As expected, The FOMC continued its taper pace at $10bn but what was supposed to be a 'steady as she goes' statement had a few surprises:
- *PLOSSER DISSENTS ON DECISION, CITING GUIDANCE ON RATE OUTLOOK
- *FOMC SEES SIGNIFICANT UNDERUTILIZATION OF LABOR RESOURCES
- *FOMC: ODDS OF PERSISTENT SUB-2% INFLATION `DIMINISHED SOMEWHAT'
More of the same but some modestly hawkish sentiment sneaking in regarding improving labor markets. Oddly - no trade recommendations from Yellen. Full redline below...
Pre-FOMC: S&P Futs 1961.5, 10Y 2.55%, JPY 102.90, Gold $1294
It appears global geopolitical risk is fixed... WTI crude futures have tumbled back below $100 this afternoon to their equal lowest since early May. Despite warnings from Russia over higher energy prices, oil is well below MH17 headlines levels...
"More of the same," should summarize today's FOMC statement. There will be no press conference or refresh of the 'dot plot' economic projections. The Fed is expected to continue to taper by $10 billion with confirmation that the "growth meme" is playing out just as they projected (especially after today's GDP print). Goldman believes the focus will be on the jobs 'dashboard' and recent inflation data enables the dovish Fed to argue recent moves were noise and stay easier for longer. The downside risk (for markets) may be that Fed hawks will likely have little luck in altering the way forward guidance is employed by the Fed (and chatter over a Fisher dissent is possible).
If Venezuela is the case study of a country in the late stages of transition into a socialist utopia, then France is the clear runner up. The most recent case in point, aside from the already sliding French economy, whose recent contraction can be best seen be deteriorating PMI data which hints at the dreaded "triple dip" recession, nowhere is the economic collapse in France more evident than in its housing market which as even Bloomberg admits, citing industry participants, is now "in total meltdown." Pierre-Andre de Chalendar, chief executive officer of Saint-Gobain, summarized the current dire situation best: "Current figures are worrying and will be disastrous if nothing is done; clients of the building sector are sounding the alarm bell.”
Treasury yields are surging across the complex with the long-end steepening notably. Today's 10.5bps jump in 10Y yields is the biggest percentage shift since early November 2013... and a significant tail in the 7Y auction just made things worse.
"It's a troubling continuation/expansion of trade as a geopolitical tool," warns one Washington-based consulting firm as Russia prepares to unleash retaliatory actions to US and European sanctions. As Bloomberg reports, Russia said yesterday it may ban imports of chicken from the U.S. and fruit from Europe and is investigating McDonald's cheese for safety. In addition, a Russian lawmaker has drafted legislation that might result in U.S. accounting firms being barred from doing business in his country. All of this is odd given Jack "trust me" Lew's reassurance that Russian sanctions would have no impact on the US economy. Russia's response, US will feel 'tangible losses' from 'destructive, myopic' sanctions.
There are grounds for optimism about Europe’s single currency area. Yet beneath the surface of favorable sentiment towards the euro zone, the seeds of the next financial crisis are being sown. If markets connected all these dots - a weak and fragile economic recovery, the failure to break the “doom loop” between banks and sovereigns and, most importantly, scant prospect of a more secure political and economic union - the glaring disconnect between asset prices and underlying fundamentals in the euro zone would be a source of much greater concern.
A 4.0% GDP print - time to get out in front of the people and take the credit...
As we showed in December of 2013, where the scramble to accumulate inventory in hopes that it will be sold, profitably, sooner or later to buyers either domestic or foreign, is most visible, is in the data from the past 4 quarters, or the trailing year starting in Q2 2013 and ending with the just released revised Q2 2014 number. The result is that of the $675 billion rise in nominal GDP in the past year, a whopping 52%, or over half, is due to nothing else but inventory hoarding.
Portugal's PSI20 plunged over 3.4% today extending recent losses after its dead-cat-bounce, leaving the index near its lowest since October 2013. Interestingly peripheral bond spreads (and IG/HY credit spreads) compressed while equity markets all dumped across Europe amid concerns of blowback from Russia. As the sell-off accelerated into the close, credit markets also tumbled. An initial rally in financials gave way rapidly as US opened and rumors of G7 statements and Russian retaliation spread. Europe's VIX closed just shy of 18.00 - its highest close since early May. Banco Espirito Santo fell another 10% to record lows ahead of tonight's earnings.
To demonstrate it hasn't failed, the Fed must taper/withdraw its monetary heroin. If the stock market tanks as a result, and the Fed rushes to the rescue with more free money for financiers, that will also prove the Fed has failed: if the economy and financial system is as robust as the Fed claims, why does it need to be rescued yet again after six long years of unprecedented injections of monetary heroin? It's a double-bind with no escape. No matter what the Fed chooses to do, the failure of its policies to help households and Main Street while enriching wall Street and the banks will be revealed to all.
Q2 GDP Surges 4%, Beats Estimates Driven By Inventories, Fixed Investment Spike; Historical Data RevisedSubmitted by Tyler Durden on 07/30/2014 - 10:30
Moments ago the Commerce department reported Q2 GDP which blew estimates out of the water, printing at 4.0%, above the declining 3.0% consensus, as a result of a surge in Inventories and Fixed Investment, both of which added over 2.5% of the total print, while exports added another 1.23% to the GDP number. The full breakdown by component is shown below.