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August Service ISM Soars To 58.6, Highest Since 2005, Second Biggest Two Month Surge In History

The data is getting painfully laughable: on one hand Gallup says unemployment is soaring to two year highs, on the other, the ISM non-manufacturing report just printed at 58.6: for those keeping track, and who enjoy laying along, this was the highest since December 2005, and the 2nd largest two month increase in the index on record.  Of course, this means unless NFP tomorro comes at -1,000,000, the Taper is a done deal as the 10 year, which just printed 2.969% and surging, indicate. Stocks continue to do their own thing, blissfully ignorant of the debalce that will take place once the 3.00% yield stops are hit. The good news for bond bulls: this index can only go down from these ridiculous levels.



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Bonds, Bunds, Bonos, And BTPs Battered

With US 10Y yields pressing up towards 3.00% and the curve bear-flattening, it seems Draghi did nothing to contain the market's aversion to all things 'fixed income'. Wherever you look in Europe, bond yields (thanks to Bund prices dumping) and spreads (risk-aversion as Draghi "doesn't share the market's enthusiasm about the recovery") are blowing out. Equity indices are weakening too in Europe as EURUSD drops. Of course, US equities don't care...



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Chinese Province 'Busted' For Fake Data; Exaggerated 2013 Output By Over 150%

Still believe that China's PMI is above 50 and suggesting a global growth expansion? Still believe in Santa and the Tooth Fairy? Well, none other than China's own National Bureau of Statistics has been forced to admit that at least one of its major provinces has dramatically overstated industrial output. As Sina reports, according to a NBS report, the government in China's Yunnan province had coerced local companies to report inflated industrial output value, resulting in artificially high economic figures. With government leadership promotions driven by the performance of economic numbers in each province, it should hardly be surprising but the scale of the fraud is remarkable. In 2012, one county in Yunnan province reported CNY6.34 billion in output while audits showed only CNY 2.82 billion and in the first half of 2013, Yunnan published CNY 2.75 billion in output while audits showed a mere CNY1.06 billion! The province was also found to have faked investment data.



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Unemployment Rate Surges To Highest Since 2011 - Gallup Polling

With ADP out of the way, and providing no guidance to an extreme NFP print one way or another, we once again turn to Gallup. As a reminder, a few days ago we showed that things are bad and getting worse for America's job prospects following direct polling land as relates to unemployment on a seasonally unadjusted basis. Today, the polling group has released its seasonally adjusted unemployment number and how it compares to the BLS' own estimation of the labor market. In a word: it is not pretty (which, again, is good for those who are hoping and praying St. Ben will keep the monetary Kool Aid running for a little bit longer): at 8.6% it is over 1% higher than the BLS' reported print, and is the highest since the end of 2011.



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Biggest 2-Week Drop In Initial Claims In 3 Months But Unit Labor Costs Stagnate

The last 2 weeks have seen the biggest drop in initial jobless claims in 3 months as today's print is within a smidge of six year lows. Continuing claims also fell close to 5.5 year lows. All good healthy "Taper-On" news ahead of the all-important NFP. However, the only fly in the ointment as far as celebrating this 'renaissance' remains productivity gains and the ongoing slump in unit labor costs (which missed expectations of an easy-money earnings-growth generated +0.8% gain and came in at a dismal 0.0%). Simply put, all the hope of wage inflation providing the self-sustaining glue to hold this 'thing' together post-Fed-Taper is fading fast as the liquidity pipeline remains unerringly clogged.



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Draghi's "I Had An OMT Dream" ECB Press Conference - Live Webcast

Will Draghi confirm what every extrapolating talking head believes - that Europe is recovering - or will be stick to the facts that credit creation is collapsing, the core has turned down, and unemployment rates and delinquencies are at all time highs? But how will Draghi explain his forward guidance to his imperial leader?

*MERKEL SAYS GLOBAL TIGHTENING OF MONETARY POLICY NEEDED

We are sure the "market" will be offered as evidence that OMT has worked and that recovery is just another quarter around the corner... just a little more accomodation...



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ADP Payrolls 176K, Small Miss, Pace Of Increase Broken For First Time Since April

While the ADP private payrolls report is nothing but pompous noise, which despite allegedly relying on actual empirical payrolls data has greater revisions than even the BLS's largely made up number, what it reported today would certainly have implications on expectations for tomorrow' NFP report. Which is why on the surface while the just reported miss to expectations of 176K (Exp. 184K) was not too bad, it was quite bad to those hoping the Friday NFP print would be atrocious and force the Fed to delay tapering. Based on today's data point at least, the Taper is set to proceed in just under two weeks. This was the first miss in three months, and also follows a small revision to the July number from 200K to 198K. Finally, this was the first sequential break in the monthly rate of increase since April.



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China Officially Backs Russia On Syria, Warns "Military Action Would Have Negative Impact On Global Economy"

Until now China had kept a relatively low profile on the Syria issue, occasionally issuing veiled support for the Assad regime. That changed at today's G-20 meeting in Russia, when China's vice-finance minister Zhu Guangyao officially launched the Syrian axis of Russia and China, both of which now indirectly support the Assad regime, and oppose US-led military intervention. From the FT: "China warned on Thursday that military intervention in Syria would hurt the world economy and push up oil prices, reinforcing Vladimir Putin’s attempts to talk US President Barack Obama out of air strikes. “Military action would have a negative impact on the global economy, especially on the oil price – it will cause a hike in the oil price,” Chinese vice-finance minister Zhu Guangyao told a briefing before the start of the G20 leaders’ talks."



