Archive - May 5, 2015

Remember that in a beggar thy neighbor world, where currency warfare has once again broken out between the US, Europe and Japan, for every winner there is a loser. In this case, the loser is the one country that has decided that a strong currency is a great thing for its economy (if only for the time being): that would be the US. Why is this relevant? Because as the chart below shows, US trade excluding Petroleum, just crashed to $43.7 billion, the worst print in the history of the series, suggesting that portrayals of the US as a resurgent export powerhouse are completely erroneous, and that instead the US is as big a net importer of goods and services (and soon to be oil) as ever.

After shrinking notably in Feb, March's US Trade deficit exploded. Against expectations of a $41.7bn deficit, the US generated a $51.4bn deficit - the worst since Oct 2008 and the biggest miss on record. Exports rose just $1.6bn while imports soared $17.1bn with the goods deficit with China soaring from $27.3bn to $37.8bn in March. Ironically, just as the "harsh winter" was found to lead to a GDP boost due to a surge in utility spending, so the West Coast port strike which was blamed for the GDP drop, was actually benefiting the US economy as it lead to a plunge in imports. In March, however, the pipeline was cleared, and US imports from China soared by over $10 billion to $38 billion.  End result: prepare for upcoming Q1 GDP downgrades into negative territory.

WTI Crude is now up 43% from its mid-March lows (at $42), topping $60 for the first time since early December. This is a 25% retracement of the June to March drop. Despite near-record US production (rose last week WoW), record Saudi production, slowing global economies, and expectations that higher prices will bring a flood of new supply as cash-starved frackers start pumping again; it appears the squeeze combined with Middle East tensions is driving the resurgence (for now). Perhaps everyone should listen to Influential Saudi Oil Minister, Ali Al-Naimi, who said Tuesday that "no one can set the price of oil - it's up to Allah." It seems Allah wants higher gas prices.

• Fed's Yellen says met firm at heart of leak probes (Reuters)
• EU Raises Growth Outlook as ECB Counters Greek Threat (BBG)
• Hillary Clinton Takes Hit in WSJ Poll, but Holds Edge Over GOP Rivals (WSJ)
• China stocks slump on tighter margin rules, IPOs; Hong Kong down (Reuters)
• McDonald’s Chief Promises Turnaround in a Restructuring (NYT)
• German Bond Market Selloff Continues (WSJ)
• Vanguard overtakes Pimco’s Total Return following outflows in wake of Bill Gross’s departure (WSJ)
• EU Demands Concessions as Greece Hurtles Toward Deadlines (BBG)
• Junk Bonds Are The New Haven Assets (BBG)

If yesterday's laughable lack of volume (helped by the closure of Japan and the UK) coupled with hopes that the end of the buyback blackout period was enough to send stocks surging if only to end with a whimper below all time highs despite what is now looking like three consecutive quarters of Y/Y EPS declines according to Factset, today's ramp will be more difficult for the NY Fed and Citadel to engineer, not least of all due to the headwind of the overnight "incident" by China's stock bubble which saw the Shanghai Composite tumble by 4%, the most since January.

Gillian Tett, markets and finance commentator and an Assistant Editor and former U.S. Managing Editor of the Financial Times, wrote an important and little noticed article last week questioning complacency on the part of European policy makers regarding a Greek default and potential exit or ‘Grexit’. Tett argues that a Greek failure would lead, as Lehman’s did to “wider policy uncertainty: when Lehman failed, the entire paradigm for finance suddenly seemed unpredictable”.

Yesterday, when we heard that China brokers may impose tighter margin requirements to contain what is now a laughable stock bubble we said that tonight's Shanghai session could get exciting: "China may get exciting: Some China Brokers Raise Margin Trading Requirement: Sec. News" It did: overnight the Shanghai Composite tumbled by 4.1% to under 4300, the biggest one day drop since January 19.

The British are ready to hang themselves yet again, with their General Election on Thursday 7th May 2015.