Yet another display of the brokenness of the “market.” After the 0.1% GDP Q1 GDP print, the S&P 500 futures plunged all of 4.75 points for an entire minute.
This, on the back of the ludicrousness of ignoring the plunge in the USDJPY and Nikkei overnight after the BOJ declined to increase Japan’s QQE.
The yen carry trade is alive and well. The correlation between ES/SPX and USDJPY is clear. When the yen plunges (USDJPY soars), stocks soar too because the cost of repaying the 0% yen borrowing just went down.
Conversely, when the yen rises, as it has since year-end, stocks take it on the chin — unless it’s in the after-hours when reality is suspended. That’s why the technical patterns playing out in USDJPY and the Nikkei are increasingly completing in the after-hours, when the bots protect US stock futures from any declines.
What’s the point of all this? How else could ES maintain a ridiculous rising channel such as the one below through the end of the month — thus printing a positive April after a positive first quarter? BTW, on March 31 SPX closed at 1872.34.
With US stock prices joined at the hip to a currency (the yen) which is openly being managed by the BOJ, there is no market anymore — just the reaction of traders to the intra-day whims of central bankers.
Here’s the rub: the BOJ has discovered that QQE isn’t working. Sure, it juiced their stock market, just like the Fed has juiced ours. And, it’s arguably produced some inflation — though the latest 1.5% print was largely the result of the new higher sales tax.
But, exports still suck — even with the cheaper yen. And, the spiking price of imported food and fuel is killing Mrs Watanabe’s budget, already stretched by the increased sales tax and no real wage growth for years.
The BOJ might like to discontinue injecting $680 billion per annum into the money supply (well, their banks’ trading portfolios), but who else is going to buy the $400 billion in new debt Japan plans to issue in 2014 to cover their gaping budget deficit?
These are questions the Fed would do well to consider.
UPDATE: 2:50 PM
Post Fed announcement…same insanity. Quick dip on ES to just below the morning lows to stop out the bulls, then — unless I miss my guess — a rally to SPX 1884.89+ to stop out the bears. Don’t count on it going all the way to SPX 1887.83, as that would complete a Bat Pattern (the Apr 4 to Apr 11 drop) during market hours — very bad for the market, as the reversal would suggest the Apr 4 high was the end of the rally.
The e-minis have already retraced .886 of their Apr 4 highs, so not a lot of help there.