Archive - Sep 22, 2014

Which incidentally has nothing to do with stocks or bonds, and everything to do with all-important FX. To wit: "If a clear break in the yen downwards against both the dollar and euro is occurring, not only will this spell trouble for the beleaguered Chinese economy and exacerbate deflation in the west, but it will also break the spell of German economic dominance"

Curious what happens when Goldman writes the script for its central banker alums? This.

• DRAGHI SAYS EXCHANGE RATE IS IMPORTANT, NOT A POLICY OBJECTIVE
• DUDLEY SAYS VALUE OF DOLLAR CAN IMPACT APPROPRIATENESS OF MONETARY POLICY, NOT A POLICY GOAL

At this point one should just laugh.

The Incredible Puke...

Onehawk down, and just as rates are supposedly set to begin rising. Smart.

After 4 straight months of bounce-back exuberance that 'confirms' the hope that NAHB sentiment appears to present, existing home sales dropped 1.1% in August (against expectations of a 1.0% rise) and previous growth was revised lower. This is the biggest miss since November 2013. The South and West saw the biggest drops as inventory fell. First-time homebuyers remain sidelined with only 29% of total sales. The National Association of Realtors blames the drop on "investors stepping away from the market," and notes distressed sales are the lowest since October 2008.

Moments ago, the Goldmanite in charge of the European Central Bank delivered yet another speech, this time seeking to offset some of the hawkish comments over the weekend from his comrades, all of which suggested that no more easing, or public QE, was coming any time soon. It was, as usual, full of the same lies that have pushed European stocks to highs not seen since Lehman even as Europe's economy is now slumping into a triple-dip recession. Here is a choice selection of his comments, properly annotated.

UK supermarket operator Tesco has suspended four executives after discovering a $408 million "serious accounting issue" in its latest financial statements. In a reflection of Walgreen's earlier 'forecassting errors', it appears everyone's optimism is now costing them their jobs as Tesco admits the executives were "early booking commercial income and delayed booking costs." And that - in one simple sentence - is the optimistic, we-are-sure-the-income-will-be-there, way to "solidly beat" expectations quarter-after-quarter.

There is a "hard way" of doing, as in fixing, things and then there is... the European way. Below we show how Italy's debt/GDP for 2013 just was "reduced" by 5% making the country appear far more "sustainable" and attractive to debt investors (the ECB?). As Bloomberg reports, Italy’s 2013 public debt was revised to 127.9% of GDP from a previous estimate of 132.6% of GDP, the country’s statistics agency Istat says in report.

With the snoozer of an FOMC meeting in the rearview mirror, as well as Scotland's predetermined independence referndum, last week's key events: the BABA IPO and the iPhone 6 release, are now history, which means the near-term catalysts are gone and the coming week will be far more relaxed, if hardly boring. Here is what to expect.

The exuberant images this weekend of lines-around-the-block at Apple stores were met with triumphant flashing red headlines this morning when Apple announced the sale of more than 10 million iPhone 6 and 6 Plus models (more than expected). Typically, new product launches do not move the needle on aggregate US economic data. Apple’s iPhone has been the most notable exception, with past launches occasionally having a substantial effect on core retail sales. However, Goldman notes, with the launch of the new iPhone 6/6+ this month, estimates (based on historical data) of a 0.1 to 0.7ppt boost to September core retail sales is highly uncertain due to seasonal adjustments that have been highly erratic, and could easily take a big bite out of the Apple effect.

We, like Bloomberg's Richard Breslow, were bemused this weekend by the communiques from the wisest men in the room at the G-20 meeting. On one side of their mouths they warned of "excessive risk-taking," in markets noting that there were "mounting economic risks" also. On the other hand, stories continue to print of US equity strength implying optimism over global growth - despite the ongoing collapse in consensus GDP expectations. However, away from this hope and fear, it was the almost coordinated responses of the PBOC (Chinese Finmin Lou Jiwei signaling not to get carried away with stimulus expectations), ECB (Visco saying may not need additional QE step since EUR had dropped 'enough'), and finally the BOJ (Iwata saying Abenomics misunderstood, USDJPY 90-100 'fair); all dashing market expectations of a smooth hand over from a feckless Fed to a free-printing rest-of-the-world. Stocks (and carry) responded by selling off.

• Quid pro quo Clarice: Iran seeks give and take on Islamic State militants, nuclear program (Reuters)
• Alibaba’s Banks Said to Boost IPO Size to Record $25 Billion (BBG)
• European Stocks Fall Amid China Concern as Tesco Slides (BBG)
• Tesco Suspends Executives, Probes Error That Triggers New Profit Warning (WSJ)
• Kurds say they have halted Islamic State advance on Syrian town (Reuters)
• Because luck and managing money is genetic: Financial Elite's Offspring Start Their Own Hedge Funds (WSJ)
• Islamic State Onslaught Spurs Mass Exodus of Syrian Kurds (BBG)
• Rockefellers, Heirs to an Oil Fortune, Will Divest Charity From Fossil Fuels (NYT)

While some were wondering if last night's sudden, commodity-liquidation driven selloff would last, most were not, expecting that the perfectly predictable levitation in the USDJPY around a round "tractor beam" number would provide a floor under the market .Sure enough, starting around midnight eastern, the USDJPY BTFDers emerged, oblivious to comments from former BOJ deputy governor Iwata who late last night said the obvious, and what we have been saying since January 2013, namely that a weak yen puts Japan at recession risk, and that a USDJPY in the 90-100 range reflects Japan fundamentals. And, as expected, the 109 level is where the algos have hone in today as a strange FX attractor, which also means that ES has reverse sharper overnight losses and was down just 7 points at last check even as the poundage in the commodity sector continues over rising fears of a sharp Chinese slowdown driven by its imploding housing sector (most recently observed here) without an offsetting stimulus program, following several comments by high-ranked Chinese individuals who poured cold water on any hopes of an imminent Chinese mega-QE or even modest rate cut.