“Volatility is rising and asset prices are highly vulnerable to all incoming news... The amount of attention paid to rumors about QE highlights how vulnerable the U.S. economy is to the prospect of a tapering in asset purchases or a rise in interest rates. This is largely because the current economic expansion is dependent on further gains in housing, which would be adversely affected by a material rise in mortgage rates... This dynamic underpins the Federal Reserve’s current dilemma over how to normalize monetary policy. I do not anticipate an easy ride for policymakers or investors over the coming months.”
Anyone anticipating some earth-shattering release from the DOL in its weekly initial claims report as a guide what to expect tomorrow was disappointed following the release of a 346K print today, which was about as close to the 345K expected without the DOL losing all credibility. This followed last week's naturally upward revised 354K to 357K print, although the problem is that it appears this was it for the 'downward trend' in initial claims which goes back to the thesis that 7.5% unemployment is the new 4.4% unemployment. Continuing claims came better than expected at 2952K on 2974K expected. Also, damn it doesn't feel good to be a government worker - "there were 17,862 former Federal civilian employees claiming UI benefits for the week ending May 18, an increase of 551 from the previous week." Blame the sequester. There was no good news for veterans either: "Newly discharged veterans claiming benefits totaled 35,944, an increase of 614 from the prior week." Bottom line: a nebulous report which provides zero additional insight into what to expect in tomorrow's NFP and thus zero color into what the Fed may do with... "THE TAPER" dun dun dun.
While equity markets are giving up the kneejerk gains after the ECB's decision to make no decision and keep rates unchanged, we await the much more interesting twists and turns of Draghi press conference and Q&A. From EU-wide bank audits to fragmentation and from OMT's promise to easing collateral standards for ABS buying, there is bound to some fireworks (leaving aside his likely admiration for Abe) especially if he hints at negative rates. We look forward to his explanation of the dichotomy of a conditional OMT and the easing of fiscal targets across almost every nation. Popcorn, ready... His prepared remarks are doing little to help though he quotes sentiment indicators as a positive and cuts real data expectations for 2013 (while raising 2014)...
- *ECB SEES 2013 GDP -0.6%
- *DRAGHI SEES DOWNSIDE RISKS TO ECONOMIC OUTLOOK
- *DRAGHI SAYS MONETARY, LOAN DYNAMICS REMAIN SUBDUED
- *DRAGHI SAYS ECB TO KEEP POLICY ACCOMMODATIVE AS LONG AS NEEDED
- *DRAGHI SAYS SENTIMENT INDICATORS SHOWED SOME IMPROVEMENT
Lately Bloomberg's reporting group (now without access to client tracking) has been hitting it out of the park when it comes to cognitive schizophrenia-inducing news article headlines. Last Friday it was the market somehow going up and down at the same time. Now, Bloomberg has shifted its deductive skills over to analyzing the gold market with the following article headline: "China’s Gold Imports From Hong Kong Slump on Quota Backlog" in which Bloomberg says: "Mainland buyers purchased 126,135 kilograms, including scrap, compared with 223,519 kilograms in March, according to Hong Kong government data yesterday. Net imports, after deducting flows from China into Hong Kong, were 75,891 kilograms, from 130,038 kilograms a month earlier, according to Bloomberg calculations." Now perhaps what would have made this "slump" more amusing is if BBG had also shown it in context. Which we are happy to do. Because the 126.1 tons of gold imports in April, or the month of the "great gold crash", was only the second highest ever, and just shy of the all time record high of 223.5 tons imported in March.
Despite some concerns that the ECB would lower rates (and maybe go negative on deposits) at today's meeting, it was certainly not the consensus. And for once, the consensus was right. Form the ECB:
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.50%, 1.00% and 0.00% respectively. The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
Look for Mario to not touch on this issue at today's press conference in 45 minutes if indeed there is much disagreement among the governing council, and instead to focus on what plans the central bank has to spur European private lending which as we showed last week, just hit record lows. If any of course. We, on the other hand, are still hoping to finally get the OMT term sheet that supposedly saved Europe last summer. Because it looks kinda stupid if market participants continue to get duped by an "instrument" that officially and unofficially doesn't exist.
- Global Stocks Tumble as Treasuries Rally, Yen Strengthens (BBG)
- China Export Gains Seen Halved With Fake-Data Crackdown (BBG) - so a crash in the GDP to follow?
- FBI and Microsoft take down botnet group (FT)
- Quant hedge funds hit by bonds sell-off (FT)
- Russia's Syria diplomacy, a game of smoke and mirrors (Reuters)
- Obama Confidantes Get Key Security Jobs (WSJ)
- BMW to Mercedes Skip Summer Breaks to Keep Plants Rolling even as European auto demand slides to a 20-year low (BBG) - thank you cheap credit
- Paris threat to block EU-US trade talks (FT)
Another day, another sell off in Japan. The Nikkei index closed down 0.9%, just off its lows and less than 1% away from officially entering a bear market, but not before another vomit-inducing volatile session, which saw the high to low swing at nearly 400 points. Hopes that a USDJPY short-covering squeeze would push the Nikkei, and thus the S&P futures higher did not materialize. And while the weakness in Japan is well-known and tracked by all, what may come as a surprise is that the Chinese equities are down for the 6th consecutive session marking the longest declining run in a year. Elsewhere in macro land, the Aussie Dollar continues to get pounded on China derivative weakness, tumbling to multi-year lows of just above 94 as Druckenmiller, who called the AUDUSD short nearly a month ago at parity shows he still has it.
