Weekly Day Trading Recap: Markets are looking for directions from Fed, ECB, and Asia

– Three great hopes helped put a bid under global equity markets in the
first half of the week: hope for Chinese stimulus, ECB action and a monster US
March jobs report. However in each case, disappointment was the main outcome…

In China, the government unveiled a “targeted mini stimulus”
with no price tag that rehashed investment priorities laid out by Beijing
earlier this year.

The ECB took no action at its monthly policy meeting on Thursday, and
President Draghi repeated all of his familiar talking points. Draghi asserted
that inflation would turn around of its own accord in coming months, although
he did begin talking about the theoretical possibility of a quantitative easing
program for the Eurozone if it can’t.

In the US, the March jobs report was good but not great, with NFPs
slightly higher but other weak job trends also still in place. The trade data
was sluggish with lower overseas demand weighing on US exports; leading
economists to downgrade their outlooks for Q1 growth.

In Japan, the government officially raised the sales tax from 5% to 8%,
while weak Tankan survey data suggested that Abenomics is facing headwinds.
Government bond markets remained firm helped by a confluence lackluster
economic data, the belief that key central banks will stay with accommodative
policies longer and asset allocation flows away from high beta momentum stocks.

The US 10-year yield ended up little changed on the week finishing back
below 2.75%. For the week, the DJIA rose 0.6%, the S&P500 added 0.4% and
the Nasdaq fell 0.7%.

– Coming into the March jobs reports, there was a general feeling that the
numbers would outperform expectations. This did not come to pass and both the
+192K NFP and +192K private payrolls were a hair below expectations. However
the February NFP was revised to +197K from +175K, putting the average monthly
growth over the past three months at a healthy +178k. Many analysts were
concerned about the flat hourly earnings component (they grew 0.4% in February)
and the continuing weakness in underemployment. Both issues were cited by
Yellen at her post-FOMC decision press conference as reasons for rates to
remain low for an extended period.

– In the first half of the week, Brent crude fell to its lowest level since
last November thanks to pressure from the prospect of Libyan oil returning to
the market. Libya’s eastern oil ports were seized by rebel groups demanding
more political rights and a cut of the nation’s oil revenue. Negotiations with
the protesters have gone well and the two sides are close to reaching a deal
which will reopen the oilfields and increase exports to 600K bpd from the
current 150K bpd. Libya would still be operating below its 1.4 million bpd
capacity, however the increase would have a significant impact on markets.
Brent traded below $105 on Wednesday, with but climbed higher through week’s
end on fears the deal might fall apart.

– There was some calming of geopolitical tensions early in the week on reports
that Russia had withdrawn some of the military assets from its border with Ukraine.
Russia President Putin told German Chancellor Merkel that he had ordered a
partial withdrawal of Russian forces from the border area. This news was
disputed by western military figures, including US Defense Sec Hagel and NATO
Chief Rasmussen. On Friday there were reports that the Pentagon was looking at
the possibility of sending two combat brigades to the Eastern European NATO
allies, most likely Poland.

– The “momentum stocks” got hammered again, particularly late in the
week. Declines in high-profile tech names, selected biotechs and frothy recent
IPOs drove the Nasdaq down nearly 3% on Friday alone, undercutting overall risk
appetite. Tesla and Facebook both lost 8% a piece on Thursday and Friday,
Netflix dropped as much as 6% at its worst on the two days and Amazon lost as
much as 5%. Smaller tech names had an even worse time: recent IPO FireEye sank
as much as 20% in the Wednesday-to-Friday period, while Splunk and Palo Alto
Networks dropped 14% a piece over the same period.

– Auto sales in January and February were sluggish and the major manufacturers
claimed that intense winter weather had kept traffic away from dealerships. The
March data out this week seems to confirm the industry’s excuses, as industry
SAAR surged to 16.4M units, beating last year’s 15.3 million mark. Analysts
highlight that the industry increased incentives to lure more traffic. Fiat’s
Chrysler posted the largest sales increase, +13% y/y, the firm’s best March
since 2007. Jeep and Ram truck brands saw sales increases of 47% and 26%,
respectively, making for Jeep’s best sales month of all time. GM’s sales were
up 4%, although bad press from CEO Mary Barra’s hammering on Capitol Hill over
the ignition parts scandal obscured the firm’s results. Ford sales were up 3%.
Toyota March sales grew 4.9%, while Nissan sales grew 8.3%.

– At the post-rate decision ECB press conference, Super Mario stayed pretty
close to all of his regular talking points regarding inflation and the scope
for more action. Draghi conceded that the council did discuss potential rate
cuts and the merits of a QE program (as well as lower rates and a negative
deposit rate), but on inflation he doggedly repeated that while the March
Eurozone inflation report was a surprise, the ECB still expects higher inflation
in the months to come. Draghi claimed that seasonal factors, including the late
Easter holiday, distorted March inflation levels, and asserted that
approximately 70% of the fall-off in inflation was due to lower food and energy
prices. He also highlighted that core inflation remains higher than headline
CPI. Draghi’s right-hand man, Governor Constancio, said low March inflation
figures will correct in April. EUR/USD poked above 1.3800 a few times mid week,
but the euro downtrend remains firmly in place and the pair closed the week
just above 1.3700.

– Reports out this week suggested that Greece would return to the international
bond market this month, four years after it became the first eurozone country
to be bailed out. The country has made progress in fixing the nation’s economy,
and while the nation closed out its sixth year of recession in 2013, with Q4
GDP -2.6%, this was the best reading seen in years. The government aims to
raise €2 billion in a sale of five-year bonds in April, with Deutsche Bank,
Bank of America Merrill Lynch, JP Morgan and Goldman Sachs reportedly lined up
as underwriters. Last month, Piraeus Bank sold €500 million in three-year
bonds, and the sale garnered more €3 billion in orders. Other European
peripheral bond markets performed well on hopes the ECB could ultimately chose
to go down the path of QE. The Spanish 5-year yield fell below that of the US
for the first time since 2007 and Portugal rates fell markedly too.

– Disappointing industrial production and consumer spending data raised hopes
that China would launch some form of stimulus to cope with flagging growth.
Early in the week, the March official manufacturing PMI was just about equal to
the February reading, which itself was at eight-month lows. On Wednesday,
Beijing announced a spending package focused on new railways and subways,
low-income housing and tax breaks for small business. The government notably
did not say how much it intends to pay for the package of targeted measures and
analysts highlight that most measures were much the same as priorities mapped
out at last month’s central economic work conference. In addition, banks were
tapped to “actively participate” in funding the projects highlighted
by the plan. USD/CNY seems to have settled right in to a 6.20-6.21 range.

– The picture seen in the BoJ’s first quarter Tankan survey was not terribly
bright: Japanese business sentiment barely improved in the three months ending
March and the corporate outlook is now considerably weaker than when Japan last
raised its sales tax in 1997. The outlook for the next quarter suggests a
notable slowdown. The survey revealed diminishing expectations of the economy
being able to achieve the 2% inflation target, noting that firms of all sizes
see CPI at 1.5% in one year and just 1.7% in five years. The BoJ meets next
week but few expect any stimulus from the bank in the near term, as economist
expect several months of data will be needed to gauge the impact of the sales
tax hike. In the wake of the survey, Nomura economists forecasted more BoJ
policy easing in July. USD/JPY ramped up to nine-week highs on Thursday and
made a few runs above 104, but the risk-off tone on Friday drove the pair back
down to 103.3.