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ECB Leaves Benchmark Rate Unchanged At 0.5%

There were no expectations for anything out of leftfield at the ECB this morning. There were also no surprises as Draghi kept rates unchanged. The biggest issue, of creeping EONIA and how the central bank will resolve growth and inflation expectations, is expected to be covered in 45 minutes at the press conference during which Mario will once again remind us all that the OMT still doesn't and never actually did exist.



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Frontrunning: September 5

  • BOE Leaves Policy Unchanged as Carney’s Guidance Assessed (BBG)
  • Surprise or not, U.S. strikes can still hurt Assad (Reuters)
  • Samsung Gear: A Smartwatch in Search of a Purpose (BusinessWeek)
  • 'Jumbo' Mortgage Rates Fall Below Traditional Ones  (WSJ)
  • Capital Unease Again Bites Deutsche Bank  (WSJ)
  • Technical snafus confuse charges for Obamacare plans (Reuters)
  • JPMorgan subject of obstruction probe in energy case (Reuters)
  • U.S. Car Sales Soar to Pre-Slump Level (WSJ) - i.e., to just when the market crashed
  • BoJ lifts assessment of Japan’s economic health (FT)
  • Dead Dog in Reservoir Helps Drive Venezuelans to Bottled Water (BBG)
  • Russia Boosts Mediterranean Force as U.S. Mulls Syria Strike (BBG)


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Bill Gross Talks Baseball, Hyman Minsky In A World Of Steroids, And The Death Of Credit Creation

What perhaps Minsky couldn’t conceive of was the point at which debt, deficits and interest rates would go to such extremes that the creation of credit itself, which was and remains the heart of capitalism, would be threatened. No longer might the seventh inning stretch lead to a Coke, some “Cracker Jacks” and the resumption of the old ballgame. Instead, zero-bound interest rates and debt/GDP ratios in a majority of capitalistic economies would begin to threaten, not heal, the nature of finance and investment in the real economy. Investors, leery of not only overleveraged investment banks such as Lehman Brothers, but overextended countries such as Greece, Cyprus and a host of Euroland lookalikes would derisk as opposed to rerisk as per the Minsky model. As well, with interest rates close to the zero bound, investors in intermediate and long term bonds would become dependent on Big Bank to do their bidding. When that QE buying power became jeopardized via tapering and the eventual ninth inning conclusion of asset purchases, then the process of maturity extension and the terming out of historically modeled corporate lending was prematurely threatened.



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Bond Blowout Starts Event Extravaganza Day

Just when the market thought it had priced in a new equilibrium without (or with - it is not quite clear) a Syria war, here comes Thursday with a data dump that will make one's head spin. Central bankers are once again on parade starting overnight, when the BOJ announced no change to its QE program and retaining its monetary base target of JPY270 trillion. The parade continues with both the BOE and ECB, the latter of which is expected to address the recent pick up in Eonia rates and take praise for the recent very much unsustainable "recovery" in the periphery even as Germany continues to slide lower (this morning's factory orders plunged 2.7% on exp. -1.0%), which in turn lead the Bund to pass above 2.0% for the first time since March 2011. Speaking of bonds blowing out, the US 10Y is now just 6 bps away from 3.00%, the widest since July 2011, and likely to breach the support level, taking out a boatload of stops and leading to the next big step spike in rates as the second selling scramble ensues. And just to keep every algo on its binary toes, today we also get a NFP preview with the ADP private payrolls at 8:15 am (Exp. 180K, down from 200K), Initial Claims (Exp. 330K), Nonfarm Productivity and Unit Labor Costs (Exp. 1.60% and 0.9%), Factory Orders (Exp. -3.4%), Non-mfg ISM  (Exp. 55), Final Durable Goods, EIA Nat Gas and DOE Crude Inventories, oh and the G-20 meeting in St. Petersburg where Putin and Obama are not expected to share much pleasantries, and where John Kerry's swiftboat may not be allowed to dock.



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JPY Tests 100.00 For First Time In 6 Weeks; US Treasury Curve Collapses To Flattest In 13 Months; Gold/Silver Slammed

UPDATE 2: And there go the precious metals... with their ubiquitous 'opening' slamdown...

UPDATE 1: US Treasuries are now rallying urgently back from the edge as European markets awake (and the EUR slammed)... what else would one expect on ECB/BoE day?

The exuberance of the US day-session has flopped into the evening and Asian stocks, buoyed by a plunging JPY and the carry-mob is on a charge once again. USDJPY just broke back over 100.00 for the first time since July 25th managing to lift the Nikkei almost 1000 points since Friday's close. Most Asian stocks are higher (India +2.6%) but FX is more varied with the Rupiah, Baht, and Ringgit lower still as the Rupee strengthens modestly (as forwards compress too). The USD is bid against the majors with EUR cracking lower. The tale of the night though is US Treasuries which have slammed higher in yield once again. The spread between 5Y Treasuries and 30Y has plunged over 30bps in the last month and now hovers just above 200bps - its lowest in 13 months. This bear-flattening (belly and short-end is underperforming notably overnight) has driven the market's implied 10Y rate for year-end over 3% for the first time since July 2011. The entire forward curve of the Treasury complex is repricing higher in rates as 'absolute' NIM expectations drop.



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Guest Post: You Know You Are A Neocon If...

Over the past several decades, a tumorous growth has emerged from and taken over the Republican Party. This cancer is called a neoconservative, or colloquially just simply neocon. These folks are extremely insecure and hotheaded. It is best to avoid them in the wild whenever possible. Some signs that you may be in the presence of one are below...



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