So how can the Nikkei (cash) close up 540 points / +3.31%, but be down on the chart above 705 points? Just as with the US markets we have Index futures like ES, the S&P E-mini and we have the cash S&P-500 which trades from 9:30 a.m. to 4 p.m. Monday through Friday.
The cash market close since Friday is up 540 points or 3.31%, but the futures which gained about 1000 points between Friday and the intraday high yesterday while the cash market was on holiday have lost about 705 points from the week's futures' highs. This is causing a lot of misunderstanding and it's for one simple reason, the Nikkei was closed Monday for a holiday so the cash market close since Friday is at a gain, but the futures that traded while the cash market was closed yesterday have lost a significant portion of their advance to intraday highs of $17,480, currently trading at $16760 (currently), well under 17000 have lost 720 points from their futures highs yesterday while the cash market was closed.
In other words, Nikkei 225 futures gained a lot yesterday from Friday's cash close and even though a portion of that gain remains closing the cash market higher, a large chunk of it has been retraced as you can see above.
What caused this? The market rallied on the GPIF's (Pension Fund) increased allocation of stocks and decreased allocation of JGB's/Bonds, however in a scenario that has been in the news at least since May, their was an announcement this evening from a GPIF panel member that a "Governance law reform" that would allow changes to the pension funds allocation to be made, "may take a year". In other words, all of that allocation to stocks that juiced the market Friday may not be even on the table for another year until the LAWS are changed to allow for the reallocation of assets. Apparently Shinzo Abe has long knew about this, but asked for the new allocation scenarios to be worked up anyway which were announced two weeks ago and then again as old news Friday, this time catching headline scanning algos attention and sending the market higher.
There's a lot of back and forth as to whether the laws need to be changed before allocations can be changed as well as other issues revolving around salaries and governance of the fund, however it was the statement above tonight that the laws may take a year to change that sent Nikkei 225 futures crashing to the biggest intraday plunge in at least 10 days and that was when futures were down around 500 points.
Is this an event or non-event? Some looking at the cash market and not understanding the cash market was closed while futures continued to trade yesterday just don't understand how futures could be down while cash is higher, you have to remember futures gained about 1000 points since Friday's cash close, but as you can see from the chart above, they are clearly giving back a huge portion of that.
In addition, the hint that tells us this is maybe a bigger deal than what the futures and cash market are telling us is the fact that the 20 year yields dropped earlier to 1.21%, the lowest since 2013, remember yields move opposite the bonds' price, so there's a flight to safety trade in bond buying sending yields lower while futures sell off as well. Also the 30 year yield has lost at least 20 basis points, the second BIGGEST DROP ON RECORD... Again another flight to safety in bond buying.
Japanese rate volatility has exploded to the upside as the intraday stock move is essentially in a small crash (considering recent volatility), this of course being confusing given the cash market's positive close, but remember the cash market was closed Monday for a holiday. Japanese VIX gas exploded testing new highs > $30
So is the cash market or the futures depicting reality and what is that reality? Given the flight to safety bond trade is so strong with yields plummeting and the VIX is shooting higher as Nikkei 225 futures essentially see a mini crash...
Es futures are off a little bit since the 4 p.m. cash close, remember the 1 min intraday charts looked like a higher open early tomorrow, but that's about it (3C signals most often pick up where they left off and that's with a small 1 min positive in to the close and deeper leading negative 2, 3 and 5 min charts.)
We'll see how the market interprets all of this tomorrow, but nothing is ever as simple as it seems, this is why I stick with objective data and try not to get caught up in speculation and the objective data today in the form of 3C charts was quite ugly.
I'd expect a rumor or two and a few counter rumors to pop up between now and the morning regarding the GPIF's legal status to change asset allocations. After the F_E_D's warning to the ECB not to take things too far as the Euro plummeted on the F_O_M_C last Wednesday sending the $USD higher, one almost has to wonder if the F_E_D had anything to do with this latest headline out of Japan as a stronger dollar on Yen weakness is not something I suspect they're too happy about. In that case, the news from last week was perfectly timed to juice mutual fund returns in to their fiscal year end Friday without actually doing any lasting damage to the $USD on the upside or levitating stocks for very long if stock buying by the GPIF is a moot point for another year until the legalities are worked out. Sometimes you have to think like a crook.
I'll see you in a few hours, hopefully we'll have a better handle on what's going on
No comments:
Post a Comment