Gold and silver prices are plunging after the European equity markets closed. It seems someone got the tap on the shoulder and needed to fund some liquidity. Given the 'unusual' strength in high-beta European assets this week, it would suggest someone (or many someones) were short and squeezed to cover in a hurry and perhaps this post-close dump in gold and silver reflects the final end-of-week realization of losses that need to be funded.
It all makes so much sense. Broad European stocks have just completed their best week in 5 months. Even though today saw some of the exuberance wear off a little, the market is up 3.6% broadly (with Spain and Italy up around 5%) as everyone anticipates something magical from Draghi next week. Macro data is a disaster. Micro (earnings) data is far worse then expected. Italy remains government-less. The money (Merkel) faces problems at home. The Buba is strongly critical of the ECB and OMT/ESM plans. But apart from that, stocks ended near multi-year highs. The EUR closed down modestly on the week. European sovereign bonds are perhaps the canary in the coalmine here - as they have been smashed to near record low yields, the last 3 days have seen spreads leaking back wider (even as stocks continue to surge).
Last week it was Rwanda issuing USD-denominated debt at 7% (lower than Spain yields less than a year ago) just as bond yields of 90% of global sovereign bonds are at or near all time lows. And now, moments ago, we just learned that Ghana (nominal 2013 GDP: $42.8 billion) has just upsized its dollar-denominated $750MM bond issue to $1 billion.
When it comes to true demand for the "unfondleable" barbaric relic, one can look at spot prices (or listen to CNBC, at least when gold is correcting when it is being commented on every 5 minutes; when it has soared by $150 in 10 days, one hardly hears a peep), or one can continue looking at the absolute frenzy in the physical markets, now all over the world, where those who refuse to take their eyes off the ball, or the G-7 printers as the case may be, understand very well how this story ends. They also understand that the recent gold correction has simply been a buying opportunity, and the further the price fell, the more gold was bought until finally mints, refineries, and brokerages have run out of physical in inventory. Bloomberg reports on the ground from India, the world's biggest importer of gold, where gold consumers "thronged jewelry stores across the country for a second week on speculation that bullion may extend a rally after the biggest plunge in three decades." “Demand has been extraordinary in the past 15 days and sales this April have been much better than last year,” Kamal Gupta, chairman of P.P. Jewellers Ltd., said by phone from Delhi. “We waited for sometime to see if prices will fall more but when we saw them moving up again, we decided it’s time,” said Sripal Jain, a 77-year-old silver dealer who came with his younger brother, daughter and daughter-in-law to buy gold necklaces at Mumbai’s Zaveri Bazaar. “We don’t have any wedding or occasion coming up. The rates fell, so we decided to buy"
It would appear the connections that have been supporting stocks for weeks are beginning to break a little. As the following two charts show, JPY carry trades and bond markets are suggesting rough-sledding ahead for the risk-on crowd. Meanwhile, AMZN is having its worst day in 15 months...
The final print for UMich Consumer Confidence beat expectations but that is about the best anyone can hope to glean from it. A slight improvement from the preliminary April data, the current and outlook economic indices both dropped for the first time this year and it has now been four months of no change year-over-year in this important sentiment indicator as today's measure of 'happiness' is exactly the same as that of April 2012. Perhaps US consumer are the most confident because their personal savings are now the lowest they have been in the past five years.
With their economy appearing to slow dramatically, if the PMI and Ifo data is anything to go by, and a nation increasingly disavowed with the European project, it seems the 'people' are not amused. As MNI reports, a poll by Forchungsgruppe shows Merkel's CDU/CSU support fading. Critically, with only 40% backing Merkel, and the 'Merkel bloc' down to only 44%, the opposition and more anti-Europe SPD party gained a point and shifted their 'bloc' vote to 48%. Given that the mainstream parties have excluded a coalition with the Left party, such results would allow only coalitions of Merkel's CDU/CSU with the SPD or the Greens. This raises the question of whether Merkel becomes more hard-nosed in her treatment of European bailouts, cow-towing to her populist needs (especially as Euro membership remains the most popular 'concern' for Germans); or eases the pressure in the hope of a short-term juice of markets believing in joint-debt dreams into the election. We suspect the former, especially given the clear signals from the people as the 'Alternative for Germany' party gathers more headlines - if not representative votes.
The worst miss for US GDP since September 2011 was greeted by financial markets around the world in a variety of ways. Gold surged; the USD weakened (with JPY surging in an anti-Abe way); and Treasury yields plunged (amid increasing growth concerns. But the one market that anyone in power cares about, the US equity market, did nothing, absolutely nothing. We have two words for what the monetary policy heroine has done to our once useful 'markets', comfortably numb. It seems the bad-is-good, moar-QE trade is on in every asset class except stocks (for now).
Now that we have the first estimate of Q1 GDP growth in both rate of change and absolute current dollar terms ($16,010 billion), we can finally assign the appropriate debt number, which we know on a daily basis and which was $16,771.4 billion as of March 31, to the growth number. The end result: as of March 31, 2013, the US debt/GDP was 104.8%, up from 103% as of December 31, 2012 or a debt growth rate that would make the most insolvent Eurozone nation blush. There was a time when people were concerned about this unsustainable trajectory, but then there was an infamous excel error, and now nobody cares anymore.
