Ahead of tomorrow's ever-so-friendly G-20 meeting in St. Petersburg - where the US Secretary of State hopes that "the Kremlin has a change of heart," - Russia's President Putin just raised the rhetoric. As Reuters reports:
- PUTIN ACCUSES U.S. SECRETARY OF STATE KERRY OF LYING TO CONGRESS ABOUT AL QAEDA'S ROLE IN SYRIA CONFLICT
- RUSSIAN PRESIDENT PUTIN SAYS U.S. CONGRESS HAS NO RIGHT TO "LEGITIMISE AGGRESSION" AGAINST SYRIA
With the Moskva sailing into the Med along with many many others, it seems as Obama just admitted during his Sweden press conference, [on Putin:] "We've kinda hit a wall on additional progress"
With Syrian strikes looking to be a 90-day minimum 'surgical strike' and being supported by the US Congress, it is hardly surprising in this bad-is-good-news 'opposite' world, that both precious metals and crude oil prices are getting slammed lower this morning...
When last week the revised Q2 GDP print was announced, which beat expectations solidly driven entirely by a surge in net exports, we said that "with China on the rocks and tightening, the Emerging Markets in free fall, and Europe still a net exporter (so not benefiting the US), anyone hoping this trade led-recovery will be sustainable, will be disappointed." Sure enough, the first trade data update for the third quarter as of July, confirmed just this, as the trade deficit widenedfrom a revised $34.5 billion deficit, to a substantially larger monthly deficit, amounting to $39.1 billion. This was $500MM more than consensus expected, or $38.6 billion, and it means that as we predicted, the downward revisions to Q3 tracking estimates are about to start rolling in, trimming ~0.1%-0.2% from US GDP for this current quarter. Specifically, imports for the month rose from $225.1 billion to $228.6 billion while exports fell from $190.5 billion to $189.5 billion. But perhaps most notable is that in July, the US trade deficit with China and the EU rose to a record of $30.1 billion (from $26.6bn last month) and $13.9 billion (from $7.1bn) respectively.
"It's not worth shopping in China," said one disgruntled middle-class Chinese consumer, adding, "If you can wait, do it elsewhere." The reason is simple - massive price inflation. As the WSJ reports, clothing and other apparel is on average 70% more expensive for consumers in China than in the US. Government taxes and import tariffs are to blame for some of the price discrepancy, but, the WSJ goes on to note, for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods - especially given the easy availability of credit. But today more Chinese consumers are pushing back, weary of sticker shock - and enlightened by the ability to compare prices elsewhere, thanks to the Internet - and China is starting to crack down on over-zealous pricing.
- Yes: Support Builds in Congress for U.S. Strike Against Syria (WSJ)
- No: Boehner backs Obama on Syria, but House leaning toward ‘no’ (The Hill)
- U.S. Congress fight over Syria pits establishment versus upstarts (Reuters)
- Wednesday humor: Japan’s Abe Says Fukushima Will Be Resolved Before 2020 Olympics (BBG)
- Bank of Japan to Consider Further Easing if Sales Tax Hike Goes Ahead (Reuters)
- S&P accuses U.S. Justice Department of filing $5 billion lawsuit against it in "retaliation" for the company's downgrade of America's debt in 2011 (WSJ)
- German Candidates Spar Over Records (WSJ)
- Emerging Nations Save $2.9 Trillion Reserves in Rout (BBG)
- Split Congress Mulls Denial of Military Force Request (BBG)
- Sharp Fall in Overseas Investment By Chinese Firms (WSJ)
- Jorge Lemann: He Is...the World's Most Interesting Billionaire (BusinessWeek)
- Why Amazon Is on a Warehouse Building Spree (BW)
It was just yesterday, when we reported on the build up of Russian naval forces in the Meditteranean, in this case two new marine-carrying amphibious assault ships, that we made a simple forecast: "Our prediction: the next ship to be dispatched in direction Syria will be the missile cruiser Moskva, the "flag ship of the Black Sea fleet" and more of its affiliated warships... That, and a whole lot of submarines." We were right.
RUSSIA SENDS MISSILE CRUISER MOSKVA TO EAST MEDITERRANEAN: IFX
RUSSIA SENDS DESTROYER, FRIGATE TO EAST MEDITERRANEAN: IFX
The deployment is, more than anything, symbolic. It means Russia will no longer take US military build up in the region on the sidelines. Because while the Mediterranean build up is inevitable (and can be tracked here), the next step will be the arrival of Russian air and land-based support in Syria. Oh, and China. Let's not forget China.
There is Whitney Tilson, there is Dennis Gartman, there is Bill Ackman, but when it comes to epic, blatant muppet genocide nobody, nobody in the history of Wall Street, can compare to Goldman's chief FX strategist Thomas Stolper. Nobody. "Trade Update: Closing long EUR/GBP after strong UK data offset other Sterling negative factors. We recommend closing long EUR/GBP positions for a potential negative return of 0.2%."
