RANsquawk Weekly Wrap - 14th June 2013

Bob Janjuah: Markets Are "Tepper'd Out So Don't Get Sucked In"

There can be no doubt that the global growth, earnings, incomes and fundamental story remains very subdued. But at the same time financial markets, hooked on central bank ‘heroin’, have created an enormous and – in the long run – untenable gap between themselves and the real economy’s fundamentals. This gap is getting to dangerous levels, with positioning, sentiment, speculation, margin and leverage running at levels unseen since 2006/2007. ‘Tapering’ is going to happen. It will be gentle, it will be well telegraphed, and the key will be to avoid a major shock to the real economy. But the Fed is NOT going to taper because the economy is too strong or because we have sustained core (wage) inflation, or because we have full employment - none of these conditions will be seen for some years to come. Rather, we feel that the Fed is going to taper because it is getting very fearful that it is creating a number of significant and dangerous leverage driven speculative bubbles that could threaten the financial stability of the US. In central bank speak, the Fed has likely come to the point where it feels the costs now outweigh the benefits of more policy.

HFTs Pay Reuters To Learn First That Consumers Suddenly Less Confident

After reaching six year highs last month, UMich consumer sentiment dropped back, missing expectations by the most in six months (82.7 vs 84.5 expectation). Of course, it is the hope for the future that maintains the overall level as the 'outlook' section rose from 75.8 to 76.7 - its highest in 7 months while the current conditions fell back notably (its biggest drop in a year!). Inflation expectations also rose for both 1- and 5-year horizons. The worse than expected print provided some modest pre-release jerk lower in futures which was immediately bid after as S&P pushes the highs in a seemingly bad-is-good reaction (though in a tiny 3 point range).

US Economy Decelerates As Industrial Production Misses, Capacity Utilization Lowest Since October

Earlier today we reported that producer prices in May rose primarily as a result of a jump in electricity and nat gas prices. Which is why it is somewhat surprising that Industrial Production among Utilities dropped by the most, or -1.8%, for the second month in a row, following last month's -3.2% decline. This drop was offset by an increase in Mining IP of 0.7% (a decline from April's 1.1%) and the general manufacturing production which increased by a tiny 0.1%, still the best result of the past three months.  Altogether, these amounted to an unchanged print in the broader index, which printed at 98.7, same as April, and the lowest since February, not to mention below expectations of a 0.2% increase. Finally, looking at capacity utilization, in May total industry CU edged down 0.1 percentage point to 77.6 percent, a rate 0.2 percentage point below its level of a year earlier and 2.6 percentage points below its long-run (1972–2012) average. It was also the lowest print since October 2012. Oops.

May PPI Jumps Due To Rise In Gasoline, Electricity, Eggs And Imitation Cheese Production Prices

So much for continued disinflation: moments ago the PPI headline number came out at the highest level since February, or 0.5%, well above the expected 0.1% and up significantly from the -0.7% in April. The core PPI ex-food (which rose 0.6%) and energy (increasing 1.3% in May, the highest since February) rose a far more manageable 0.1% in May, and just 1.7% Y/Y, below the statutory accepted 2% annual growth on both the producer and consumer side: a break down of just which finished products led to this increase (gasoline, eggs and imitation cheese as it turns out) is provided below. Luckily, since nobody in the US either eats or uses energy (because they are such a "small component" of the hedonically-adjusted purse), nobody will mind when companies have no option but to pass through rising input costs to consumers.

Russian MP Accuses U.S. Of Fabricating Syrian Chemical Weapons Report

"Information about the usage of chemical weapons by Assad is fabricated in the same way as the lie about Hussein's weapons of mass destruction.” Alexei Pushkov, head of the Russian lower house of parliament’s international affairs committee, said on Twitter.

Thursday May Be The New Tuesday, But Friday Is Just Friday (For Now)

Thursdays may be the new Tuesdays (if only this week), but so far Fridays are still just Fridays, and no mysterious overnight levitation is here to open the market 0.5% higher. The Nikkei 225 retraced a fraction of Thursday’s losses overnight as the positive close on Wall Street and a dovish interpretation of Hilsenrath’s WSJ piece yesterday allowed the Japanese indices to recover from the worst levels of the week. USD/JPY has pared Thursday’s bounce and trades lower as the Bank of Japan’s minutes showed one member of the board proposing the advantages of limiting the bank’s QQE program to just two years in order to avoid financial imbalances. Overnight in China, as we warned yesterday, the liquidity situation got even worse, when the PBOC's attempt to drain liquidity failed to sell some 30% of the planned 15 billion yuan in 273-day bills (more on this shortly), leaving the banks screaming Uncle and on the verge of a full-blown liquidity crisis: we expect rumors, and news, of more banks failing to roll over overnight liquidity to hit the tape shortly.