A Wheelie Big Deal?

It's a big day for markets today, with the results of the ECB's long-term refinancing operation and the June FOMC meeting released today. The juxtaposition of the two events is curious, to say the least. The Fed, having been exocriated in some quarters for expanding its balance sheet so aggressively, will likely ease off the accelerator at 7.15 London time this evening, mere hours after the ECB loans "your amount" of euros for a year at the low, low rate of 1%.

In each case, the CBs will have expanded the balance sheet aggressively, yet a market that has been more than happy to shag the dollar over the past three months appears to yawning at the prospect of a cheap money bonanza from the ECB.

Well, not everyone is yawning; Macro Man is pleased to provide readers with a live photo feed from Frankfurt as the German Landesbanks receive their funding from the ECB. For some, at least, today's tender is a wheelie big deal. (Boom, boom.)

Indeed, the euro has (seemingly perversely) gone strongly bid in the 24 hours before the ECB's tender. Foreign exchange is such a fun market! The reason for the rally is a highly prosaic one; there appears to be a large EUR/USD buy program emanating from the Middle East.

As for the Fed, it seems as if a consensus has coalesced around the view that the FOMC will stop short of increasing its Treasury-purchase program (though they might decide to sttrrreeeeeetttcccchhhhh out the existing one) and announcing that rates will remain ultra-low for a "considerable period" (or some other such hackneyed phrase) of time. Perhaps they will collapse all of the alphabet-soup programs into one simple facility, though Macro Man isn't sure that there should necessarily be a market consequence of doing so.

In any event, the rationale for keeping rates lower for longer should start to emerge more forcefully in the data now that markt forecasts have caught up with the green shoots mularkey. Somewhat ominously, the ABC consumer confidence data released last night showed a relapse towards the lows, while Friday's personal consumption data should show that a large portion of the stimulus bonanza is saved, not spent.
Meanwhile, perhaps it's a coincidence that demand in yesterday's two year auction was gangbusters as the SPX was trading below 900....but then again, maybe not. Insofar as higher mortgage rates would now appear to pose a larger threat to economic recovery than lower stock prices, mightn't the Federales now countenace an equity markt sell-off to provide a bid to bonds? Inquiring minds want to know.

In any event, the drumbeat of protectionism continues to provide a somewhat ominous undercurrent to the green shoots love-in. In a rare show of unananimity, the US and Europe have had a moan about China to the WTO, while Japan's latest trade data suggests that the rest of Asia has yet to feel the love from China's recovery. Judge for yourself what this means for risk assets....Macro Man knows which way he's leaning.
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Cornelius
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June 24, 2009 at 11:02 AM ×

Christ, 3 figures on some program buying? Do you really believe that? EUR/USD is cruisin for a bruisin...

I don't have my charts up but I've got to think the technicals are pretty clear.

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Anonymous
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June 24, 2009 at 11:48 AM ×

The technicals are clear if you put any sort of weight on a 3 week trendline break. However, at the back of my mind it feels like some kind of EUR bull trap. It is too obvious to be a continuation pattern at this stage of the trend. When anything is too obvious it is normally BS.

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Anonymous
admin
June 24, 2009 at 12:41 PM ×

Yes, re: program buying. Some US Investment house bought 5 yards yesterday, right after a supranational began the fun. In this liquidity, that's a 3 fig move.

MM - your buddies in Der Schweiss have been active this morning!

-Ivan

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Anonymous
admin
June 24, 2009 at 2:07 PM ×

That EUR/JPY could get ugly - API gasoline no. has been working well in predicting EIA builds, and last nights print was bearish - once this central bank jujitsu is over am thinking crude down, yields in, dollar stronger (have a wildcard hunch Bernanke will play to the inflation hawks in the statement given the impact on mortgages). Million $ ? is what does that mean for equities? I'd say down but not by a ton - some sectors could catch a bid

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wcw
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June 24, 2009 at 2:26 PM ×

Anon, it's 'Die Schweitz'.

In re risk assets, durable goods are slightly less punk than the median forecast. Buybuybuy!

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Mr. S
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June 24, 2009 at 2:36 PM ×

One would certainly think the Fed would countenance a drop in equities now that the banks have for the most part successfully sold their offerings in order to "recapitalize."

An aside, did anyone else notice SPY being marked as "hard to borrow" for a week or so prior to this latest drop? For the last few sessions it's been normal again but this morning I see again the HTB marker.

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Anonymous
admin
June 24, 2009 at 3:17 PM ×

Any trades people like right here?

