26 years ago, today was envisioned as day when cars flew, holographic movies were box office hits, hoverboards roamed, and people were fired by fax.
None of the happened – except maybe the fax thing when people still used those some 20 years ago. Instead the only “back to the future” moment this morning is a deja vu one we have seen every day for the past 7 years: bad economic news, in this case another month of Abenomics failing as Japanese exports missed badly, rising 0.6% or the slowest pace since August 2014 as Japan’s export-driven “recovery” fizzles, while imports tumbled from -3.1% to -11.1%, resulting not in the expected JPY87BN trade surplus but a JPY114.5BN trade deficit, pushing stocks higher.
Japan’s terrible trade data was promptly seen as grounds for more BOJ easing, lifting USDJPY above the critical 120 level, sending the Nikkei soaring 1.9%, and pushing US equity futures 11 points higher as of the moment. As Takashi Aoki, a fund manager at Mizuho Asset Management, summarized it “We’re starting to see hard evidence for our fears about the global economy being weak. Whenever we get negative economic news, hopes for additional monetary easing moves the market.”
Which also explains why stocks are surging for yet another day.
One place that did not soar on bad news was China, where despite initially seeing strength as a result of even more bad news after we learned that profits at state-owned companies in the Jan.-Sept. period fell 8.2% to 1.74 trillion Yuan, the SHCOMP proceeded to tumble, closing down -3.1%, while the tech heavy Chinext tumbled over %. Amid no fundamental catalyst and following weeks of stability in Chinese equities, volatility rose again, while alongside weakness in equities, the CNH vs CNY spread widened, suggesting an increase in capital outflows. “Market confidence is on shaky ground and investors rushed to sell on any slight hint of profit-taking,” Central China Securities strategist Zhang Gang says by phone. Not helping was Sinolink Securities which said Chinese stocks are overvalued, especially the Chinext.
What surprised us is that Chinese stocks were not limit up after the previously discussed state-owned Sinosteel officially missed an interest payment, raising questions about the government’s commitment to stand behind such firms. Surely more defaults is the bullishest thing possible for stocks.
Elsewhere, markets in Hong Kong were closed due to the Chung Yeung festival, while JGBs traded relatively flat amid subdued trade with the BoJ also in the market for JPY 780b1n worth of bonds. ASX 200 (-0.5%) was weighed by financials as large banks extended on yesterday’s declines.
Positioning ahead of the upcoming risk events, together with another round of less than impressive earnings, meant that European stocks spent the first half of the session in the red although pared the losses heading into the North American crossover to trade in positive territory (Euro Stoxx: +0.4%). At the same time, Bunds recovered from a lower open and moved into positive territory, while Portuguese bonds underperformed its EU peers amid reports that the country may face action from the EU as a result of not providing a draft budget.
In terms of notable movers, financials underperformed on the sector breakdown after Credit Suisse (-2.85%) announced that it is to raise USD 6.3bIn of fresh capital. Elsewhere, Pearson (-16.5%) shares fell over 10% after warning that 2015 earnings may be at lower end of range.
In FX, antipodean currencies saw weakness overnight, with AUD softening on the aforementioned volatility in Chinese stocks. While NZD continued to weaken on the back of yesterday’s weak GDT auction in which milk prices declined for the first time in 5 auctions, with today seeing Fitch downgrading Fonterra to A from ‘AA-.
Ahead of the NA crossover, EUR/CHF and USD/CHF saw a bout of strength to move to fresh highs in quiet conditions with no fundamental news being attributed to this latest uptick at present, however unusual moves in CHF quite often spur speculation of intervention by the SNB. Going forward, market participants will get to digest the BoC rate decision as well as comments from BoC’s Poloz, BoE’s Carney and Fed’s Powell.
In addition to China, the only other sector suffering unexpected weakness “despite” the bevy of bad news was the commodity complex, where WTI and Brent crude futures traded lower in Europe, in part in reaction to another build in US API inventories but also reports that Russian President Putin has held talks with Syrian President Assad in an attempt to find a political solution to the ongoing conflict in Syria. Elsewhere, the metal complex was relatively subdued amid light newsflow. At last check, copper was down 0.42% after sliding as much as 1% earlier in the session.
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