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One Less Reason For A Rate Hike: March NFP Misses Big

One Less Reason For A Rate Hike: March NFP Misses Big

So much for speculation of a June or September Fed Funds rate hike. After our exhaustive commentary on the FOMC's latest statement on 19 March 2015, we concluded that a "September rate "liftoff" was extremely unlikely".

Just so happened on Easter Friday, the monthly non-farm payrolls (NFP) report for March came out to be their worst since December 2013.

For a long while now, we have been bullish on the US dollar. Our premise was mainly based on the relative strength of the US economy, and on the Fed's guidance and propensity towards monetary tightening while most of the world's other central banks have embarked on their respective paths of loosening monetary conditions.

However, having been through the volatility in both the financial markets and on the economic front, we are on the precipice of shifting our stance to being intermediately bearish the dollar.

Oil Prices Either Crash Or Rebound At This Juncture

Oil Prices Either Crash Or Rebound At This Juncture

Oil prices are at a major inflection point. They either turn higher or break multi-year support levels and cause more pain to oil producers. 

Nearly 2 months ago, we put out a note describing how we speculated on the upside of crude oil prices. We then subsequently implored if prices had indeed bottomed, and we made a case for both sides of the trade. Regular readers that follow our trades that we make public, will know that from the period spanning 1/27 till today, we have had 5 trades on oil. The results of these trades can be found in our most recent commentary dated 3/10.

In this note, we will share with readers a few takeaways we have gained, as well as what we expect going forward.

Euro Parity, Coming Sooner Than You Expect

Euro Parity, Coming Sooner Than You Expect

The time from when we last published our latest addition of the Daily Grail has been rather eventful. From the blistering jobs report 2 weeks ago that propelled market's expectation for a June rate hike even higher, to the continuation of monetary policy bifurcation by the world's central banks that will soon see the Euro trading at par to the Dollar, the month of March has so far endowed the financial markets with much needed cross-asset volatility.

On 22 January, the ECB unveiled something the world had never seen before. Mario Draghi, President of the European Central Bank, announced that for the first time in the 14 years of the Euro's existence, the ECB was going to monetize debt securities to the tune of €60bn/month. Just 2 short months ago, the ECB termed this open market operation the EAPP (Expanded Asset Purchase Program).

2 months and 1000 pips later, the ECB has coined a new term - the PSPP (Public Sector Purchase Program).The big question on the minds of currency traders across all trading desks is when will parity be attained on EURUSD. Not if but when.

US Economy Officially In Deflation

US Economy Officially In Deflation

We spoke, we warned, and it has now happened. For reference, we have included a bevy of links documenting our explanation of why deflation was going to be the elephant in the China room.

With the significance of this being the first deflationary headline figure 6 years after Lehman collapsed, low oil prices have conveniently been cast as the straw man. There is some truth to this - the energy index fell 9.7% while the gasoline index fell 18.7% in January, both over December. This marks the fiercest plunge in the 7 consecutive negative prints; the report also noted that the decline in the gasoline was "overwhelmingly the cause" for broad weakness in overall prices. When annualized, the energy index and gasoline index fell 19.6% and 35.4% respectively. Staggering figures!

Europe On The Brink: €1.1 Trillion Bazooka & Greek Elections

Europe On The Brink: €1.1 Trillion Bazooka & Greek Elections
  • ECB to buy €60bn/month in assets
  • Purchases will be conducted "until we see a sustained adjustment to path of inflation"
  • Purchases to last until September 2016
  • ECB rates have reached lower bound
  • Sees sizable increase in ECB's balance sheet
  • Eurozone risks on the downside
  • Annual inflation is expected to remain very low or negative in months ahead
  • Volume of QE is in ballpark of getting ECB's balance sheet ti levels of early 2012
  • There has to be a program to buy GGBs; there is also an issuer limit
  • Don't have any special rule for Greece
  • Will buy bonds with negative yield

A quick take: Slightly more than expected per month, with a slightly shorter duration than expected, amounting to just about €1.1 trillion over 16 months, which is a tad on the low side to the super-aggressive expectations of €1 trillion per year. Furthermore, as expected there will be partial risk-sharing. It is still unclear what are the embedded conditions regarding purchasing Greek or other "risky" bonds.

23-28 December: Record Highs on Santa Rally; Russia Say Ruble Crisis Over; Japanese Prices Slip Yet Lower

23-28 December: Record Highs on Santa Rally; Russia Say Ruble Crisis Over; Japanese Prices Slip Yet Lower

The S&P 500 index closed at a record high of 2083 at Friday's close, capping what has been an ebullient Christmas week where equities have historically enjoyed outsized returns relative to volatility. Indeed, the S&P 500 was joined by the Russell 2000 index of stocks and the DJIA (Dow Jones Industrial Average of 30 stocks) to close Friday at their respective record highs.

Trading volumes have been thin across the board, perhaps not so in China where people apparently are told not to celebrate the festivities of Christmas, as markets there remained opened for the entire week. Apart from American markets, the Shanghai Composite surged to a record high this past week. Reason? Mainstream media has been blaring more stimuli from the PBoC. If indeed true, that the PBoC is indeed gearing up for more stimulus come 2015, it would indeed be trying to balance a very tricky scale. Readers will recall that earlier in December, the PBoC reigned in on shadow banking by tightening collateral rules; and now wants to prop up asset prices by introducing more stimulus via other conduits? Seems like some central bankers over there are a little confused on what they actually wish to achieve with their Schrödinger policies.

19-22 December: Reeling From Russia's Pain, Belarus Implodes; Global Markets Rebound Sharply; Sony Hacking Satire

19-22 December: Reeling From Russia's Pain, Belarus Implodes; Global Markets Rebound Sharply; Sony Hacking Satire

The overnight night unsecured deposit rate on BYR has exploded north of 30% as the national bank has made it too expensive to lend BYR even amongst banks. As we learned from the bank's press release, it wants to halt sales of BYR by as much as possible though pseudo and conventional capital controls. The interest on commercial and retail deposits at local banks has also spiked to encourage individuals and businesses to leave their currency in their banks. Apparently enough, we know this is not working one bit and the run on banks continues and will probably extend all the way to Christmas Eve before there is any easing of tensions.

Indeed, just a few hours after AFP broke this news, the overnight interbank BYR deposit rate has surged past 50% as the fire intensifies.

10 December 2014: China Rubs Salt Into Weak Oil Wound

10 December 2014: China Rubs Salt Into Weak Oil Wound

China's Securities Depository Corporation announced (CSDC) Tuesday that they would no longer accept non AAA-rated corporate debt securities as collateral in repurchase transactions, essentially raising the cost of short term collateralized borrowing in the private sector. AAA-rated corporate debt securities to be pledged as collateral must also originate from AA-rated issuers.

China has hinted rather overtly it wants to drastically reduce leverage in its stock and bond markets, and is partially working on this goal by tightening monetary policy through indirect tools; fixing Yuan higher and raising collateral standards and reducing availability.