Archive - Mar 2015

US Services PMI rose and beat very modestly from 57.0 to 57.1 in February (this is a flash print). This is the highest Services PMI print since October but Markit warns not to get excited, data "is up only slightly compared to the fourth quarter of last year, meaning growth this year is running at a rate similar to the 2.2% annualised pace seen late last year." ISM Services (survey) confirmed this modest improvement in February (despite all the hard data collapsing) boucing very modestly from 56.7 to 56.9 in Feb despite a drop in BusinessActivity and New Orders.

Just 2 days ago everything was awesome (according to stocks). Nasdaq hit 5000 proving it's different this time, despite the total collapse in macro and earnings data. So perhaps - just perhaps - as buybacks slow, US equity markets are exposed to reality underneath them. VIX has snapped back above 15, its highest in 10 days, and the S&P is back at 2-week lows... retracing all the "Greek Deal" gains.

UPDATE: And now *YEMEN GUNMEN BLOW UP OIL PIPELINE IN SHABWA: ARABIYA

As oil prices started to slide this morning, following their pop on lower-than-expected API inventory build data, headlines crossed:

*ISLAMISTS ATTACK IRAQ OIL PIPELINES EAST OF TIKRIT: IRAQIYA

As we detailed yesterday, Tikrit is key, and this (unconfirmed for now) headline sent WTI and Brent up 40c per barrel (for now). With ISIS suffering from lower cashflows (thanks to lower oil prices), we suspect their efforts to raise oil prices (by any means possible) will continue.

It is becoming clear that a pretty wide divide seems to appear between what many people think the Syriza government in Athens should do, and what they actually can do at this point in time. It should be useful to clarify what this divide consists of, and how it can be breached, if that is at all possible.

Yeah but apart from that, US-China relations are excellent. Following President Obama's barbed comments aimed at China's new counter-terrorism laws (and their implications for US tech companies - as NSA spying 'facts' reduce China's appetite for American-made IT products), Beijing has blasted back. In one of the least holds-barred undiploatic statements in recent times, China (speaking through its official mouthpiece Xinhua), calls Obama's criticism "utterly groundless and another piece of evidence of arrogance and hypocrisy of the U.S. foreign policy." And with that they are just getting started...

Just hours after India's 'surprise' rate cut (which saw the SENSEX surge and then dump to close red), Poland has surprised the market with a bigger-than-expected rate cut. Despite two-thirds of econmomists expecting a mere 25bps cut, the Polish Central Bank slashed its benchmarket 7-day rate to just 1.5% - the lowest on record. Today's cut "makes up for inaction in previous months" after Poland held rate flat in January and February (but echoes Poland's Oct 'surprise' greater-than-expected ease of 50bps. Polish stocks dropped on the news (but recovered), banks are weaker, and the Zloty is selling off on this news (pushing back towards record lows)...

“Yes, it’s legal, but it’s just not a very nice or Canadian thing to do.“ Similarly, in Europe, an artist known as Stefanos has been defacing euro notes with images of little human figures in a painfully bleak depiction of life in Greece under austerity.

Another day, another missed data point. ADP Employment data shows 212k jobs added in February, which modestly missed expectations of 219k and is the weakest monthly gain in 6 months. This despite a strong prior revision, pushing the January number up from 213K to 250K to catch up to the BLS runrate. Despite the miss, that showed large businesses adding by far the fewest jobs, Mark Zandi as usual remains optimistic: "jobs growth is strong but slowing," and expects the economy "will return to full employment by mid-2016."

Today's Greek T-Bill rollover auction came, and it was successful, even if it means the yield on the paper rose from 2.75% previously to 2.97% - the highest yield in 11 months, since the 3.01% in April of 2014. The problem is when looking at where the funds came from: as Bloomberg reported, also citing Kathimerini, today it was the turn of Greek Social Security funds to prop up the auction, with part of the reserves of other public entities held at Bank of Greece also used to cover the Treasury-bill auction. Bloomberg adds that the "investment of common capital reserves was necessary as no foreign investors participated in auction, Greek banks couldn’t buy additional securities as they weren’t allowed to increase their exposure to Greek Treasury bills." The biggest problem is that  about €750m of the T-bills maturing Friday were held by foreign investors who didn’t participate in today’s auction.

The stock market is totally mispricing what's coming.

• RBS to cut up to 14,000 jobs in investment banking unit (FT)
• Doctors, patients scramble ahead of high court Obamacare decision (Reuters)
• Rajan Cuts India Rates After Modi Agrees to Inflation Target (BBG)
• Russia’s Putin Makes First Public Comments on Killing of Boris Nemtsov (WSJ)
• House breaks impasse, passes security funding without provisions (Reuters)
• How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge (BBG)
• Jeff Immelt’s Overhaul of GE Impeded by Falling Oil Prices (WSJ)
• Sahara India Defaults on Luxury Hotel Loans From Bank of China (BBG)

Just like yesterday, it has - so far - been mostly about Asia in the overnight session, where as reported previously, we got the latest central bank engaging in an "unexpected" rate cut, after Reserve Bank of India Governor Rajan cut rates in an unscheduled move days after the government agreed for the first time to give the central bank a legal mandate to target inflation. This was India's second rate cut in 2 months, and yet despite the Sensex surging to a all time high over 30,000, it subsequently ended up closing red on the day, down -0.7%, despite the Indian currency sliding 0.4% to 62.1463 to a dollar. Is the half-life of thany incremental rate cut in an unprecedented barage of global central bank easing now less than a day?

For this commentary to make any sense to most readers; it’s necessary to address the two questions which immediately come to their minds: “what is the Baltic Dry Index?” and “why should I care about it?” Dealing with these questions in order; the Baltic Dry Index measures the prices paid to ship various forms of cargo, in the form of an index.

By far the most important geopolitical event of the day, as straight-to-C Span-poluist-pandering as it may have been, was Israel Prime Minister's address to congress, in which for nearly one hour the Israeli leader bashed Iran, stopping just shy of fabricating even more evidence about how close Iran is to developing a nuclear weapon. Yet one person missed everything including the standing ovation at the end: president Barack Obama. As it turns out he had more important things to do...