Archive - Sep 2013

But it's "Thin red line of 'eroes" when the drums begin to roll...And Tommy ain't a bloomin' fool--you bet that Tommy sees!

Pouring forth from all of the nations on the Continent, like a Preacher with the "Good News," is the notion that Europe is over the recession, that every country is doing just fine and that all problems have been solved. This, in our opinion, could not be further from the truth. It is the spiel of the day and reality will be found in the footnotes of tomorrow as long as tomorrow is after September 22... Even Draghi was forced to admit that thing smay have got a little ahead of themselves...

*DRAGHI SAYS CAN'T SHARE ENTHUSIASM ABOUT RECOVERY

As a reminder, September 22 is the date for the German Elections. All of Europe and the IMF are keeping their heads down, playing nice and saying very little until this date comes and goes.

While the leaders of the two superpowers are shaking hands for the camera in St. Petersburg, their navies are sending a different message. Here is the latest  breakdown of the world's key navies in the Mediterranean theater of naval operations as of last night. By now it is likely woefully outdated, now that there are reports the Chinese have joined the fray too (not on the side of the 'free droning world').

While US equities remain immune, bonds, bullion, and the greenback are moving in a very "Taper-On" mode. Gold and Silver have been slammed hard this morning for the fourth time in the last four regional openings. 10Y interest rates on US Treasury yields are spiking to 2.98% (and 5Y is up 20bps this week alone); and the USD is well bid, up nearly 0.7% today alone as EUR and CHF crumble. It seems the great rotation from Fed-Kool-Aid trades is beginning... can stocks really withstand such liquidity conditions?

Two old pals meet in St. Petersburg.

The data is getting painfully laughable: on one hand Gallup says unemployment is soaring to two year highs, on the other, the ISM non-manufacturing report just printed at 58.6: for those keeping track, and who enjoy laying along, this was the highest since December 2005, and the 2nd largest two month increase in the index on record.  Of course, this means unless NFP tomorro comes at -1,000,000, the Taper is a done deal as the 10 year, which just printed 2.969% and surging, indicate. Stocks continue to do their own thing, blissfully ignorant of the debalce that will take place once the 3.00% yield stops are hit. The good news for bond bulls: this index can only go down from these ridiculous levels.

Since 2003, we have consistently said that silver was likely to surpass its real high in the coming years. The gold silver ratio is likely to trend lower and revert to its long term average and its geological ratio of 15 to 1 as a huge amount of silver has been used in industrial applications in recent years.

With US 10Y yields pressing up towards 3.00% and the curve bear-flattening, it seems Draghi did nothing to contain the market's aversion to all things 'fixed income'. Wherever you look in Europe, bond yields (thanks to Bund prices dumping) and spreads (risk-aversion as Draghi "doesn't share the market's enthusiasm about the recovery") are blowing out. Equity indices are weakening too in Europe as EURUSD drops. Of course, US equities don't care...

Still believe that China's PMI is above 50 and suggesting a global growth expansion? Still believe in Santa and the Tooth Fairy? Well, none other than China's own National Bureau of Statistics has been forced to admit that at least one of its major provinces has dramatically overstated industrial output. As Sina reports, according to a NBS report, the government in China's Yunnan province had coerced local companies to report inflated industrial output value, resulting in artificially high economic figures. With government leadership promotions driven by the performance of economic numbers in each province, it should hardly be surprising but the scale of the fraud is remarkable. In 2012, one county in Yunnan province reported CNY6.34 billion in output while audits showed only CNY 2.82 billion and in the first half of 2013, Yunnan published CNY 2.75 billion in output while audits showed a mere CNY1.06 billion! The province was also found to have faked investment data.

With ADP out of the way, and providing no guidance to an extreme NFP print one way or another, we once again turn to Gallup. As a reminder, a few days ago we showed that things are bad and getting worse for America's job prospects following direct polling land as relates to unemployment on a seasonally unadjusted basis. Today, the polling group has released its seasonally adjusted unemployment number and how it compares to the BLS' own estimation of the labor market. In a word: it is not pretty (which, again, is good for those who are hoping and praying St. Ben will keep the monetary Kool Aid running for a little bit longer): at 8.6% it is over 1% higher than the BLS' reported print, and is the highest since the end of 2011.

The last 2 weeks have seen the biggest drop in initial jobless claims in 3 months as today's print is within a smidge of six year lows. Continuing claims also fell close to 5.5 year lows. All good healthy "Taper-On" news ahead of the all-important NFP. However, the only fly in the ointment as far as celebrating this 'renaissance' remains productivity gains and the ongoing slump in unit labor costs (which missed expectations of an easy-money earnings-growth generated +0.8% gain and came in at a dismal 0.0%). Simply put, all the hope of wage inflation providing the self-sustaining glue to hold this 'thing' together post-Fed-Taper is fading fast as the liquidity pipeline remains unerringly clogged.

Will Draghi confirm what every extrapolating talking head believes - that Europe is recovering - or will be stick to the facts that credit creation is collapsing, the core has turned down, and unemployment rates and delinquencies are at all time highs? But how will Draghi explain his forward guidance to his imperial leader?

*MERKEL SAYS GLOBAL TIGHTENING OF MONETARY POLICY NEEDED

We are sure the "market" will be offered as evidence that OMT has worked and that recovery is just another quarter around the corner... just a little more accomodation...

While the ADP private payrolls report is nothing but pompous noise, which despite allegedly relying on actual empirical payrolls data has greater revisions than even the BLS's largely made up number, what it reported today would certainly have implications on expectations for tomorrow' NFP report. Which is why on the surface while the just reported miss to expectations of 176K (Exp. 184K) was not too bad, it was quite bad to those hoping the Friday NFP print would be atrocious and force the Fed to delay tapering. Based on today's data point at least, the Taper is set to proceed in just under two weeks. This was the first miss in three months, and also follows a small revision to the July number from 200K to 198K. Finally, this was the first sequential break in the monthly rate of increase since April.

Until now China had kept a relatively low profile on the Syria issue, occasionally issuing veiled support for the Assad regime. That changed at today's G-20 meeting in Russia, when China's vice-finance minister Zhu Guangyao officially launched the Syrian axis of Russia and China, both of which now indirectly support the Assad regime, and oppose US-led military intervention. From the FT: "China warned on Thursday that military intervention in Syria would hurt the world economy and push up oil prices, reinforcing Vladimir Putin’s attempts to talk US President Barack Obama out of air strikes. “Military action would have a negative impact on the global economy, especially on the oil price – it will cause a hike in the oil price,” Chinese vice-finance minister Zhu Guangyao told a briefing before the start of the G20 leaders’ talks."

There were no expectations for anything out of leftfield at the ECB this morning. There were also no surprises as Draghi kept rates unchanged. The biggest issue, of creeping EONIA and how the central bank will resolve growth and inflation expectations, is expected to be covered in 45 minutes at the press conference during which Mario will once again remind us all that the OMT still doesn't and never actually did exist.