More on that in a minute.
After a somewhat confusing Nikkei 225 move last night for those unaware that the cash market was closed Monday while Nikkei futures remained trading (see last night's 2 a.m. post, Nikkei chaos) with futures seeing a steep drop while the cash market closed up, the market tried some slight levitation on low volume until shortly after the European open, the European Commission's Juncker came out with just months until the end of the year and slashed Eurozone growth for 2014 from 1.2% to 0.8%, more evidence Europe is heading for or in a triple dip recession and he also cut 2015 forecasts from 1.7% just this spring to 1.1%.
One might think futures would fly on the back of that news, however they did the opposite. Crude, both Brent and WTI saw lower prices on the revised forecasts from Europe.
And I've been looking a lot at currencies, of course it's way too early to figure out how the Japanese Pension fund re-allocation of assets, largely in to stocks and away from bonds, will play out as I have read dozens of articles overnight and this morning, many dating back to the start of 2014. It seems Japanese PM Shinzo Abe knew the GPIF had not been legally established to re-allocate assets, yet he asked for the new projections of the GPIF's make-up in a non-deflationary environment, again as Abe and Kuroda perhaps are high fiving a bit early on their "breaking the back of Japanese deflation", a multi-decade phenomena. In any case, there are all kinds of opinions both before and after (most before the GPIF announced a new allocation) as to the legalities which is what sent Nikkei futures lower overnight when a GPIF panel member said it may take a year to change the laws to allow the GPIF to start buying stocks at the new allocations.
In any case, in all of my reading and posting, one thing is very clear, the GPIF story is not new, the exact same thing announced last week sending the market higher was posted here 2 weeks ago as it was announced back then and you can go all the way back to early Spring and get official and analyst forecasts on what the GPIF's allocations would be and many are spot on as early as early spring so the market has well discounted this story long before last week and certainly 2 weeks ago when first officially put out as well on an analyst and GPIF rumor basis, back to early spring. It's disengenious and naive to believe the 2 week old news last week was the true reason for the market's strength and rather a paper catalyst for a ramp that was definitely supported by assets in the short term like HYG which was under accumulation in to the story on a short term basis.
Conveniently this story comes out overnight essentially saying, "Whoa...not so fast, we still have a year's worth of law-changing to do before the GPIF can change allocations and sell treasuries and buy stocks at their new allocations:.
Back to the F_E_D PPT (Plunge Protection Team). As I have maintained throughout QE, "It's nothing more than a nearly 4 trillion dollar F_E_D balance sheet expansion that is in actuality a stealth bank bailout". You probably recall the multiple quarters during QE in which banks reported not having a single day of trading losses, well that's money to the banks that they would not have received without QE and we know what the public / voter's opinion of the early bailouts like AIG and GM were, NOT GOOD, so QE is the perfectly un-understandable transmission mechanism to transfer wealth to the elite and banks as has been proven over and over and it seems the banks actually need the money judging by quarter end window dressing and their use of the F_E_D's newer 1-day reverse repo facility in which banks have set new record high usage above and beyond caps set by the F_E_D for usage , but only on the very last day of the quarter so their books and balance sheet look a lot stronger than they are, the next day all of that goes back to the F_E_D, IT'S ESSENTIALLY RENT A STRONG BALANCE SHEET FOR A DAY, THE ONLY DAY THAT MATTERS IN QUARTER END REPORTING.
The point being, the banks apparently still need the bailout as the capital shortfall is at least $400 billion (nearly half a trillion) at the end of Q3.
As to my proposition that the F_E_D is doing a whole lot more than just protecting against plunge's, look at St. Luois F_E_D President, Bullard's comments relative to where the market was and how we know institutional money was positioned at the time, with the latest coming this morning...
"no need for more QE for now, the economy is in good shape"
This, after a 1400 point Dow Rally, but before this Bullard said QE should be delayed after a 1200 point Dow decline and just before that decline, Bullard said the F_E_D should Be willing to remove accommodation! So long as you are positioned short, long and short at the right times, James Bullard is your new best friend and who needs QE to keep the banks flush with money with help like this... Here's a visual representation...
In any case, if history is a judge and taking our forward looking analysis in to account both before this rally started and right now, the latest comments are right on time for a move to a lower low.
Beyond the tinfoil hat theory, which seem to always be proven right months or years after the proponents of such theories have been thoroughly chastised and eventually proven dead right; I've spent some time looking around at Currencies this morning and this is what I've found which is really just the maturing of signals seen over the last week and in some cases longer, like the $USD decline from its 12 week winning stretch in which we saw distribution in to the last two weeks and were looking for the winning streak to be broken.
USD/JPY, the currency running through numerous stops the last couple of days and trying to lift the market in the process on news that may not be actionable in any way for up to a year(another interesting Central Bank related disclosure the same morning Bullard comes out with his hawkish/bearish take).
And on that note...
However that might require some Yen strength so...
In the median charts like 15 min, the USDX...
As for the EUR/USD which some of you are very interested in, I don't have to go through all of the $USD charts as they are above, weakness is the forward looking projection so in this case in which the EUR/USD has been weak...
The one chart (other than the $USD negatives above ) is this 30 min Euro futures (/6E)
IT may be a little premature, but after looking at the above charts I'd expect a USD/JPY reversal to the downside not too far off and the GPIF overnight news "might" be the catalyst as last week's 2 week old news that should have been a non-event, will be a non-event.
As for the EUR/USD, I have no idea what the ECB is going to say, many think they'll wait to hint about QE in December, while we can't forget that QE is against the ECB's chart, at least thesovereign bond buying type we normally associate with QE, so that's an interesting one. Otherwise it seems expectations are for lip-service and a dovish tone, but nothing on QE yet.
This may be the catalyst for a EUR/USD reversal to the upside, there are definitely hints on the radar.
As for ES futures, that flat range I mentioned yesterday and have mentioned numerous times in the past as being an area where price action "seems" dull, but it's a lot more like"The kids in the room next door being a bit too quiet, you just know their up to something" and often an area of strong divergences, is seeing a strong 60 min negative right through the range...JUST IN TIME FOR BULLARD'S COMMENTS THIS MORNING, SUDDENLY BACK TO HAWKISH and perhaps the well timed, "GPIF HAS NO TEETH" story, at least for a year.
Something to ponder...
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