Less than an hour ago we speculated that "it wouldn't be surprising for GDP to come substantially weaker than expected, only to be revised higher (or lower) subsequently." Sure enough, we have gotten at least the first part right for now, with the advance Q1 GDP number printing a very disappointing 2.5%, on expectations of a 3.0% increase, up from 0.4% in Q4, and the biggest miss since Q3 2011. The reason for the big miss: Inventory and Fixed Investment came well below expectations, comprising 1.03% (of which autos represented 0.24%) and 0.53% of the 2.5% annualized increase GDP. Kiss the great CapEx investment story goodbye.
It is a convoluted world. The money rolls in from the Fed, the ECB and various European funds where money is pledged by each country and put up by none. Pledges, contingent liabilities, guarantees of bank debt are not counted but have not vanished and show up when the bills are due decreasing the assets of everyone. The newly printed money must find a home and so supports the sovereign debt yields while costing each European government more in the process. Austerity fails, unemployment rises, economies decline, more taxes are applied and the use of newly printed money is the only thing that separates us from some sort of financial chaos. The differential between the European economies and the European markets increases and the actual losses increase. Print forever. Lies without end. Reality redefined.
It took about one week from R&R's excel error until the first European country rebelled against "austerity" (which it never implemented in the first place, but that's a different story). Moments ago Spain officially said to hell with Germany's austerity, and announced it would delay achieving Europe's deficit target by two years, pushing it back by 2 years to 2016. Oh, and it slashed growth forecasts confirming what everyone else had known: it's economy is a total disaster, and the country can finally stop pretending there is any hope for "growth" in the near, mid or long-term future.
- SPAIN REVISES DOWN 2013 GROWTH FORECAST TO -1.3 PCT OF GDP VS -0.5 PCT PREVIOUSLY
- SEES DEFICITS OF 6.3% vs. 4.5% EU 2013 TARGET, 5.5% vs. 2.8% EU 2014, TARGET; 4.1% vs. 1.9% EU 2015 TARGET
- SPAIN TO DELAY DEFICIT REDUCTION 2 YEARS AS UNEMPLOYMENT RISES.
- SPAIN REVISES DOWN DEFICIT FORECAST TO 6.3 PCT OF GDP IN 2013
- SPAIN DELAYS REACHING EU BUDGET DEFICIT TARGET 2 YEARS TIL 2016
- SPAIN SEES UNEMPLOYMENT AT 27.1% IN 2013, 26.7% IN 2014
Luckily, this is not a surprise: the collapse in the Spanish economy is just as bad as had been expected, so this should be good for 10-20 points this morning in the Stalingrad & Poorski 500 stock index.
In just about an hour, the first (of three) Q1 GDP numbers will be released. It is expected to rebound to 3% from 0.4% in Q4. As Goldman explains, the bounce is expected to reflect "a mix of temporary factors -- namely a large inventory boost contributing about 1pp to growth -- and a genuine upside surprise from the strength of consumer spending despite the 2013 tax hikes." However, as we have since seen, the consumer "spending" was largely a seasonal revision of unadjusted data, which hardly was as euphoric, and which has sharply rolled over in Q2, meaning that what consumers add to Q1 GDP will be promptly removed from the second quarter. Furthermore, since there are two more GDP revisions, and since the Fed will likely seek to moderate QE "tapering" expectations, it wouldn't be surprising for GDP to come substantially weaker than expected, only to be revised higher (or lower) subsequently. In either case, for those who still believe macroeconomic fundamental data is relevant (in the New Normal it isn't), here is a quick run through what to expect from GS.
- Reinhart and Rogoff: Responding to Our Critics (NYT)
- Differences with centre-right delay Italy's Letta (Reuters)
- Italy's Letta moves forward to shape government (Reuters)
- China’s leaders warn on financial risks (FT)
- Norway oil fund makes big move from bonds to stocks (FT) - worked wonders for the Bank of Israel
- Smuggling milk is the new smuggling heroin in HK: Milk Smugglers Top Heroin Courier Arrests in Hong Kong (BBG)
- RenTec's mean reversion models fail on BOJ lunacy: Yen Bets Don't Add Up for a Fund Giant (WSJ)
- From 'Fabulous Fab' to Grad Student (WSJ)
- BOJ in credibility test as divisions emerge over inflation target (Reuters)
- Boston Bombing Suspect Moved from hospital to prison (WSJ)
- Provopoulos Says ECB May Never Need to Use Bond-Buying Program (BBG) which is good because, legally, it doesn't exist
While the main, if completely irrelevant, macroeconomic news of the day will be the first estimate of US Q1 GDP due out later today, perhaps the best testament of just how meaningless fundamental data has become was the scheduled BOJ announcement overnight in which Kuroda's merry men simply stated what was expected by everyone: the Japanese central bank merely repeated its pledge to double the monetary base in two years. The lack of any incremental easing, is what pushed both the USDJPY as low as 98.20 overnight (98.60 at last check), over 100 pips from the highs, and has pressured the Nikkei into its first red close in days, and shows just how habituated with the constant cranking up of the liqudity spigot the G-7 market has truly become.