Archive - Dec 2, 2013

While nobody is impressed by breaking equity and options markets anymore, since this has become a virtually daily ocurrence and the habituation level is high, bond markets, and especially the US government's "guaranteed" bond issuance machinery, are a different matter altogether. Which is why any time something out of the ordinary happens, people pay attention. Such as what happened moments ago when the US Treasury announced that it would delay the closing of the 3 and 6 month Bill auctions, originally scheduled to close today, to tomorrow. The reason: "an error that occurred during a test of Treasury's auction system."

With Ukraine's CDS spiking and the protests growing ever more violent, the government is oddly honest:

• *AZAROV SAYS KIEV PROTESTS SPINNING OUT OF CONTROL: INTERFAX
• *AZAROV SAYS GOVT AWARE OF PLAN TO SEIZE PARLIAMENT BUILDING:IFX
• *AZAROV SAYS UKRAINE ASKING WEST FOR HELP TO CALM PROTESTS: IFX

Of course, the only voice that matter is still calm:

• *PUTIN SAYS CRISIS IN UKRAINE WILL SUBSIDE

Is that a directive or a statement...?

While it is not a surprise, and had been reported previously, there is a certain dose of humor in Reuters reminding us that Jeffrey Zients, who is currently tasked with fixing Obamacare.gov Healthcare.gov (and which crashed yesterday for CNN when it experiment with the upgraded website), will soon be leaving his post and replace Gene Sperling as Obama's top economic advisor. Surely if anyone can fix the economy, it is the man who has hired every private sector sysadmin genius and managed to expand the 500 million lines of code website to accomodate a few more thousand simultaneous requests.... before it crashes again.

"We attempted a Drone delivery, however..."

While good news is good news for China (given the overnight moves post-PMI), it appears good news is not good news for US assets. As ISM and construction spending 'beat' expectations, taper chatter removed snapped bond yields higher and gold and silver prices lower instantaneously. Equity prices also fell but S&P 500 futures found support once again at the 1801 level and bounced on the back of "help" from EURJPY.

Thanks to a 3.2% rise in state and local government spending - the most since 2009 - the "public" construction spending lifted the headline data to beat expectations overall. However, a small scratch below the surface an it is clear that residential construction spending is not playing ball. Having fallen for 3 of the last 4 months, residential construction spending dropped 0.5% (the most since July) and private construction spending overall (residential and non-residential) dropped 0.5% - the most since at least April.

If last week's Durable Goods miss was great news for stocks, today's latest surge in the manufacturing ISM contrary to recent diffusion indices suggestion a whipser print of about 53, may be just what the Chairwoman did not order. With a December print of 57.3, up from last month's 56.4, and well above expectations of a modest decline to 55.1, this was the highest headline Manufacturing ISM print since April of 2011, just when QE2 was about to end and the economy was said to enter the virtuous cycle. What was worse for Taper watchers is that the Employment index jumped from 53.2 to 56.5, the highest since April 2012, and indicative that the November NFP number on Friday, perhaps the most critical data point ahead of the December FOMC announcement, may surprise well to the upside. In that case, the Fed may have no choice but to finally do what it threatened it would do in September and adjust the monthly flow lower by $10-$15 billion especially since as we will show momentarily, the Fed now owns one third of all marketable 10 year equivalents!

From Morgan Stanley, which just hiked its 2014 S&P price target to, you know it, 2014: "The only thing people are worried about is that no one is worried about anything. That isn't a real worry." And scene.

The chart below showing where Europe's wealthiest earning bankers can be found should come as no surprise.

What a difference 35 years of zombie capitalism makes...

Bring out yer dead...

While the abundance of commercials for cars across all media this time of year is nothing new, the manufacturers (and even more so the dealers) are likely getting more desperate. As Bloomberg reports, inventory climbed to almost 3.4 million cars and light trucks entering November - at 76 days of supply, that was the highest for the month since 2005. This should come as no surprise as we previously noted GM's post-crisis highs in channel stuffing as hope remains high that the recent slowdown in sales does not continue. The question, of course, is, "will manufacturers be responsible and curb production to keep inventory in check, or are some going to resort to old, bad habits and churn it out and then throw incentives on them." We suspect we know the margin-crushing answer.

People internationally are opting to store gold in allocated accounts in Switzerland due to their tradition of respecting private property and the fact that their economy is very sound. Therefore it is a good place to diversify assets in order to protect wealth. 

Previewing the rest of this week’s events, we have a bumper week of US data over the next five days, in part making up for two days of blackout last week for Thanksgiving. Aside from Friday’s nonfarm payroll report, the key releases to look for are manufacturing ISM and construction spending (today), unit motor vehicle sales (tomorrow), non-manufacturing ISM (Wednesday), preliminary Q3 real GDP and initial jobless claims (Thursday), as well as personal income/consumption and consumer sentiment (Friday). Wednesday’s ADP employment report will, as usual, provide a preamble for Friday’s payrolls.