Over-deliverance...but so what?

On balance, Super Mario over-delivered, offering actual or promised easing across each of the four streams identified yesterday:

* Interest rates:  As expected, a modest cut in the refi and the depo rate.

* Liquidity:  SMP holdings will now be unsterilized, and full-allotment MROs will now extend until the end of 2016.

* Asset purchases:  Nothing yet, but they're champing at the bit to buy ABS as soon as they can find some

* Credit easing:  FLS-style LTROs lasting a whopping 4-plus years, assuming anyone actually lends enough to borrow

Only time will tell if this package of stuff works; the US and UK experience suggests that it will remain a long and arduous process.

In terms of the market reaction, at about 9 am New York time Macro Man was feeling very chuffed indeed, with almost every asset performing in line with expectations.  However, a late rally in German bonds took a little bit of the shine off of the day; nevertheless, he feels pretty pleased with how the day panned out.  White euribors even managed to provide a little rally up into mid 99.80's to sell into.   To quote Hannibal from the A-Team, "I love it when a plan comes together!"

Viewing the universe of European assets illustrates that there was no consistent, unified theme underlying market moves, other than perhaps that everything periphery went a bit doo-lolly.


The most obvious "WTF"-er is of course the euro, at least until you consider that it's the euro so of course it didn't do what it's supposed to.  The outperformance of BOBL may be tied to that 4 and a bit year duration of the targeted LTROs, though that seems a pretty lame excuse.  Either way, the rally in the euro after an initial sell-off means that EUR/USD put in a monster reversal candle, suggesting further gains in the days and weeks ahead.   Of course, these days the magnitude of "further gains" is likely to be synonymous with "peanuts."



Today, of course, markets switch gears to the US payroll figure.   Inquiring minds want to know if the economy can bat on and deliver a second stellar headline figure in a row.   For what it's worth, Macro Man's model suggests a somewhat limp reading of 161k for private payrolls.   Should that come to pass, it seems fair to assume that US bonds will scream higher, given that the latest JPM survey revealed the princely sum of zero longs amongst active clients.

Insofar as the ECB reaction was a function of positioning, it seems plausible that just like last month, payrolls are likely to deliver the same outcome.
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Anonymous
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June 6, 2014 at 10:08 AM ×

Tks for the post as ever.

Think it makes sense that the mkt is happy to profit on the "news" having bought the "rumour".

Though imho two statements quite relevant, i) unanimous (Buba have the mkt credibility, key that they were on board when just rhetoric and onboard for the delivery) ii) "we are not finished" - Draghi put still well in place.

This would suggest to me a v slow grind higher for SX5E, there are no clouds for a vol spike unless we see an external shock (china / USTs etc), so probably going to be pretty boring summer allowing me to concentrate on the WC.

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Nico G
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June 6, 2014 at 12:24 PM ×

everyone noe expecting a boring summer.... me like me like

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Retail Chump
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June 6, 2014 at 2:16 PM ×

Do I get my NFP bingo prize? Jobs 217k (my estimate 220k) ;-)

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Anonymous
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June 6, 2014 at 2:36 PM ×

Go on, sell bunds, you know you want to :)

JL

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Gus
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June 6, 2014 at 4:17 PM ×

http://fat-pitch.blogspot.com/2014/06/june-macro-update-still-moderate-growth.html#more

Today's macro analysis ...

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Leftback
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June 6, 2014 at 4:38 PM ×

Yes, Retail Chump is the winner, has pinned the tail on the donkey this month and wins a month's subscription to Yield Curve magazine....

VIX makes yet another 52 week low on the completely boring in-line consensus number, proving the value of Polemic's adage: "Never Short a Dull Market", not to mention MM's version: "Never Expect Market Volatility Ahead Of Major International Soccer (Football/Fußball/Calcio etc..) Tournaments".

We can now return to largely academic (insert ritual jokes about PhDs) discussions of macroeconomics until some time in mid-July, when someone might find a reason to toss out something that smells like it has gone off in the summer heat (Cough: Peripheral European Bonds, US High Yield and Social Media stocks).

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Leftback
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June 6, 2014 at 5:03 PM ×

Not a very interesting employment report, even digging beyond the headline number. Construction was almost flat, seasonal businesses that hire in May were, you know, hiring in May, and hours worked was flat. We have been here many times before at this time of the year, and gently fading economic optimism has usually been a good call.

No indication whatsoever here that the Fed will alter the pace of its bond purchase tapering, so the liquidity spigot remains slightly open for the summer months, although it will be barely dripping by the end of the Dog Days of August.

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Leftback
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June 6, 2014 at 6:14 PM ×

BTP 10s 2.75%? When even the Italians are slowly turning Japanese, you know these are strange days.

Oh, yeah, OK... here it is again....

Turning Japanese

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Retail Chump
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June 6, 2014 at 8:02 PM ×

"Leftback said...Yes, Retail Chump is the winner... and wins a month's subscription to Yield Curve magazine....". I've never had it so good... here's wishing you all a good w/e, while I get down to some serious reading about term structures :)

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