As JPM's Michael Feroli notes, the September FOMC Taper announcement (which certainly isn't assured, although if the Fed does not taper, it will end up monetizing 0.4%-0.5% of the total private TSY stock per week before year end) may just be a sideshow to a previously undiscussed main event: the Fed's first forecast of 2016 interest rates.
For the first time in 2013, UMich consumer confidence missed expectations dropping from a cyclical high 85.2 to a 'mere' 80.0. However, the miss from an expectation of 85.0 is the big news - this is the biggest miss since records began in 1999. The US Consumer (so in the news this week on the back of the retail earnings) appears have finally woken up to soaring mortgage rates, rising gas prices, and only part-time job growth. We warned this might happen - just as it has happened in the previous two cycles... Both the current and future conditions indices collapsed to their lowest in 4 months.
What was a generally calm last few hours has begun to accelerate into the US equity cash open. Gold and Silver are surging as the USD gets hit (mainly on EUR and JPY strength). S&P futures are pushing back to overnight lows and Treasuries rallying back to unchanged from modest overnight weakness (capped at 2.80%). Where's the money going? Spanish bond spreads...-32bps this week (best since Nov 2011)
As thousands of armed supporters of ousted President Mohamed Mursi take to the streets only to be met by a matching number of just as armed (with US weapons) and very triggerhappy police and army, watch all the latest action from this live feed which keeps an eye on various locations in Egypt.
With the ongoing musical chairs at the COMEX (focused on JPMorgan's volatile holdings), the bank's precious metals team now sees a number of reasons to be long gold. Noting the market's shrugging off of Paulson's unwind ("delivering an exclamation mark to define the end of the fall in gold stocks"), JPMorgan (ironically) suggests the questionable price action in the paper markets in light of unprecedented physical demand combined with the seasonal positives (and physical supply restrictions) all points to "getting long the gold space," with gold and silver miners offering value. The question remains, given that none of these are 'new' facts, why the change of heart now (especially as JPM is also buying)?
That Housing Starts and Permits both missed expectations modestly is not a surprise: after all, NAHB hopium confidence aside, the builders have realized which way the interest-rate wind blows and grasp very well that in a rising rate environment demand for housing will go the inverse of up. Sure enough, housing starts rose from an upwardly revised 846K to 896K, missing expectations of a 900K print, while Permits rose from 918K to 943K, also missing the expected 945K print. Both misses were neglibile and largely covered by seasonal adjustments. However what really captures the dynamic behind the housing situation is the read-through into single (family) and multi-unit (investment rental properties). It is here that the divergence was most profound and tells a tale of one housing bubble which has popped, and another which is still going strong, if tapering.
If there is one day when the pent up tensions on both sides resulting from the Egyptian coup over a month ago may boil over and lead to an all out civil war (still unclear how John Kerry would "define" that one) today may be that day, as Cairo is braced for what may be the most violent confrontations yet with supporters of the deposed president Mursi calling for “day of rage” protests after Friday prayers, and the Egyptian polic (now using live ammo) and army set to crush any such "illegal" protests. Since millions are set to hit the streets, there is no way this will have a peaceful outcome.
Think the market is liquid? Think again, especially if you are one of the unlucky ones who bought into the SAC get rich quick dream and now just want to get your money out of the world's most notorious hedge fund. According to Bloomberg, the CT firm that has been branded by the government as a "veritable magnet for market cheaters," has "refused clients’ requests that the firm speed up payouts on the billions of dollars earmarked for withdrawals, according to three people familiar with the discussions."
- Critics Decry Risks Posed by Link Between China's Banks and Bonds (WSJ)
- U.S. retailers say uneven recovery keeps consumers cautious (Reuters) - er, what recovery?
- Easy Credit Dries Up, Choking Growth in China (NYT)
- Fed's Bullard Floats Idea of Small Cuts to Bond Buying (WSJ)
- EU wants one definition of bad loans for bank tests (Reuters) - because in Europe they can't even agree what an NPL is...
