Archive - Oct 27, 2015

Despite ongoing low gas prices, a recovery in stocks, and the nationally-advertised unemployment rate remaining low, Consumer Confidence tumbled in October from eight-year highs to three-month lows. Worse still, "hope" slid to its lowest in 3 months as "jobs plentiful" slid notably with fewer jobs and decreasing income.

In January when Markit Services PMI printed 54.2, the weakness was blamed on weather (and port strikes). Now it is sunny October, following the warmest September ever on Earth, and Services PMI has plunged to 54.4 - its lowest in 9 months (handily missing the 55.5 bounce expectation). This flash data shows the weakest payroll numbers since February and business confidence remains just marginally higher than the three-year lows of July. As Markit warns this weakness "will add to calls for policymakers to delay hiking interest rates until the economy finds a firmer footing."

The head of the UN Human Rights Council is at it again, although this time it appears Saudi warplanes spared the Yemeni wedding parties in favor of a Medecins Sans Frontieres hospital that was completely destroyed along with all of the equipment and supplies inside around 11:30 PM local time. This is latest in a string of "mistakes" and the second tragedy to strike an MSF facility in the last 30 days.

We have heard many explanations for the torrid market rally since last September, ranging from the rational - short squeeze - to the generic - "bad news is good news under central planning" to the deranged - "ignore the news, the U.S. economy is actually stronger and China is recovering." And now, courtesy of the U.S. Treasury's Office of Financial Research, here is the official explanation from the government itself.

It appears this morning's dismal Durable Goods data was the last straw on the camel's back of the 'bad news is goods news' meme. With GDP estimates plunging and numerous economic indicators flashing red, it seems last week's central-bank-inspired exuberance is wearing off as proof that their policies have failed mounts up. 10Y yields are near the crucial 2.00% barrier (and Bund yields are crashing), Crude tumbled to a $42 handle, and US equities have given up all of the China rate cut gains...

For the first time since April, Case Shiller Home Prices rose month-over-month (though barely at +0.11%). However, this very modestly better than expected print was all thanks to downward revisions of previous data. San Francisco continues to lead the 20-city index with a 10.7% YoY gain. This is the 6th month in a row in which year-over-year gains are basically stagnant at +5%

Don't think the Status Quo will save you, or make good on its vast multitude of promises. Naive faith in promises and fantasies isn't helpful in the real world.

After a significant downward revsision to August's data (to -2.3% MoM), September Durable Goods New Orders dropped 1.2% (better than the expected 1.5% drop only due to historical revisions) for the 5th monthly drop this year. Year-over-Year, Durable Goods orders tumbled 3.6%, accelerating weakness from August amid major revisions. This is the 6th consecutive YoY drop, something not experienced outside a recession. Under the covers it was just as ugly with Non-defense, ex-aircraft orders dropping 0.3% (notably missing expectations) after a huge downward revision for August. What is most worrisome, however, is the collapse in Core Capex YoY down 7.9% NSA - the worst since 2009.

In the event of a systemic European banking crisis, however, laws could be changed at the stroke of a pen and “bail-in” mechanisms could become fully operational. Also, the comforting guarantee of €100,000 ($100,000 or £80,000) would likely be reduced in such a crisis.

Last week, in the aftermath of dovish announcements by first the ECB and then the PBOC, the S&P500 jumped another 2.1% rising to its best level since early August. But who was buying? We now know who wasn't: according to BofA "BofAML clients were net sellers of US stocks for the third consecutive week, in the amount of $1.7bn. Similar to in the prior two weeks, institutional clients, hedge funds, and private clients alike were all net sellers."

• Hilsenrath - The Fed Strives for a Clear Signal on Interest Rates (WSJ)
• Tentative Budget Deal Reached, Raising Debt Limit (WSJ)
• China Calls U.S. Challenge Over Island Threat to Regional Peace (BBG)
• UK economy slows more than expected in third quarter (Reuters)
• In China’s Alleyways, Underground Banks Move Money (WSJ)
• Inside the Secretive Circle That Rules a $14 Trillion Market (BBG)
• A Frustrated Koch Brother Decides It’s Time to ‘Spout Off’ (WSJ)

Two biggest move overnight came from everyone's favorite carry pair, the USDJPY, which may have finally read what we said yesterday, namely that with the Fed and ECB both doing its job, there is little need for the Bank of Japan to repeat its Halloween massacre for the second year in a row, and as a result will keep its QQE program unchanged. It promptly tumbled from its 121 tractor level, to just above 120.25, where BOJ bids were said to be found. With the FOMC October meeting starting today, the other overnight catalyst was not surprisingly the latest Hilsenrath scribe in which he removed any uncertainty about a Wednesday hike, "leaving mid-December as the central bank’s last chance to raise rates this year."