Futures Levitate To Fresh Record Highs On Just Right Mix Of Bad News

With the FOMC Minutes in the books, the only remaining major event for the week is the Jackson Hole conference, where Yellen is now expected to talk back any Hawkish aftertaste left from the Minutes, and which starts today but no speeches are due until tomorrow. And while the Minutes were generally seen as hawkish, stocks continue to levitate, blissfully oblivious what tighter monetary conditions would mean to an asset bubble, which according to many, is now the biggest in history. And speaking of equities, US futures climbed to a fresh record high overnight on just the right mix of bad news.

Depending on who you ask, the overnight levitation (clearly on virtually no volume) in S&P futures to new record highs took place on either good news, namely a supposedly strong German PMI and a looming ‘de-escalatory’ meeting between Putin and Poroshenko, which would mean that the global economy is recovering which is bullish, or on bad news, namely China PMI missing and sliding, as well as Eurozone Mfg PMI which dropped from 51.8 and at 50.8, was below the 51.3 expected, Services PMI also missing expectations of 53.7, and declining from 54.2 to 53.5, leading to a 1 point drop in the Composite PMi from 53.8 to 52.8, which would mean that the global economy is stalling and more liquidity stimulus from central banks will be needed, which is also bullish. Bottom line: nobody knows what continues to push futures relentlessly higher (hint: moral hazard and endless stock buybacks), but whatever the news is, it's good for stocks.

Regarding that Ukraine de-escalation, don't tell that to local bonds, which continue to drop as the civil war death toll rises, and government seeks faster aid. The yield on the USD note maturing 2017 has risen 8 bps to 9.9%, after Ukraine yday asked to merge 3rd, 4th tranches of IMF loan. The obligatory spin: request to expedite IMF aid is positive as reduces liquidity risks, Bank of America analyst Vadim Khramov writes in e- mailed report today. Alternatively, it also means that the government may be about to run out of money.

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