Futures Poised For New Record Highs On Weekend Central Bank Double Whammy

Another day, another case of central banks, not one but two this time, dictating “price” action.
On Saturday, traders woke up to the following headlines from the ECB’s Constancio, which the market promptly digested and spun as bullish from more ECB QE, leading to one after another bank pulling forward their estimates of first bond monetization by Mario Draghi (CSFB now believes it will take place in December from Q1 of 2015):
ECB’S CONSTANCIO SAYS CURRENT SITUATION DIFFERENT FROM 2012 CONSTANCIO SAYS INFLATION SHOULD BE IN HANDS OF MONETARY POLICY CONSTANCIO SAYS INFLATION VERY CLOSE TO ZERO IS `DANGEROUS’ CONSTANCIO SAYS DEFLATION `VERY NASTY’ CONSTANCIO SAYS ECB SHOWING WILLINGESS TO DO MORE IF NEED BE So the “deflation monster” is “very nasty”, got it.
Colorful rhetoric aimed at 5-year-olds aside, the Portuguese central banker said no decision has been made yet on buying sovereign bonds but if banks finding existing measures insufficient then the ECB will have to consider buying other assets including sovereign bonds. This follows last week’s comments from Draghi when he said he would “do what we must to raise inflation and inflation expectations as fast as possible”. As a result there has been a fresh round of calls for an ECB programme and as such has benefited peripheral fixed income products. This has led to the Spanish 10yr yield breaking below 2.0% and Italian 5yr below 1.0% for the first time.
And then to further make the BTFATH case, Reuters reported citing an “unnamed official” that China’s Friday rate cut is just the first of many, and as a result the entire fixed income curve across Chinese product has repriced substantially, even as the Chinese Yuan is starting to crack on what we hinted weeks ago will be a devaluation of the currency as China is now, in the words of BNP, “losing the currency war.” This happens when in a delayed session (the Friday PBOC announcement took place after China close), Asia risk assets rallied higher across the board, led by a relative outperformance in Chinese assets. The CSI 300 Shanghai Composite and the Hang Seng are currently 3.24% and 2.04% respectively. China 5y CDS is also 2bp tighter. CNH has opened some 0.1% weaker versus the Dollar. Markets in Japan are closed but major bourses in Korea and Australia are also 0.72% and 1.08% stronger respectively.

This post was published at Zero Hedge on 11/24/2014.