Archive - Jul 2, 2013

Update: the local army has already laid out the framework of what the upcoming "coup" will look like. via Reuters:

• ARMY ROADMAP WOULD BE IMPLEMENTED IF PRESIDENT MURSI, OPPOSITION FAIL TO AGREE - SOURCES
• ARMY ROADMAP WOULD PROVIDE FOR RULE BY INTERIM COUNCIL UNTIL CONSTITUTION CHANGED - SOURCES
• ARMY ROADMAP ENVISIONS CONSTITUTION CHANGE WITHIN MONTHS, FOLLOWED BY PRESIDENTIAL ELECTION -SOURCES
• ROADMAP SUBJECT TO AGREEMENT OF OPPOSITION SALVATION FRONT, OTHER FORCES ONCE DEADLINE EXPIRES -SOURCES

As India continues to wage war with gold, investors are seeking out the yellow metal through any means available. Reports today suggest that there is not enough room on commercial flights into Dubai for all those investors seeking to purchase gold.

Barclays: "In the short run, such rebalancing and deleveraging point to further downside risks for both economic growth and asset prices, including the exchange rate. Based on an increasingly likely downside scenario, we think Chinese growth could experience a temporary ‘hard landing’, which we would define as quarterly growth dropping to 3% or below, within the next three years."

A better than expected Factory Orders print at +2.1% (versus 2.0% expectation) and preior levels revised higher has provided just enough good is bad news to cancel the bad is good news from the ISM miss. Orders were led by a seasonally adjusted 13.7% rise in defense (sequestration?) but inventories remain flat even as shipments rise 1%. IT new orders dropped 2.9% unadjusted and computers and electronics dropped 3.7%. What a market...

While not a primary macro indicator, the ISM New York's collapse (at the fastest 2-month drop in 4 years) to the lowest in 4 years is yet another indication that the hope the Fed discussed for a recovering economy (and therefore a taper) is an entrely false premise. Business Conditions dropped and expected demand in 6 months cratered from 64.7 to 50.0. This 'bad news' was certainly greeted by the market as good news as taper-off met risk-on...

Six weeks after South Korea and the US flexed their naval muscles in a joint naval exercise, a mere month after China protested over joint Japan-US naval drills, and amid growing US tensions with the Russians (and well pretty much every other nation in the world), a Chinese fleet consisting of seven naval vessels departed Qingdao to join in Sino-Russian naval drills scheduled to begin this weekend. The eight-day exercise is expected to be conducted at the sea area and airspace of the Peter the Great Gulf in the Sea of Japan with the Chinese fleet. A total of 18 vessels, one submarine, three fixed-wing planes, five carrier-based helicopters and two teams of special forces from the two countries will participate in the exercise.

Things are turning from bad to worse for the real-life version of The Terminal's Edward Snowden, who a day after applying to 21 countries for political asylum has been flooded with rejection letters near and far, even as he was forced to cancel his application to his current host nation, Russia, after being told he would have to stop leaking secrets as a condition to stay. More from the FT: "The 30-year-old fugitive’s options narrowed further on Tuesday when China reacted coolly to the idea of him moving there, Poland rejected an application and other European nations said asylum requests had to be made in the country."

As noted earlier today, when we lamented that DE Shaw's correlation algos had switched from the AUD carry pair to the EURUSD as the funding currency pair of choice, moments ago the blast off by the USDJPY to over 100 for the first time since June 5 did absolutely nothing to help ES which in fact has tumbled for the simple reason that as the USDJPY goes up, so the EURUSD go lower. Of course, all those who read our prediction yesterday following the latest Tom Stolper note, would be quite a bit richer right now.

For many years, the Chinese politburo had a simple solution to accusations that central planning doesn't work: just make up the economic numbers. However, a few months ago China found itself in hot water when it became impossible to pretend its manipulated numbers were even remotely credible, driven by a massive discrepancy between China exports to Hong Kong and HK imports from China. The immediate result by China, and the PBOC, as it attempted to regain some credibility was an drastic and epic move to force capital reallocation, in the process nearly wiping out its banking sector when interbank lending rates exploded to over 25%. For now, China appears to have regained some control even if the ensuing CNY1 trillion deleveraging that is imminent is sure to lead to unprecedented pain for the country that is more addicted to credit creation than any other. But in the meantime, China has once again fallen bank to doing what it does best: manipulating economic data, in this case the recently announced PMI. Only this time there is a twist: instead of goalseeking reported data to comply with some artificial reality that Beijing approves of, now China is simply flat out refusing to report numbers, period!

If Russia was hoping to punctuate its foreign policy victory over the US in hosting Edward Snowden and being on the list of his asylum applicants with the overnight launch of a unmanned Proton-M rocket, carrying some $200 million worth of navigation satellites, those hopes literally went up in flames when 17 seconds into the take off, an emergency switch-off of the engines led to a spectacular explosion, and sent the rocket plummeting to earth. End result: a massive blow up caught on live TV, hundreds of millions in equipment lost and 172 metric tons of highly toxic heptyl propellant raining on the ground for miles around the crash.

• Egypt on the edge after Mursi rebuffs army ultimatum (Reuters)
• Inside China's Bank-Rate Missteps (WSJ)
• Obama Urges Morsi to Respond to Protesters' Concerns (WSJ)
• How Fed’s 7% Jobless Avoids Deterring Bondholders Is Mystery (BBG)
• Obama Joins With Political Foe Bush at End of Africa Trip (BBG)
• China may introduce deposit insurance by year-end (China Daily)
• China’s Slowdown Could Slam Hong Kong (BBG)
• Government 'to ask Rothschild to advise on RBS split' (Telegraph)
• Martin Feldstein: The Fed Should Start to 'Taper' Now (WSJ)

Tell Angela Merkel that the guy that warned of Bear Stearns, Lehman Brothers AND Anglo Irish of which she laments, is also warning of Anglo Irish Bank among other Irish institutions - all funded by Germans through Irish austerity!

Yesterday it was the Egyptian military giving president Morsi a two day ultimatum before things "deteriorate", now it is the Eurozone giving Greece a three day ultimatum to "deliver on the conditions attached to its international bailout in order to receive the next tranche of aid" or else.  This links back to the FT report from June 20 that the IMF told Greece it has until the end of July to plug its budget holes, or else. In other words, simple escalation. Of course, maybe it should have been made apparent to Greece back in May 2010 at the time of the first (of many) bailouts that all those tens of billions in sunk costs are actually supposed to lead to economic reforms instead of perpetuating a broken and corrupt political system in which all in efficiencies and failures are blamed on evil (f)austerity.

The first news overnight came from the RBA which kept the target cash rate at 2.75% and following a warning that the AUD remains at a high levels (despite falling 10%), saw various AUD pairs slide. Which meant that all those correlation desks which had linked their rising ES signals to the AUDJPY and AUDUSD, would have to promptly recalibrate and find something else to "carry" them higher. That something was the Yen, as the USDJPY once again rose to just shy of the 100 resistance area, in the process pushing the Penikkeistock higher by 1.8% and above 14k, to 14,099 to be precise. Supposedly the Yen carry trade is back and all good again, or until such time as the 10 year hits 1% and the entire farce is repeated once more. However, at least Abenomics has bought itself a few weeks reprieve for the time being.

The volatility of recent weeks is but a mere small taste of the volatility in store for all markets in the coming months and years. The global debt crisis is likely to continue for the rest of the decade as politicians and central bankers have merely delayed the day of reckoning. They have ensured that when the day of reckoning comes it will be even more painful and costly then it would have been previously.