Archive - Sep 3, 2015

Draghi - we have a problem. They hoped, he came, they sold. US stocks and bonds knee-jerk rallied on the "expanding QE" promise from Draghi thi8s morning but all those gains have been erased now as USDJPY 'fun-durr-mentals' drag it lower. If not even the latest reduction in European economic forecasts can push stocks higher, we central banks may have a real problem on their hands.

Back in March, we mocked the ECB's inflation forecasts with a post titled "Mario Draghi Reveals Biggest. Hockeystick. Ever!", which highlighted the ECB's ridiculous expectation that inflation would soar from 0.0% in 2015 to 2016. We though no other hockeystick could possibly surpass this. We were wrong.

ABN Amro was right: moments ago Mario Draghi announced that, just as the Pavlovian Dogs were salivating, the ECB would not leave markets hanging, and while not boosting QE in size, announced he would increase the amount of monetizable assets, i.e., the ECB's share limit per CUSIP equivalent, from 25% to 33%. The result: an immediate surge in both stocks (ES jumping 21 points) and bonds (the 10Y dropping to 2.156%).

Respected economist and historian and the editor of the ‘Gloom, Boom & Doom Report’ Marc Faber warned on Bloomberg TV’s Market Makers yesterday that there are now “no safe assets” including deposits and said that he is focusing “on precious metals.”

Initial jobless claims have risen for 5 of the last 6 weeks with the last week showing a 12k rise to 282k. This is the biggest weekly rise in 2 months and raises the claims print overall to 2-month highs. Perhaps most remarkable is that initial jobless claims are now back up to unchanged since the end of QE3.

DRAGHI SAYS ISSUE SHARE LIMIT FOR QE RAISED TO 33% FROM 25%

ECB CUTS EURO-AREA INFLATION FORECASTS FOR 2015-2017

Mario Draghi holds court (on his birthday, no less) in a closely watched post-meeting presser as markets hope collapsing inflation expectations, heightened volatility, EM chaos, and China turmoil will be enough to force the ECB's hand. 

Moments ago Challenger reported August job cuts, which at 41,186 were a 60% drop from the 115,730 reported last month (the highest since September 2011), which however was driven by a one-time mass layoffs last month in military staffing. Putting August in its correct perspective, the number was 2.9% higher than the same month a year ago, when 40,010 planned job cuts were announced. So far in 2015 employers have announced 434,554 job cuts: that is up 31 percent from the 332,931 planned layoffs in the first eight months of 2014. What is worst, and what reveals the true picture of the economy, is that with monthly totals averaging 54,319, 2015 job cuts are on track to exceed 650,000 for the yeajesusr, which would be the highest year-end tally since 2009 (1,272,030).

As expected, there was no change in the ECB's three key interest rates, with the main refi, lending and deposit rates staying where they were at 0.05%, 0.30% and -0.20%, respectively.

Riksbank won’t be passive if ECB makes big changes in its policy, Riksbank Governor Stefan Ingves says at press conference.

• U.S. Treasury's Lew says China will be held accountable on currency (Reuters) ... but not Japan
• Bank of Japan Not Convinced of Need for Further Easing (WSJ)
• Stocks Advance With Commodities on Signs of European Revival (BBG)
• IMF Says China Slowdown, Other Risks Threaten Global Outlook (WSJ)
• Xi Says China No Threat, Announces Military Cuts at Parade (BBG)
• China holds massive military parade, to cut troop levels by 300,000 (Reuters)
• Migrants leave Budapest for Austrian frontier; pressure builds for EU action (Reuters)

All eyes will be on Mario Draghi on Thursday as expectations for something big from the former Goldmanite have grown over the past two weeks. More specifically, some now think the odds of QE expansion have increased considerably in light of collapsing eurozone inflation expectations, the incipient threat of some $1 trillion in QE-offsetting EM FX reserve draw downs, turmoil in China's financial markets, heightened volatility across the globe, and chaos in emerging markets from LatAm to AsiaPac.

With China closed today, the usual overnight market manipulation fireworks out of Beijing were absent but that does not meant asset levitation could not take place, and instead of the daily kick start out of China today it has been all about the ECB which as we previewed two days ago, is expected - at least by some such as ABN Amro - to outright boost its QE, while virtually everyone else expects Draghi to not only cut the ECB's inflation forecast, which reminds us of the chart which in March we dubbed the biggest hockeystick ever (we knew it wouldn't last) but to verbally jawbone the Euro as low as possible (i.e., the Dax as high as it will get) even if the former Goldmanite does not explicitly commit to more QE.

A repetitive flaw continues to circulate throughout much of the media – mainstream and Alternative, alike

Central bank apologists assert that ZIRP helps the economy. It hasn’t and it won't. However, the main concern by both Fed defenders and foes alike is consumer prices. Both miss the real harm of zero interest.