Today's morning summary is a carbon copy of yesterday's. Some things happened, China continues to make up data to fit its current policy outlook, things in Europe continue to go bump in the night ever louder as we approach the German election despite reflexive diffusion indices - this time Service PMIs - desperately signalling a surge in confidence, Italy has just reminded everyone it is a big political basket case as Berlusconi is said to consider withdrawing his support for the Letta government and calling for elections this year, and so on, but it is still all about Syria. Last night the Senate Foreign Relations Committee has agreed on a resolution on using military force against Syria. The resolution would limit the duration of any US military action in Syria to 60 days, with a 30-day extension possible if Obama determines it is necessary to meet the goals of the resolution. In other words, a "surgical strike" lasting a minimum of 90 days, and then with indefinite additional extensions tacked on. Yet judging by the modest drop in crude and gold, the market may need more than just fighting words at this point to push to th next level of risk aversion.
Equity markets across AsiaPac are once again a sea of crimson with India and Indonesia taking front of stage... but in divergent ways for a change. After slamming lower to new record lows (not surprising given the forwards weakness all day), speculation was rife that the RBI intervened in the Rupee and Indian stocks jumped exuberantly on the news (NIFTY +1.3%). But no such luck for Indonesia where the Jakarta Comp is -2%. Conversely (for now), Indonesia's Rupiah is relatively well bid (+1.28%) and the Rupee is still -0.6%. Elsewhere, the Philippines are being hit FX down and stocks -1.9% and even the larger equity markets of China, Australia, and Japan are red. US Treasuries are leaking higher in yield (10Y +2bps at 2.88%) and US equity futures are limping higher (now +1pt). Silver is pushing lower (-0.8%) while gold and Crude are only modestly lower.
A nation pushing toward war as a distraction from internal problems and political failures is as old as human civilization itself. It is a tried and true method for hanging on to positions of power and often ends up in massive displays of destruction, chaos and death. Sadly, we find ourselves on the precipice of such a moment right now. Not only did the U.S. government and intelligence agencies play key roles in Saddam’s far worse chemical weapons attacks in the 1980?s, but now we discover that the UK had approved sarin gas components for export to Syria as recently as last year! The sale was only blocked due to EU regulations.
Moments ago a powerful 6.5 quake struck the Izu Islands, 400 miles south of Tokyo, strong enough to be felt among the taller buildings of the Japanese capital. Luckily, there was no tsunami or any destructive aftermath, at least none publicly announced. None was needed, because the great earthquake of March 2011 and subsequent tsunami and nuclear catastrophe at Fukushima continue to do enough damage. Sadly, it is the gift that keeps on giving... gamma rays. Not to mention constant news of the deterioration from the disaster zone, now that the world's attention has once again refocused on the fallout zone which for over two years both the Japanese government and TEPCO lied was under control. It wasn't. And now that the lies are catching up with reality, the "shocking" facts are hitting fast and furious. To wit: it was only this past Saturday when we reported that the radiation levels at Fukushima had hit a post-explosion record of 1,800 millisieverts/hour. Today, three short days later we get an update, and a stunning deterioration of over 20%. Reuters reports, citing the Nuclear Regulation Authority, that readings just above the ground near a set of tanks at the Fukushima Daiichi plant showed the radiation had risen as high as 2,200 millisieverts (mSv). Both levels would be enough to kill an unprotected person within hours.
In a sense the markets are experiencing a "Vietnam Moment" where we all believed what we were told and we all accepted the official headlines until the day came when we found out we had been flimflammed and you know the results of that fiasco. We believe that the markets are quite close to a shift in psychology where people and institutions alike no longer blindly accept the stories as told.
The first draft of the White House's war authorization legislation was leaked yesterday, signaling the opening round of the danse macabre, in which the bargaining and maneuvering over what Congress and the president both want -- war on Syria -- begins its public journey from conception to law. There will be fighting and sharp words along the way. Members will be coy and make impassioned speeches. It is all for show. It is important to make this clear to readers: The fight is not between whether the House and Senate will pass or reject the president's request for authorization to attack, but rather what kind of force authorization will ultimately be brought to the Floor for passage... and sure enough the headlines are starting with more drafts:
*OBAMA WANTS "TOO BROAD AUTHORITY'' IN SYRIA, TWO DEMOCRATS SAY
and Menendez/Corker propose a new US Senate resolution for authorizing use of military force in Syria setting a 60-day deadline, with one 30-day extension possible, while barring ground forces
Following last week's refusal to allow the US to use the nation as a launchpad for Syria strikes, Jordan has placed its air-force, one of the Arab world's strongest, on high alert in anticipation of "various possibilities." The show of strength captured in Al-Arabiya's special access to the Jordanian air-base shows F-16s and multiple Himars truck-mounted rocket-launchers. While Jordan, like so many nations, would prefer the political solution, it is prepared for any emergency.
Last week's 90%-down day and TRIN (market-breadth) above 2.0 provided the ammunition for an oversold bounce but as BofAML notes, there is plenty of resistance to limit upside. With 1658 as critical resistance (S&P 500 cash traded 1651 this morning), the following charts show the weight of evidence suggests deeper downside risk to the June lows around 1560.