The Shanghai Composite did not see any follow through on yesterday's supposed reaction to the Chinese Third Plenum reforms from Friday, however the Nikkei closed down as well, I'd think it has more to do with US weakness yesterday.
In China the 7-day repo rate is up 140 basis points to 6.63% as talk of tightening domestic liquidity drives the repo rate higher (overnight bank borrowing costs along that hurt smaller banks struggling for their share of liquidity). Meanwhile China is trying to figure out how they can transition from an export driven economy to a consumption driven economy. Part of their plans include liberalization of interest rates and the PBoC backing off currency interventions as they try to set up a wider band for the CNY to float within (that should go over well with the U.S. sarc.)
In Europe the big data point was the German Zew Confidence report which came in at 54.6 from 52.8 on consensus of 54, this makes for the highest ZEW print since October of 2009!
Italian Industrial Orders missed badly as they declined 2.2 to 1.6 for September on consensus of a 2% increase.
Overnight the OECD may have given the market a gift when it lowered it's 2014 world GDP guidance from May's 4% to 3.6% on concerns Emerging Markets are cooling, they added recommendations that the ECB engage in QE (the market should love this) and that the U.S. should do away with the debt ceiling in favor of a long term , credible budget; that's better than any QE and we saw a large POMO yesterday , I'm guessing somewhere above $5nb , that failed to move the market at all.
However that Dow 16k, SPX 1800 and NSDAQ Composite 4000 level are still there as yesterday most were hit (NASDAQ just missed) intraday, but not on the close. As I said last night, I think we are likely to float around the area.
Overnight ES went from the 4 p.m. closing print of1788.75 and just before the open is at 1788, virtually unchanged.
There was also a bombing of an Iranian Embassy in Beruit, imagine that! An Al Qaeda affiliated group claimed responsibility, but Iran says it was Israel via US backed Al Qaeda Syrian rebels! The plot thickens, it reminds me of an article about the C_I_A called, "Killing Old Friends" in which relationships flip flop back and forth such as Iraq's Hussein being the C_I_A_'s #1 asset for some 40 years until he was no longer useful or how the U.S. backed Al Qaeda in Afganistan during the Soviet invasion, of course you know what happened next, but if this claim by Iran has any credibility and usually I'd say no, then things are changing again. Keep your friends close, keep your enemies closer.
Overnight US Treasuries dropped a bit, not sure why with Bernie speaking tonight at 7 p.m. at the National Economist Club Annual Members' Dinner. Oddly there is no topic of discussion on the table that anyone knows of and remember tomorrow the last F_O_M_C's minutes come out so Bernie may look to pre-empt them as he has done in the past.
Speaking of the F_E_D there's a Bloomberg article out that says the F_E_D (which I said in an email last night and here often, "Has created a monster so large, they are afraid to try to put it back in its cage"...Tapering") is looking for ways to address tapering without sending interest rates higher. During the last bout of Taper talk in May/June of this year the 10 year Benchmark Bond rose by over 1 percentage point. So the F_E_D is trying to figure out how they can taper, but let the market know that they don't plan on changing the near zero percent target rate that has been in place since 2008 to keep rates from rising on their own, BUT the market knows that F_E_D guidance has been the first rate hike "Wouldn't" or "would" come (depending on how you look at it) until at least 6 months AFTER QE ends. THIS IS WHAT THE MARKET (SMART MONEY) FEAR THE MOST, INTEREST RATE HIKES and they will come eventually.
That's it for now, let see what we have to work with today. Have a great day!
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