Archive - Jun 23, 2015

FOMC Voting member Jerome Powell has spooked markets this morning (though a glance at stocks impotence would not tell you that) with his comments that a "September rate hike is now 50-50," and that "The Fed would like to test a rate rise as soon as September." FX markets are turmoiling with the USD surging and bond markets are seeing Bunds/TSYs sold aggressively. Stocks shrugged in their "huh?" way initially but tumbled as Powell confirms 'mechanical'-sounding 1% rise per year in rates if the economy continues to grow as expected.

March's exulted bounce in Durable Goods faded rapidly into April's disappointing drop and today we see May disappoint further with a 1.8% drop (against expectations of a 0.1% drop) having missed 5 of the last 7 months. Revisions are big and negative... so that's not helping and has pushed Durable Goods Orders NSA down 5.0% YoY - the largest 10-month slump since Dec09... the last time we dropped this much, The Fed unleashed QE3. Durable Goods Ex Transports and Core Capex are also both down YoY for 4 months in a row, flashing recessionary red.

With an agreement in principle on the table, Greek PM Alexis Tsipras now turns his weary eyes towards Syriza party hardliners whose support he will need in order to pass the new deal through parliament. Should the political stalemate prove intractable, Greece may need to call a referendum or snap elections.

Over the past 6 weeks, the Industrial Metals Index has gotten pummeled, losing its entire post-”false breakdown” gains... and that downside could mean more than just losses in this space – it could be a warning sign for global economic demand.

• Greek offer to creditors runs into angry backlash at home (Reuters)
• Tsipras Seeks to Stave Off Greek Defections Over Aid Plan (BBG)
• Austria finmin says no agreement on Greek proposals without concrete plan (Reuters)
• Another ELA raise, this time under €1 billion: ECB raises emergency funding for Greek banks (Reuters)
• Greek energy, foreign ministers divided on Russia gas deal (Reuters)
• China’s Plan for Local Debt Amounts to a Bailout (WSJ)
• Key Democratic senators back plan for trade legislation (Reuters)
• South Carolina Governor: Time to Furl Flag (WSJ)

Before taking a look at Europe, an update on China. Just a few short hours ago, when looking at the bursting of the Chinese bubble where stocks were down between 3% and 5% across the board in the first post-holiday trading session after the worst week in 7 years, we said that "without assistance (levitation) from the same PBOC that just clamped down on liquidity, the China bubble has burst." And then as if by request, minutes later we got, drumroll, levitation and the stickiest stick-save by the PBOC seen in months, when the Shanghai Composite staged an unprecedented 7% surge from the lows to close 2.2% higher after tumbling as much as 5% earlier in the session. And just like that, faith in the "wealth effect" is preserved.

Arguably, labor markets are stronger today than they have been in the past 20 years, but expectations of financial security for many of us are virtually non-existent. As ZH readers are no doubt aware, despite job numbers being “up” 280,000 last May, and average annual wages increasing 2.3 percent, Americans are still having a difficult time finding full-time work that pays a livable wage.

One hoary old myth claims the interest rate you see isn't real. You see, it’s only nominal. To calculate the real rate, you're supposed to adjust the nominal rate by inflation.