Joining its partner in economic destruction and currency devaluation (Argentina), Japanese stocks have just crossed over to the dark-side. After a glorious "well, the market is up, so everything must be great" rally of 85% in six months, the Nikkei 225 is now down over 20% from its highs - signifying a 'bear market'. This is the largest 10-day plunge in 27 months as volume has exploded on the downside. We wonder how the herds representing these five charts are feeling now? At the same time, JPY has broken back below 99 against the USD (and AUDJPY is at 5 month lows) as the entire JPY-funded rampage comes undone - seems like the message from the FX option market was spot on again. This is the lowest level in two months since Kuroda first spoke at the BoJ. Get that porta-potty ready, Abe... What next? Blame speculators? Short-sale ban? Shorting ban?
After getting within 40 points of the 20% correction level, the Nikkei 225 - aided by a 60 pip ramp in JPY - staged a solid 400 point rampapalooza off the pre-market lows. But... JGBs started to sell off in a hurry as equities surged and something had to be done. By the close of the morning session, TOPIX is back at its opening levels -1% from the close, Nikkei 225 -0.5% (down 250 from the earlier highs), JGBs are unchanged, and JPY is practically unchanged, Japanese corporate credit spreads are notably wider (worse).
The last war America fought openly through proxy was the Vietnam War. The sad and disturbing reality is that most wars fought by our country over the course of the past century have not been fought on principle. Instead, they have been fought for profit and for the consolidation of power and oligarchy. The war in Syria will not be about Syria. It will not be about the freedom of the people. It will not be about dethroning Assad or establishing democracy. It will not be about defusing violence in the region. Syria will not be the target; we will be the target — our society, our rights, our nation. America is in the middle of the most insidious consolidation of power in history and Syria is merely a stepping stone in the game. If we cannot maintain our vigilance and allow ourselves to be sucked into the proxy war façade, the elites will get their global conflict with little to no home opposition. The globalists will win, and everyone else will lose.
The IRS has a known history of scandalous behavior. With Nixon, Johnson, Hoover, Kennedy, and the FBI using the IRS to intimidate their enemies, it's no surprise that people have their eye on the IRS. Now under President Obama, they're at it again, which begs the question: bureaucratic blunder or political profiling?
If you look at the history of financial crises in Argentina, you will see there is almost no 10-year period when there isn't a financial crisis. Argentines have become masters at dealing with things like inflation and ridiculous government policies. How can the actions of the Argentine government give us insight into what a desperate government is capable of and what might be in store for the United States? The current Argentine government is dominated by true believers – young people who have that idealistic notion of equality for all, and who believe that government mandates can fix anything that ails. They are hardcore socialists, leaning towards communism. But, as is the case in the United States, they really don't know what they are doing and so pursue policies that are incredibly shortsighted. They are uninformed as far as history and economics are concerned and blunder from one harebrained policy to another. There is literally nothing that they will not try. It is like a textbook case in government gone mad. There is a lesson to be learned from all of this, and I think it is a very important one. When it comes right down to it, any government – not just the Argentine government, but the US government as well – will simply do whatever it thinks it needs to do to keep the status quo intact, with no moral or ethical considerations.
The first time we wrote about the Volcker-led Group of 30 recommendation to crush Money Markets in January 2010 by effectively imposing capital controls and fund "gates", whose purpose was simply to scare investors out of the $2.6 trillion liquidity pool and force said capital to reallocate into a much more "reflation friendly" asset classes such as stocks, many were concerned but few took it seriously. After all, such a coercive push into a "free" market at the time seemed incomprehensible (if, in reality, turned out to be just a few years ahead of its time). Fast forward two years to July 2012 when the same proposal of "risk-mitigation" by allocating a portion of the balance to a "loss-absorption fund", which would "create a disincentive to redeem if the fund is likely to have losses" was not only re-espoused by Tim Geithner, and the NY Fed but the SEC put it to a vote and the proposal would have almost passed had it no been for a nay vote by Commissioner Luis Aguilar opposing Mary Schapiro in the last minute. Still, once more many largely unconcerned about the implications behind this urgent push to intervene and establish pseudo-capital controls in this major source of potential stock buying "dry powder." Today, with a brand new leader, Mary Jo White, now that the clueless and co-opted Mary Schapiro is long gone, the $2.6 trillion Money Market Fund industry is one step closer to finally being gated. But don't it call it that - the SEC prefers the term "protecting investors"
History may not repeat but it certainly rhymes and when it comes to the animal spirits of human fear and greed, nowhere is that more evident than the 'surveys' of confidence that US citizens have undertaken for thelast 30 years. As the following two charts show, while many are exuberant at the rise in confidence of late, it is a pattern we have seen play out twice before - and both previous times - it did not end well...