Archive - Aug 1, 2014

But but but... the crisis is over and Europe is recovering? European stocks dropped 3.2% in the last 2 days - the most in 7 months - taking the broad index into the red for 2014. Portugal (remember how BES was contained) collapsed 10.3% this week (down 26% from its highs in April) to one-year lows. Europe's VIX spiked over 20 today - its highest in over 4 months.

Having been abused by almost every member of Argentina's political body, Judge Griesa (presiding over the holdouts vs Argentina case) has come out swinging this morning. "What occurred this week did not extinguish or reuce the obligations of Argentina," he began, exclaiming that "public statements [from Argentina] have been highly misleading - and has to be stopped."

For all the glad-handers who said "the market seems to like it" - how do you like it now? The kneejerk jump in stocks to green on the day after payrolls (miss), spending (meet), PMI (miss), UMich confidence (down), ISM (beat), and construction spending (big miss) noise sparked algos momentum is fading fast... Treasury yields are plunging (10Y < 2.5%) along with the USD Index - giving up the entire Fed move. Gold and Silver have jumped around 1%, oil is lower.

Looks like it will be a busty weekend for European leaders calling the crisis over. Knife-catching 'value' investors have been torn asunder as Banco Espirito Santo's stock crashed another 40% today to 12c and has now been suspended by Portugal's securities regualtor.

*BANCO ESPIRITO SANTO SHARES SUSPENDED PENDING INFORMATION, CMVM SAYS

With Goldman bailing and the sovereign suggesting it is not willing to bailout, it appears - based on Sub debt's collapse - that a bail-in burden-sharing solution is coming. When will Bill Miller scoop it up?

To show what is really happening with New manufacturing Orders in the US here is a chart of New Orders actual and adjusted. One is the lowest print since January. The other is the highest of 2014. Which one do you believe?

Two American healthcare workers, described as in 'grave condition and worsening' are being infected by the Ebola virus are on their way to Atlanta's Emory University Hospital for treatment. As WSBTV reports, the hospital has a separate isolation unit set up in partnership with the CDC to treat serious infectious diseases. CDC officials have called this "the biggest and most complex Ebola outbreak in history." Sentiment across social media appears rather biased towards the negative on bringing the patients back. As we warned last night, there are significant implications should Ebola come to America.

The numbers have been 'adjusted' and all is well in the world. Never mind Chicago PMI, or US PMI, the ISM Manufacturing index for July printed 57.1 - the highest since April 2011 - well above expectations and last month's 55.3. Employment rose notably (the opposite of US PMI) and inventories contracted. That's the great news. Then there's the meh news - consumer confidence slipped lower in July. Then there's the horrible news - construction spending collapsed at 1.8% MoM - its biggest drop since Jan 2011. Take your pick which will define your bias.

US Manufacturing PMI in July dropped to 3-month lows at 55.8, missing expectations by the most since Augiust 2013 as employment growth moderated to its slowest in 13 months. The 'excuse' this time - Russia and Gaza.

Another month, another case where the primary age group of the US work force, those aged 25-54, gets shafted. According to the BLS' household survey, while overall July jobs rose, if modestly less than the 209K revealed by the establishment survey, there was no joy for those aged 25-54: historically the most important and highest earning age group (in case anyone is wondering where all that missing average hourly earnings growth is) within the US labor force. As the chart below shows, while all other age groups posted a jobs uptick, it was those 25-54 that saw a 142K jobs decline in the past month.

As we noted yesterday, Goldman Sachs (and its muppeted clients) bought Banco Espirito Santo bonds and stocks at around 50c. Having lost more than two-thirds of their money on that trade, this happened...

*BANCO ESPIRITO SANTO SAYS GOLDMAN SACHS CUTS STAKE TO BELOW 2%

BES stocks is down over 20% this morning to fresh record lows. So much for the short-selling ban - maybe time for a 'selling' ban.

For the third month in a row, personal spending missed Bloomberg's median expectation. However, as incomes rose 0.4% in June so spending also rose 0.4% - its best MoM rise in 3 months. The biggest MoM rise was in energy goods and services (+1.67% MoM - the biggest rise this year) - hardly the things sustainable recoveries are built on. The personal savings rate was flat MoM at 5.3% - the same 'peak' level it hit in the middle of 2013.

If today's market desperately needed some bad news, it got it moments ago when the July payrolls printed at 209K, below the 230K expected, and far below the June upward revised 298K (was 288K). Of note is that this is the 6th month in a row of 200K+ job gains, the longst since 1998 . Away from the establishment survey, the household survey showed an even worse print, with just 131K job growth in July, down from 407K in June, so if any algos are scrambling to convince themselves that the data was horrible, look at this. But is the momentum slowing enough to force the Fed to push QE back? The unemployment rate rose modestly from 6.1% to 6.2%, beating expectations of an unchanged print driven by a decline in the people out of the labor force from 92.1 million to 92.0 million while the labor force participation rate rose by a tiny 0.1% to 62.9%.

While consensus is 230k, the whisper number for non-farm payrolls has ticked up to 270k from London's earlier 260k according to Bloomberg's Richard Breslow. Here's how the numbers may play out...

In an unscheduled release moments ago the Fed's Plosser just explained why he was the sole dissenter with the FOMC's announcement. Here is the punchline: "I cast a dissenting vote because I opposed retaining the statement language that reads "…it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends." I viewed such language as an inappropriate characterization of the future path of policy and so may limit the Committee's flexibility going forward."... "In addition, the economy today is very close to achieving the central tendency outcomes for 2015 reported in the December 2013 Summary of Economic Projections. Specifically, the central tendency projection for unemployment at the end of 2015 was 5.8 to 6.1 percent, and that for inflation was between 1.5 and 2.0 percent. From this perspective, we are nearly 18 months ahead of where the Committee thought we would be just seven months ago." He concludes: "the Committee's statement does not appear to reflect what was once thought to be appropriate policy based on the behavior of unemployment and inflation."