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June 24, 2009 at 3:45 PM ×

I think all of the speculation about the outcome of the Fed meeting is forgetting the impact of 10% unemployment. How can the Federal Reserve indicate any signs of easing when one in ten American's are out of work. I think it would be politically disastrous for the Fed to let it's foot off the accelerator in any way, shape, or form. Including easing Q.E. I wouldn't be surprised to see an aggressive policy response from the Feds this afternoon.

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Anonymous
admin
June 24, 2009 at 3:50 PM ×

Off topic,

MM,

Any idea why Austria's CDS risk jumped while Turkey's went down considerably (>$700 bn).

Might be another leg down for TRY??

AO

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Anonymous
admin
June 24, 2009 at 4:57 PM ×

From FT


... tomorrow's offer will be available at the ECB's main interest rate of just 1 per cent, the lowest ever ....

"This could be a big final easing - by stealth," said Erik Nielsen, European economist at Goldman Sachs.

"If I were a bank I would be gathering up all the furniture to use as collateral to take part."



Thanks
NS Capital Partners

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Professional Gringo
admin
June 24, 2009 at 5:57 PM ×

Alright, was this action by the ECB announced, done in the middle of the night or shoved out the cargo door of passing airplanes?

I've been traveling and am out of the loop but now safely residing deep in my Cheney-esque style California bunker. And frankly I'm not sure how to get plugged into this mess. Good lord.

Is Austria really THAT broke and what's the best short vehicle on Chinese real estate?

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Macro Man
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June 24, 2009 at 6:07 PM ×

Austria CDS is basically Hungary CDS/4 , as far as I can make out, since the sources of risk are the same. Turkey obviously also has the EM thing going on, but with ancillary noise caused by the newsflow surrounding the IMF. I imagine that's the source of the discrepancy.

BTW, have I mentioned recently how much I dislike the SNB? One wonders if today's aggressive intevention, coming as it did less than 2 hours after the ECB's wheelbarrow tender, is some sort of statement like "you guys are doing QE too, so we can do what we want now." That the bulk of the SNB's action has also come vs the $ rather than the € is also a way of telling the ECB to STFU about it as well, I guess....

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Macro Man
admin
June 24, 2009 at 6:08 PM ×

Oh, and 62.8% indirects for the 5yr....what's that about foreign CBs abandoning the Treasury market again?

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Henry F.
admin
June 24, 2009 at 6:16 PM ×

MM,

Have you heard some rumors recently that since Asians aren't showing up with bids for treasuries, so European cb is stepping up some to prop up the $
I don't personally buy it, but throwing it out there..

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Macro Man
admin
June 24, 2009 at 6:21 PM ×

No, if only because the Asians pretty clearly are showing up to buy Treasuries, at the right price.

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Anonymous
admin
June 24, 2009 at 6:39 PM ×

Concerning the UST auctions, there is a topic going on from SMR :

"Confusion Over Classification Of Dealer, Indirect & Direct Bids.
A change announced in the June 1 Federal Register may have affected the classification of what constitutes Dealer, Indirect and Direct bids, or, alternatively, may have affected the behavior of institutions that bid in the auctions"

This could maybe explain the very high indirect/direct bids in the auction process since the beginning of June. Maybe the Foreign CBs are indeed abandonning the Treasury Market ....

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Anonymous
admin
June 24, 2009 at 7:40 PM ×

the domestics will buy the treasury market, as they won;t want stocks in their pension plans anymore...

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Anonymous
admin
June 24, 2009 at 8:05 PM ×

Now that we have no QE expansion and EUR and USTs have settled mkt seems very unsure what to do with itself. I reiterate my view for EUR at 1.35 and WTI at 60. Messy past few days of flows, I think the only clear message is the strength in USTs; and that the SNB is being fought - couldn't make the prev intervention level in €CHF at 1.54 (never mind the $CHF).
Good luck, JL

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Anonymous
admin
June 24, 2009 at 8:56 PM ×

maybe the market expected more USD strength. overall, a disappointment for signal. I mean, the USD is slightly stronger, and stocks gave up their gains, but almost a non-event.

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Professional Gringo
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June 24, 2009 at 11:11 PM ×

Swiss aren't shy these days eh? Nice sideways channels on eur/usd and the cable trade? Triple top on the cable - massive resistance? $/yen is a mess..technical nightmare...guaranteed to get your head stuck on a pole.

You know it's king salmon fishing season in British Columbia. This is as good a time as I've ever seen to go.

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June 25, 2009 at 3:02 AM ×

China RE shorts sadly have no ETF (iShares, wake the F up) but you can get reasonable enough borrow in Agile (3383) Shimao (813) and a few others. Don't short any state sponsored companies since they ALWAYS get bailed out (Coli). CDS market sucks post crisis, you could get 200mm of this stuff on at 300bps back in the day but liquidity sucks now.

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