- Nagasaki Bomb Maker Offers Lessons for Fukushima Cleanup (BBG)
- With Gmail Overhaul, Not All Mail Is Equal (WSJ)
- Snowden downloaded NSA secrets while working for Dell, sources say (Reuters)
- Apollo co-founder buys into New Jersey Devils (FT)
- Republicans to vote on debate boycott because of Clinton programs (Reuters)
- J.C. Penney Heads for Ninth Quarter of Plunging Sales (BBG)
As it turns out, just as we had suspected, the 6% move in the Chinese A-shares index, was nothing more than a CNY7 billion (just over $1 billion) fat finger in the "arbitrage system" of Everbright securities. And just what system is that - if the market is about to sell off do a smash-the-open to kill all downward momentum, and as for the losses from the trade, well there is a PBOC to foot the costs? Also, if all it takes to move a multi-trillion stock market is just a $1 billion "fat finger", imagine what $85 billion per month would do...
Starting with the Asian markets this morning, it appear the roller coaster ride for markets continued overnight. Asian equities started the day trading weaker but shortly after the open though, all of Asia bounced off the lows following the previously noted surge in Chinese A-shares soaring more than 5% in a matter of minutes in what was initially described as a potential “fat finger” incident. As DB notes, alternative explanations ranged from a potential restructuring of the government’s holdings in some listed companies, to market buying ahead of a rate cut this coming weekend. All indications point toward a fat finger. The A-share spike has managed to drag other indices along with it though some gains have been pared. Yet for all the drama the Shanghai Composite soared... and then closed red. The region’s underperformer is the Nikkei (-0.75%). Elsewhere, the NZDUSD dropped 0.5% after a magnitude 6.8 earthquake struck the city of Wellington this morning. Looking at the US S&P500 futures are trading modestly higher at 1660. Looking ahead to today there is very little in the way of Tier 1 data to be expected. Housing starts/permits from the US and the preliminary UofM Consumer Sentiment reading for August are the main reports. The moves in rates and perhaps oil will probably offer some markets some directional cues.
Update: The entire spike has been fully retraced by the close of China
In the new normal where broad-based equity indices that represent the corporate health of entire nations in one bit-sized propaganda-plagued number, the fact that China's Shanghai Composite spiked instantaneously by 6.2% this evening will come as no surprise...Some large stocks (PetroChina and AgBank jumped as much as 10% before plunging back instantly to reality). While the Exchange is "investigating" the spike, their PR is currently saying that it is "operating normally" - 'new normally' we presume. Between today's gold and silver spikes, FX market volatility, and now Chinese stocks gapping wildly, it would appear something is afoot in the leveraged world of carry-trades (and instant illiquidity).
Recently, Fox News interviewed a self-described beach bum named Jason Greenslate who was very open about the fact that he has no problem sponging off of all the rest of us. When he was asked if he ever had any interest in actually getting a job, his response was "not whatsoever". Instead, he says that his job is to "make sure the sun's up and the girls are out" and he would rather spend his days partying. Of course every American should be free to live their own lives as they see fit, but the problem is that Jason Greenslate is using food stamps to help support his lifestyle. Of course the vast majority of those enrolled in the food stamp program are not like this. But there are also those such as Jason Greenslate that are openly abusing the system and making it more difficult for those that actually need the help to get it. Sadly, he is a product of the system that he was raised in.
Most readers have probably heard of the Silk Road. No, not the historical trade routes that linked Europe to Asia, but rather the online illegal drug marketplace accessible only via anonymity browsing software Tor, and where the only currency accepted is Bitcoin. Those of you who have heard about it, probably know far less about the man that runs it. A character who only goes by the name Dread Pirate Roberts. Irrespective of what you think of the Silk Road specifically, there is no doubt it has led the way in figuring out a way to retain a certain level of anonymity and privacy within the surveillance state due to the nature of its business. We can all learn from, and hopefully improve on their tactics, as we transition from extreme centralization to a more decentralized and freer world.
Mike Maloney warns that "The world will have a new monetary system in this decade... people will simply lose confidence in currency, and what do they always go back to through out history? Time after time, for the last 5000 years, they always go back to gold and silver." This excellent documentary - which focuses on the inevitability of the seven stages of empire - and the endgame of the most predictable long-term economic cycle, connects the dots across 140 years of monetary history.