Today was a significant day for many markets. For the 7th time in the last 8 months, US Treasuries opened the month with weakness (30Y up 8.5bps, 2Y +3bps from Friday). Significant JPY and GBP weakness pushed the USD Index to fresh 14-month highs (+0.25% on the week). USD strength smacked gold (-$20 to $1265), silver, and crude oil significantly lower (WTI under $93 and Brent testing towards $100, both down over $3). US equities decoupled (lower) from VIX and JPY-carry around the European close after hitting new all-time highs in the early session (over 2,006 for S&P Futs). Volume was better (but then it was a down day). Despite oil weakness, Trannies took off leading the day (with Dow and S&P closing lower from Friday). Credit traded with stocks for most of the day but ignored the late-day VWAP ramp in the S&P, closing at its wides. The ubiquitous late-day buying panic saved S&P 2,000... because it can.
Here are some of the choice excerpts from the man who is baffled by a new effort to punish him, proud of past triumphs and incensed by criticism: “You’ll have to ask those people, ‘What do you have against Mozilo, what did he do?’” he said in a 30-minute call with Bloomberg News before Labor Day, one of his few interviews since the firm’s downfall. “Countrywide didn’t change. I didn’t change. The world changed.” Mozilo doesn’t understand why he and his firm, blamed by lawmakers and authorities for lax underwriting and predatory lending, have been seen as villains. “No, no, no, we didn’t do anything wrong,” he said, adding that a real estate collapse was the root of the crisis. “Countrywide or Mozilo didn’t cause any of that.” Yes, the Moz talks about himself in the third person.
Do you believe in miracles? Morgan Stanley's Adam Parker does, having given up on his sane bearish case long ago, he now predicts S&P to 3,000 because "if we get EPS growth of 6% per year from 2015-2020, that would drive S&P500 earnings to near $170; a 17x multiple would translate into a peak level for the S&P500 near 3000 under this scenario." So, just some simple math, eh? But he does add, "of course, no one can predict unforeseen shocks to the economy," but they will never happen, right?
Now that the financial oligarchs have had their way with the U.S. property market, to the point that average citizens can’t even afford to own a home (Zillow recently showed that 1 in 3 homes are unaffordable), it appears they have turned their sights overseas. What better market for bailed-out bankers to feast on than Spain, with its 50%+ youth unemployment rate and a continued depressed real estate market.
While it is unclear if August's exuberant buy-it-all strategy will hold for September, the following chart from BofA should raise a few eyebrows. In August, practically all the gains for bonds (yield compression) occurred in the overnight session (from 8pmET to 6amET)...
When it comes to keeping track of China's economy, one can listen, and ignore, the official goalseeked and made-up-on-the-fly data released by the government, or one can simply observe the price dynamics of the all-important Chinese commodities sector (because with fixed investment accounting for well over 50% of GDP, the marginal price of the commodities that are used in capital investment tell us all we need to know about the true state of the Chinese economy). It is here where we find that contrary to the recent performance of the Shanghai Composite, which has been trading exclusively on the coattails of the most recent unofficial QE by the PBOC, commodity prices in China are actually crashing across the board, which in turn suggest that the real GDP is most likely anywhere between 20% and 60%, if not more, below the "official" 7.5% GDP print.
As we discussed yesterday, Vladimir Putin's apparent 'threat' to EU's Barroso that "If I want to, I can take Kiev in two weeks," prompted both anger and response as NATO reacted by stating a new "spearhead" force of 3-5,000 troops would be flown in to combat any (further) Russian aggression. However, Russia is not happy that the EC President leaked the conversation with Putin's aide Ushakov stating that recounting the private conversation was "inappropriate," "undiplomatic," and "unworthy of a serious political player." More troublingly, the cold-war-tension-like escalation from NATO has prompted Russia to revise its military doctrine to account for “changing military dangers and military threats.”
"Good news" it would appear in the exuberant ISM and construction data, has morphed into bad news now that Europe has closed and US equities are tumbling. Despite the best efforts of VIX and JPY, the S&P 500 cash index just broke below the crucial 2,000 level.
It has been a bad year for Malaysian Airlines: following the disappearance of MH-370 (which to our knowledge still hasn't been found), and the crash of MH-17 (which to our knowledge still hasn't had its Kiev ATC recordings released) the country's national carrier reported it would be delisted, and nationalized, with a follow up report last week that some 6,000 workers would be laid off to enjoy the recovery "confirmed" by the market's all time highs on their own. The year not only got worse, but outright bizarre, macabre and morbid following a marketing ploy revealed last week in which would-be passengers were given a chance to win a ticket if only they shared their... bucket list?
The weekend's headlines reeled from the collapse in global manufacturing PMIs and with them the last best hope for the world's economies to reach escape velocity all on their own. However, there was one nation that did not plunge... there was one country whose growth (based on the soft survey data) is at 10-month highs. Perhaps this is the chart that President 'we need moar sanctions and costs' Obama does not want Angela 'umm, wait a minute' Merkel to see...
The CDC's worst nightmare is coming true. Despite reassurances from the government that it was 'contained', the Ebola outbreak in Nigeria is accelerating fast. Health Minister Chukwu said that 17 had now been infected and 271 were under surveillance (including most horrifyingly, 72 in Lagos). In addition, Congo is seeing cases increase rapidly, with WHO reporting 53 cases of Ebola (31 dead) and warning, perhaps ominously, that there is no link with the West Africa strain. Liberian President Ellen Johnson Sirleaf said the situation in her country "remains grave," adding "People now don't see this as a Liberia or West Africa crisis. It could easily become a global crisis." Furthermore, Doctors-without-Borders warns, "the world is losing the battle to contain the Ebola epidemic."
The hollowing out of corporate strengths to enable short-term profiteering by the handful at the top leads to systemic fragility. No shock is needed to bring down these fragile corporate structures: existing debt and the slightest tremor of global recession will be enough to topple the rickety facade.
It appears JPY weakness (or generalized USD strength) is mirroring the demise of precious metals (and oil) this morning. Gold's 1.7% drop is the biggest in 6 weeks and drops the yellow metal to near 3-month lows. Treasury yields are up 5-8bps at the long-end. Troublingly, for the carry bulls, equity futures are not playing along with the JPY weakness.
ISM Manufacturing Surges With New Orders At 10-Year High; Construction Spending Jumps Most In Over 2 YearsSubmitted by Tyler Durden on 09/02/2014 - 10:10
ISM Manufacturing has risen almost without hesitation for the seven months from the January collapse to new 3-year highs, printing at a dramatic 59.0, its biggest beat in over a year, just shy of the recovery cycle's highs in 2011. New orders grew for the 15th month in a row to the highest reading since 2004! Earlier, Markit's US PMI missed expectations and fell modestly from preliminary data to 57.9, but moved to its highest since April 2010. Construction spending also surged, rising 1.8% (smashing expectations) - its biggest MoM gain since May 2012.
According to Piers, this is breaking news. Which, incidentally, may explain not only his show's abysmal ratings, but why he is now unemployed.
BREAKING NEWS: I am no longer a @CNN employee.
— Piers Morgan (@piersmorgan) September 2, 2014