You can't keep a rigged market down... despite weak GDP, weak jobs data, weaker PMI sub-indices, and weak construction spending, US equity markets are making new highs led by the ever-squeezable Nasdaq playing catch-up (and the Trannies). All of this stands in stark contrast to the continuing collapse in bond yields as macro fundamentals are reflected in only one side of the capital markets. 30Y yields - at 4.42% - are near their lowest in 10 months, and the rest of the complex hovers near 2014 lows.
Curious why after inexplicably turning red earlier today (because as everyone knows in the New Normal selling is largely forbidden and the Caracas stock market is the model to imitation), the DJIA is about to turn green again and press on new all time record highs? Simple. Following the earlier disastrous construction spending report which feeds directly into the GDP calculation, banks promptly revised their Q1 GDP estimates. To negative.
Since the entire developed world is insolvent (don't believe us, believe Paul Singer), it was only a matter of time before this percolating English idea moved across the big pond: this we warned about also when we said that "if anyone is still confused, the IMF-proposed "mansion tax" is most certainly coming to the US, and every other insolvent "developed world" nation, next." Today we learn that we were right about this too. The Post reports that "After his failed attempt to hike income taxes on the wealthy, Mayor de Blasio is eyeing another way to squeeze money from millionaires to fund another top priority: affordable housing. Multiple sources tell The Post that the mayor is talking to people about how to increase the so-called “mansion tax” on homes selling for $1 million or more to help offset the cost of adding 200,000 affordable-housing units."
It appears, despite the Dow closing at record all-time-highs, 'they' are running out of greater fools. As WSJ reports, Box Inc - the online storage startup - is delaying its IPO plans "after a sudden weakening in demand for technology stocks." It seems 'all-time-highs' is now not enough, as people close to the company said the offering may not happen until June, and no timing has been set... we assume all-time-higher-highs are required as WSJ notes, investors' love affair with cloud software companies is waning (as the greatest fools are all tapped out... or waiting for Alibaba's 'easy money'). As one PM noted, "Eighteen months ago that company could have gotten away without a path to profitability... there's not a public market for companies like that."
With the Chicago PMI yesterday beating wildly, the whisper expectation today, in a world in which baffle with BS is the dominant strategy (aside for "hope" of course), that the manufacturing ISM would be a modest miss. It wasn't, and instead while consensus expected the April ISM to rise from 53.7 to 54.3, the final print instead ended up being 54.9, with an increase reported in most indexes, except for Production, Prices and and Order Backlogs. Ahead of tomorrow's NFP, the increase in employment by 3.6 points from 51.1 to 54.7 is notable. Finally, with exports rising only 1.5% compared to the 3.5% increase in imports, the trade component of Q2 GDP is not looking like it is improving much.
February construction spending was revised from a hope-filled 0.1% rise to a "it's the weather" 0.2% drop - which theoretically should have juiced March's data even more... but it didn't. The 0.2% rise in Construction spending in March is the biggest miss (exp. +0.5%) since March of last year.Quite a divergence...
*GOVERNMENT CONSTRUCTION SPENDING WEAKEST SINCE NOVEMBER 2006
*PRIVATE RESIDENTIAL SPENDING IN U.S. STRONGEST SINCE MAY 2008
So much for that breathtaking pent-up demand surge post-weather... or we pre-suppose that is coming in April... or May
As usual, there was the now traditional book-cooking going on at GM, which only managed to "beat" estimates thanks to the tried and true gimmick of channel stuffing. Indeed: after hitting an all time high of 815K cars parked at dealer lots last month, in April GM's channel stuffing rose to a fresh all time high of 826K, in effect suggesting that had it not been for the extra 11K parked but "sold" cars, GM sales would really have been up just 2.3% Y/Y, missing estimates, and down 13K from March. Hardly the picture of health the fudged data makes it out to be.
