Archive - Apr 25, 2012

So much for a moderate decline in the economy. As we warned back in February when we noted that the non-seasonally unadjusted collapse in durable goods was historic, now that the aftereffect of a record warm winter is fully gone, the March durable goods data comes in and it was a complete disaster: instead of dropping modestly by 1.7% as the consensus expected, the March actual print was a massive 4.2% decline, worse than the worst Wall Street forecast, or the most since January 2009! And it was not only airplanes as many were expecting (despite Boeing's just announced epic sales): the ex-transportation number was down 1.1%, on expectations of a 0.5% gain; even worse, capital goods new orders slid 0.8% on expectations of a 1% gain. And as usual inventories hit another record high. Overall, a horrendous print which confirms that the entire myth of a recovery in Q1 was warm weather driven, and that about 1% of the 2.5% or so consensus GDP was due to the weather. Expect the downward GDP revisions to come any second.But don't expect the market to react to this news at all: after all if anything, this simply makes NEW QE/LTRO more likely and is to be cheered by all habitual gamblers.

All eyes will turn to the Fed and the Fed statement. I think we get a slightly more dovish statement. More language that the economy shows signs of weakening and that the Fed is vigilantly watching the data to determine if additional actions are necessary. No change in low rates for extended period, though maybe their they soften the language further hinting that it could go on longer than 2014 if moderate economic growth continues. I don’t think they will say anything new on inflation, though they might try to hint that it is moderating in their eyes, again, paving way for more QE. So I suspect a dovish statement, but no QE. I think the market will initially like that, but we will see the enthusiasm wane as that seem very well priced in, and without QE, and once AAPL stabilizes, we can get back to focusing that on the whole the data here has been weak, and that the situation in Europe is deteriorating rapidly.

All you need to read.

How can one go to a place they never left? Reference the research we published 2 yrs ago clearly stating that the UK was dreaming about leaving economic slowdown!

European equities are seen making modest gains at the midpoint of the European session; however underperformance is observed in the FTSE 100, with the UK economy falling back into a technical recession with an advanced Q1 GDP reading of -0.2%. Data from the ONS has shown that the UK’s weak construction sector weighed down upon the relative strength in services and manufacturing, pushing the economy into contraction during the first three months of the year. Following the UK GDP release, GBP/USD spiked lower by around 40 pips and the Gilt moved around 30 ticks higher, with GBP remaining weak as the US comes to market. Elsewhere, the Bundesbank held a technically uncovered 30-yr Bund auction, with the German Debt Agency commenting that the results reflect volatile and uncertain market conditions. Following the results, the Bund printed session lows and remains in negative territory. Looking ahead in the session, participants look forward to the FOMC rate decision, and the Fed’s projections release.

Trading in Goldman Sachs Group Inc.’s gold ETF in India surged almost 11 fold, leading an advance in gold securities, as investors bought gold to mark the auspicious Hindu festival of Akshaya Tritiya. Volumes in GS Gold BeEs, India’s biggest exchange-traded fund backed by gold, was 937,816 units on the National Stock Exchange of India Ltd. at 4:54 p.m. in Mumbai, up from 85,376 units yesterday and more than the 101,914 average daily volumes in the last six months through yesterday, according to data compiled by Bloomberg. This is significant volume. Each unit represents about 1 gram of physical gold and therefore 937,816 units is the equivalent of some 29,170 ounces of gold which at today’s prices is some $47 million of daily volume for just one gold ETF in India. The Goldman Sachs India gold ETF is just one of many new ETFs in India. Trading in Kotak Gold ETF jumped more than eightfold to 226,032 units. Gold demand in India, the world’s biggest importer, may climb as much as 25% to 15 metric tons on Akshaya this year, according to Rajesh Exports Ltd., the country’s biggest gold-jewelry exporter. Assets held by local gold funds reached a record 98.9 billion rupees ($1.87 billion) at the end of March, according to the Association of Mutual Funds in India. GS Gold BeEs had assets worth 29.6 billion rupees (some $563 million (USD)) as of March 31, data from the association showed. Trading in UTI-Gold Exchange Traded Fund climbed more than fivefold, while volumes in Reliance Gold ETF, the second-biggest fund, was up more than sixfold, data shows.

