Archive - Mar 2013

On the first workday of a new month, global PMI manufacturing surveys are released around the world. That gives us an early read on the state of manufacturing. As the nearby table from BofAML shows, out of the 22 countries that have reported so far, the message is not good. A reading above 50 reflects expansion while below 50 indicates contraction. In this regard, there were 12 countries in negative territory and 10 in positive. Europe remains a disaster with the divide between core and periphery now starting to be matched by the divide (which we recently discussed) between France and Germany. The UK's plunge from expansion to contraction (just beating Italy's weakness) was its largest drop in 8 months (seemingly once again confirming that you can't print real economic growth) as Holland and Norway also fell notably. While still theoretically in expansion, China also slid raising concerns over the global growth meme that we see highlighted in stock prices this morning.

A holiday on ice...

When the US income and spending figures for December came out, the punditry couldn't contain their exuberance following the massive surge in income which as we explained was merely a function of the pulled forward wages and bonuses in December due to fears of what the Fiscal Cliff and the expiration of the payroll tax cut would do to incomes in 2013 (nothing good), as well as a surge in stock dividends to avoid a dividend tax hike resulting in yet another boost in income. The spike in personal income without an offset in spending sent the savings rate to the highest in three years. Today it's payback time as moments ago we learned that the US consumer gave back all the December gains and then much following news that while spending did nothing, and came in as expected at 0.2%, personal income imploded by 3.6% on estimates of a modest 2.4% drop. This was the biggest drop in personal income in 20 years just as the US consumer's confidence was soaring at least according to such manipulated aggregators as UMich. What this also led to was that not only is the stock market back to 2007 levels, but so is the personal saving rate, which crashed from 6.4% to 2.4%, the lowest since November 2007, and leaving Americans with the least purchasing power just as the full impact of a government that is flirting with austerity is starting to be felt.  And just as bad was the material 4% pullback in real disposable personal income or adjusted for inflation.  "Consumers can’t spend what they don’t have, and they don’t much much,” summarized Bloomberg economist Rich Yamarone.

MS has brought us another Awful Deal, basically MS sold Offal to the public.

It's an ugly start to the day wherever we look. Europe is a bloodbath as the dead-cat-bounce hopes fade with Swiss 2Y rates notably negative once again and Italian bond spreads 55bps wider on the week (near the wides of the week) as Italy's equity market plunges back to the lows (-4%) on the week. US equity futures are fading rapidly and after tracking gold for most of the last 12 hours, we are now seeing gold (and silver) resurge as stocks continues to slide back towards bonds un-exuberance. Treasury yields are at the lows of the week (-11bps). From weak macro data overnight to the whocouldanode sequestration, there's plenty to worry about, but then again we have POMO in a few hours...

• US braced as cuts deadline passes (FT)
• U.S. stares down start of steep "automatic" budget cuts (Reuters)
• Yeltsin-Era Tycoons Sell Resources for Distance From Kremlin (BBG)
• Italy's center-left leader rules out coalition with Berlusconi (Reuters)
• Apple Required Executives to Hold Triple Their Salary in Stock (WSJ)
• BOJ Seen Spiking Punchbowl in April Under New Chief Kuroda (BBG)
• Diplomatic fallout from EU bonus cap (FT)
• Italy’s Stalemate Jeopardizes Resolution of Crisis, Finland Says (BBG)
• Chinese trader accused of busting Iran missile embargo (Reuters)
• JPMorgan No. 1 Investment Bank Amid a Flurry of New Deals (BBG)
• Eurotunnel’s Ferry Strategy at Risk as Rivals Cry Foul (BBG)
• Telepathic rats team up across continents (FT)

The "great rotation" illusion may have ended just as rapidly as it arrived. Bank of America reports that in the past week, "commodity funds reported their largest historical weekly outflow, in dollar terms, of -$3.2bn this week and US equity funds reported an outflow of -$4.1bn this week, which is their largest weekly outflow this year." So much for anyone rotating anywhere. And while we await for the delayed ICI to confirm this data, we can only remind readers that this is precisely the same inflow followed by outflow that was seen in early 2011, which was then followed by nearly two straight years of relentless and persistent outflows.  Oh well - better luck in 2014.

If the new year started off with a bang, March is setting up to be quite a whimper. In the first news overnight, we got the "other" official Chinese PMI, which as we had predicted (recall from our first China PMI analysis that "it is quite likely that the official February print will be just as weak if not more") dropped: while the HSBC PMI dropped to 50.4, the official number declined even more to just barely expansionary or 50.1, below expectations of a 50.5 print, and the lowest print in five months. This was to be expected: Chinese real-estate inflation is still as persistent as ever, and the government is telegraphing to the world's central banks to back off on the hot money. One country, however, that did not have much hot money issues was Japan, where CPI declined -0.3% in January compared to -0.1% in December, while headline Tokyo February data showed an even bigger -0.9% drop down from a revised -0.5% in January. Considering the ongoing surge in energy prices and the imminent surge on wheat-related food prices, this data is highly suspect. Then out of Europe, we got another bunch of PMIs and while French and Germany posted tiny beats (43.9 vs Exp. 43.6, and 50.3 vs 50.1), with Germany retail sales also beating solidly to cement the impression that Germany is doing ok once more, it was Italy's turn to disappoint, with its PMI missing expectations of a 47.5 print, instead sliding from 47.8 to 45.8. But even worse was the Italian January unemployment rate which rose from 11.3% to 11.7%, the highest on record, while youth unemployment soared from 37.1% to 38.7%: also the highest on record, and proof that in Europe nothing at all is fixed, which will be further confirmed once today's LTRO repayment shows that banks have no desire to part with the ECB's cash contrary to optimistic expectations.