Archive - May 19, 2015

Following two ugly months of dramatically missed expectations, Housing Starts exploded to 'recovery' highs (highest since Nov 2007) jumping 20.2% MoM to 1.135million (against 1.015 exp.). This is the 2nd biggest MoM jump in history. Both single-family (3rd biggest MoM surge since the crisis peak) and multi-family starts surged. Permits also surged in April (jumping 10.1% MoM - the most since 2012) to 1.143 million (well above expectations) and the highest since June 2008.  and  Well these huge mal-investment spikes make perfect sense in light of the collapse in lumber prices (and thus demand).

It appears, thanks to the generous backing of US taxpayers, Ukraine is about to get its cake and eat it too. On the same day as Ukraine's government unleashes a bill enabling a moratorium on foreign debt repayments - implicitly meaning default "in case of an attack from dishonest lenders" - the defense ministry unveils a plan to increase military spending by 17 billion hryvnia this year statuing that will “make efforts to find possibilities to finance needs” to secure country’s defense. Ukraine bonds are tumbling.

Our present situation is like that of the cartoon character Wile E. Coyote. The oil price collapse is not over yet. It is more likely that the Brent price could fall back into the mid-$50 range than that it will continue to rise toward $70 per barrel. That is because oil prices have risen based on sentiment alone. The fundamentals of supply and demand indicate a dismal reality: oil prices will fall and may fall hard in the near term.

Angela Merkel is attempting to head off staunch opposition from lawmakers concerning further coddling of what they perceive to be a belligerent Greek government. As we reported earlier this month, the German Chancellor has been under pressure from members of her Christian Democratic bloc to essentially cut Greece loose. Now that pressure is building, leaving Merkel with the unenviable task of selling yet another Greek bailout to an increasingly hostile audience.

• China’s Record Capital Outflows Spark Financial Stability Fears (FT)
• U.K. Inflation Falls Below Zero for First Time Since 1960 (BBG)
• Islamic State Solidifies Foothold in Libya to Expand Reach (WSJ)
• Judge sentences 11 Afghan police over lynching of woman in Kabul (Reuters)
• The $18 Trillion Global Economic Boost If Everything Went Right (BBG)
• Eurozone Prices Confirmed Flat Year-on-Year in April, Core Inflation Inches Higher (Reuters)
• Greek Finances to Stagger On Longer Than You Think (BBG)
• Athens sees EU deal soon, Greeks' approval of government stance dwindles (Reuters)

In what may be the most cryptic press release from Walmart yet, the company just issued an 8-K which consisted all of 5 bullet points, a few charts, and precious little else. Perhaps the reason for the pithy transmission is that WMT had nothing good to say: Revenue declined from $115 billion to $114.8 billion, missing expectations of a jump to $116.2 billion, EPS also missed at $1.03, vs $1.05 expected, operating income tumbled 8.3% from $6.2 billion to $5.7 billion, and finally comp store sales also missed at 1.0%, below the 1.5% expected. With these results, anyone would be short and to the point.

Less than a week ago, fresh from the aftermath of the recent dramatic six-sigma move in German Bunds, one of Europe's largest banks openly lamented that so far the ECB's QE had done absolutely nothing: "two months of QE for nothing." And lo and behold, as if on demand, overnight the ECB confirmed it had heard SocGen's lament when just before the European market open, ECB executive board member Benoit Coeure delivered a speech at the Brevan Howard Centre for Financial Analysis (appropriately named after a hedge fund) at Imperial College Business School (not to be confused with the July 26, 2012 Mario Draghi "whatever it takes" speech which also took place in London) in which he said that the ECB intends to "frontload" i.e., increase, its purchases of euro-area assets in May and June ahead of an expected low-liquidity period in the summer.

Whenever secret or confidential information or documents are leaked to the press, the first question should always be who leaked it and why. That’s often more important than the contents of what has been leaked. And since there’s been a lot of hullabaloo about a leaked document the past two days, here’s a closer look.

Bosses at French banking giant Societe Generale were aware of the activities of "rogue trader" Jerome Kerviel, a top detective working on the case reportedly told an investigating judge, according to France24. The French investigative news website, Mediapart, quoted Nathalie Le Roy as telling judge Roger Le Loire she was "certain" that Kerviel's superiors "could not have been unaware" he was taking wildly risky bets on derivatives. However, as Bloomberg reports, SocGen, in a statement released on Monday, that several judicial decisions have assigned exclusive criminal responsibility to Kerviel, adding "it’s just the opinion of a person and not based on the discovery of new documents."

Americans Don’t Trust the Government