• Merkel Pushes Back Against Hollande Call to End Austerity Drive (Bloomberg)
• ECB's Draghi throws crisis ball back to governments (Reuters)
• Greek Bank Chief Warns of a Possible Euro Exit (WSJ)
• China’s Wen Says Economy Will Maintain Robust Expansion (Bloomberg)
• North Korea's nuclear test ready "soon" (Reuters)
• Hong Kong Peg Architect Says Convertible Yuan `Long Way Off’ (Bloomberg)
• Hollande seeks wider EU fiscal pact (FT)
• Gavyn Davies: Why UK GDP continues to lag the G7 (FT)
• U.S. Lost AAA on Danger of Liquidity Crisis, S&P’s Kraemer Says (Bloomberg)

S&P threatening to downgrade India... UK double dipping... Germany having a failed auction. It is all irrelevant, for the great fruit has spoken and people are buying iGadgets at record levels, which can only mean that once the great credit spree ends, Apple will likely be forced to use its $110 billion cash hoard to start an in house "Acceptance Corporation" vendor financing purchases of its products directly. And while the AAPL earnings beat has become a contrarian bet, now that even Gartman has said he is turning bullish on stocks, here is a summary of what happened and what will happen. In a nutshell, just like Apple was the only thing that mattered yesterday, today it is only the Fed and the subsequent press conference that matter, with the market likely to only take away whatever it wants to take away.

Earlier today, the Bundesbank tried to sneak through some EUR3 billion in long-dated (30Y) paper. It didn't quite succeed, because if one excludes the retention by the German bank which already has its hands full with TARGET2, the auction was technically a failure. As Newedge points out, without Buba retention, the launch of new 30-yr bund would have been undersubscribed which is just a polite way of saying the above. What happened is that the German debt agency sold EUR2.405b of new 2.5% 30Y Jul-44 Bund, at an average Price 101.93 and average yield of 2.41%. Of this, the Bundesbank retained 595 million as the total target was for EUR3 billion in issuance; Total non-Buba based bids were a "weak" EUR 2.747 billion. The bid/cover was modest 1.142x; with the auction tail 18 cents “further underpinning the weakness of demand." Finally, per Newedge, the new paper looked rich vs previous rolls ahead of today’s auction, “explains the sluggishness of today’s demand.” Of course, with the now daily bipolar market, had this auction taken place on Monday when Europe was again imploding, it would have been a stunning success. Instead, today is one of those risk on days. But for anyone who bought into the "safety" of German paper 48 hours ago, today they are being carted out legs first. Until, of course, the attention shifts to the disaster that is the PIIGS, and as of earlier today, the UK once more.

For anyone who may have been concerned that the BOE was serious in its recent "admission" that it just may not ease further, or engage in more QE for that matter, we have good news: the UK economy just double dipped for only the first time since the 1970s, following a stunning Q1 GDP release which came in far weaker than expected at -0.2% while the consensus was looking for a 0.1% rise. In other words, the UK has just followed such other pristine example of economic success as Spain and Greece into double dipping. Bloomberg economist Niraj Shah brings even more bad, pardon good, news: 2Q GDP may also contract as a result of additional bank holiday in June. Construction output knocked 0.2 ppt off of quarterly GDP growth. Per Shah, the BOE may point to drop in construction as a possible aberration in data, concerns will remain over the strength of the service sector as output there rose only 0.1% Q/Q. The U.K. has contracted 9 quarters since first falling into recession in 2Q 2008. All in all this is great news for those desperate for bad news and explains why futures, and the EURUSD are spiking.

"The idea that somehow, pragmatic voices will stop this political groundswell is entirely misplaced..."

As we said yesterday, traders could have just slept through the entire day, ignored headlines about mad cows, auctions of European bonds maturing in a few weeks, speculation of Europe's alleged falling out favor with austerity which is very much irrelevant as all that matters is what German taxpayers/voters say, and the SEC's latest laughable scapegoating attempts, and just woken to the 4:30 pm announcement of iPhone sales in China. As expected, the entire world is now reacting. Here is Deutsche Bank's Jim Reid with the global response to the world's ongoing fascination with aspirational cell phones.