US PMI Job Creation Slowest Since January, Says "Growth Rate Of The Economy Has Weakened Since Late Last Year"Submitted by Tyler Durden on 05/01/2014 - 08:53
From Markit: "Although GDP may bounce back in the second quarter, the updated manufacturing numbers are not strong enough to offset the softer trend in the flash services PMI, suggesting that the underlying growth rate of the economy has weakened since late last year. The manufacturing sector continues to benefit from rising domestic demand, but weak overseas demand continues to mean export performance disappoints, with only modest growth of new export orders recorded again in April."
As none other than the CEO of Sony explained 11 months ago, with regards Abe's strategy to weaken the JPY to encourage growth, "we are actually at a disadvantage [with a weaker JPY].. the preconception that a weaker JPY is good for all is, unfortunately for us, not true against the USD." And so 11 months on and Sony's profits and revenues are collapsing as the 'giant' electronics firm cuts its earnings outlook for the third time in a year. How bad is it? Sony posted a net loss of 130 billion yen ($1.3 billion) in the 12 months ended March... compared with a February loss projection of 110 billion yen, which was itself a reduction from a revised October forecast for profit of 30 billion yen. As one analyst noted, "There is no stop to their downward revision of earnings." So much for Abenomics?
There was good and bad news in today's personal spending report. First the good: US consumers saw their personal income rise by 0.5%, or $78 billion, in March to a $14.5 trillion SAAR, driven mostly by a $32 billion increase in service wages, as well as $16 billion from government transfer receipts. Now the bad (or, if one is a Keynesian, doubly good) news: personal spending more than offset the increase in income, rising by 0.9% or the most since August 2009, which rose to $12.3 trillion SAAR, driven roughly equally by an increase in spending on Goods ($53 billion) and Services ($54 billion). Curiously the increase in goods spending was the single biggest monthly increase also since August 2009. As for services, the systematic increase on spending over the past several months is unmistakable as far more money is allocated toward healthcare, that one major spending category which rescued Q1 GDP.
It seems the decision to launch a full 'independence' referendum has stoked even more division in the Donetsk region of Ukraine as rocks, smoke grenades, tear gas, and flash-bangs are being exchanged between pro-Russian separatists and a suddenly invigorated (after folding the last few days) riot-police force in the city center as separatists tried to storm the Prosecutor's office.
The last 2 weeks have seen initial claims surge by almost 40k back (the most in 5 months) above 2013's closing levels. This post-weather-recovery "ignore Q1 GDP" pent-up demand is absolutely not evident in the jobs data as the 344k print for initial claims is the highest since Feb. This is also confirmed by the 5.7% rise year-over-year in Challenger job cuts which has left the year-to-date job cuts at their worst for an April since the recession ended... But didn't everyone tell us that April was looking good and that Q1 GDP was in the past and we should for get about it?
With gold holding gains over 6% year-to-date (and the best performing asset-class), this morning's silver slamdown has taken the precious metal notably into the red for 2014 (-2%) and makes it the worst performing asset-class. Silver is back under $19 and near its lowest price since July 2013. Of course, it all started with the futures market where the sudden fiduciary need to dump over 2000 contracts 0505ET sent the complex collapsing, sending the gold-to-silver ratio to its highest since 2010.
As we noted on the last day of March, April was supposed to be the best month for stocks, with an average return since 1950 of over 2%. It wasn't.
- Two-Thirds of Insurance Exchange Enrollees Paid Premiums (WSJ)
- Panic: Criminal Charges Against Banks Risk Sparking Crisis (BBG)
- Did the junk bubble pop: Junk Loans Pulled as Investors Say No After Fed Raises Concerns (BBG)
- CME mulls price fluctuation limits for gold, silver futures (Reuters)
- AT&T Has Approached DirecTV About Possible Acquisition (WSJ)
- NBA sets wheels turning for Clippers sale; Oprah in wings (Reuters)
- One way to fix prison overcrowding: Florida Jail Hit by Deadly Blast (WSJ)
- New Boeing jets hold key to more than half of future sales (Reuters)
- Sony slashes profit estimate by 70% (Guardian)