the day ahead, the week draws to a close with very little on both the earnings and data calendar. Mark Carney will be speaking today at the World Economic Forum at around midday London time. The WEF annual meeting concludes tomorrow. Canada provides an update on December inflation and there will be some focus on the current account numbers from Brazil.
H/Ts Harvey Organ , Bloomberg and Zero Hedge ....
The big news today is the huge problems facing Argentina as they may head into another default:
Argentine Default Chaos Relived as Blackouts Follow Looting
Thirteen years after that collapse, President Cristina Fernandez de Kirchner is running out of time to avert another crisis. The policy mix that Fernandez and her late husband and predecessor, Nestor Kirchner, used to usher in 7 percent average annual growth over the past decade -- higher government spending financed by printing money -- is unraveling.
Argentinian foreign reserves fall another 80 million, down to 29,4 billion usa.
Its currency collapsed to 12.75 to the dollar on the black market and this nation is experiencing a massive bank run.
(courtesy zero hedge)