Following yesterday’s confusing exuberance, which saw the sluggish market rise in the last hours of trading as the latest Scottish poll showed a reverse of the “Yes” momentum (and fading Gartman’s latest reco of course), overnight European jitters have re-emerged once more following a speech by Catalonia’s Artur Mas, who has long pushed for independence of the region, and who said that while there are different ways Catalonia can vote, the important issue is that Catalans vote somehow. Mas says Spanish govt will likely try to block Catalan vote “the reasons why the central government is blocking the vote are political not legal”, which in turn has once again brought attention to Europe’s artificial, unstable and temporary political and monetary union, which threatens a reversion of the nightmare days from 2012 when Mario Draghi was promising he would do everything in his power to send the EUR higher (as opposed to now).
Additionally, the latest inflation data overnight from China, with the CPI missing expectations of 2.2% to just 2.0%, while producer prices contracted once more, this time by 1.2%, down from -0.9% and below the 1.1% consensus, which was a record 30th consecutive month of PPI declines in China, signaling overcapacity in China’s factories and weaker commodities prices.. The main driver, as we have been noting recently, was the clobbering in the commodity sector but also lower food prices. And while deflation for a country which creates a little under a trillion in new loans per quarter is an absolute disaster, BofA was quick to point out the silver lining: “Benign inflation in August and probably September should allow adequate room for further policy easing including targeted monetary easing.” Great: so more of the same monetary stimulus which has failed to fix the world for the pastr 6 years will be unleashed and this time everything will be fixed.
And while US equity futures are broadly lower for now, this time something is different because even as the USDJPY soars to new multi-year highs touching 107.14 moments ago, this time it has failed to pull TSY yields higher with it, and as a result treasuries gain for first time in six sessions with the 10Y yield trading at 2.514%, rising through both 50-DMA (2.467%) and 100-DMA (2.527%) this week amid speculation Fed may be closer to signaling rate increase.
This post was published at Zero Hedge on 09/11/2014.