Archive - Dec 10, 2013 - Story

Since fundamentals have been irrelvant for years, the only possible (short-term) guide in a market in which the only thing that does matter is the Fed's balance sheet, are trends (as Hugh Hendry put it so appropriately) here are some technical trade ideas from Bank of America, on the EURUSD, Treasurys, the S&P500 and WTI.

Volcker Rule - Who cares?  I know we are supposed to care more about this convoluted rule, but we just can’t. The concept that somehow “prop” trading brought down the banks seems silly.  The idea that market making desks were a dangerous part of the equation is ludicrous. They could have fixed this with a few simple changes, but that would have meant some blame would have had to be shifted onto the regulators...

Back in September, courtesy of an unprecedented discrepancy between the JOLTS "net turnovers" (or hires less separations) print, which traditionally has been the equivalent of the NFP's establishment survey monthly job additions, we highlighted just what happens when the BLS has caught itself in a estimation lie, and is forced to adjusted the data set both concurrently and retroactively to correct for cumulative error. We suggested that as a result of this public humiliation, the BLS would have no choice but to ramp up its monthly net turnovers print in order to "catch up" to what the monthly payrolls survey indicated is America's  "improving" jobs picture. Sure enough, when moments ago the latest October JOLTS survey was released, the October "net turnovers" number soared from 155K in September to a whopping 260K in October, more than eclipsing the revised NFP print of 200K job gains in October, and leading to the second highest JOLTS turnover print since February's 271K, and before that - going back all the way to the 287K in February of 2012. And yes, this was in the month when the government had shut down and the result was supposedly major, if temporary, job losses.

We can only imagine the upward revisions to 'current' GDP that will occur due to the largest mal-investment-driven wholesale inventory build in over 2 years. The 1.4% MoM gain is over 4x the expectation and biggest beat since Q4 2011, when - just as now - a mid-year plunge was met by a rabid over-stocking only to see the crumble back into mid 2012. As we noted previously, 56% of economic "growth" this year was inventory accumulation (cough auto channel stuffing cough) and this print merely confirms "hollow growth" continues. The problem with inventory hoarding, however, is that at some point it will have to be "unhoarded." Which is why expect many downward revisions to 'future' GDP as this inventory overhang has to be destocked.

And so it is done (as we detailed here)... and due to be put in place as of April1st 2014 (rather ironically). The 100-plus-pages of rules and regulations prohibit two activities of banking entities: (i) engaging in proprietary trading; and (ii) owning, sponsoring, or having certain relationships with a hedge fund or private equity fund. But the kicker...

"requires banking entities to establish an internal compliance program designed to help ensure and monitor compliance with the prohibitions and restrictions of the statute and the final rule."

Great! Because self-regulation worked so well in the past for the financial services industry.

Despite the ratings agencies (Moody's Dec 5th and S&P Nov 22nd) seemingly premature raising of the outlook for the nation's sovereign credit rating (from negative to stable), economic hardship in Spain looks likely to continue as loan defaults surge and the unemployment rate remains the second highest in the EU.

As the world mourns the death of Nelson Mandela; following his oration, it seems President Obama has taken the opportunity to seek advice from world leaders on better managing his nation...

GM has named Mary Barra to succeed Dan Akerson as CEO, making her the first female CEO in global auto industry:

GM SAID TO NAME BARRA AS FIRST FEMALE CEO, SUCCEEDING AKERSON
GM'S AKERSON SAID TO STEP DOWN IN JANUARY

Yesterday, we pointed out that according to the latest Bloomberg survey of economists, roughly 70% of respondents now believe that a taper is coming in either December or January, further accentuated by the recent flipflopping of Fed "bellwether" James Bullard who after holding out for a much delayed reduction in the Fed's monthly flow, admitted that the "probability of a taper had risen ". Today, some additional thoughts on what now seems the consensus from Credit Suisse: "With the labor market looking to be on a more sustained recovery trend following a late summer set-back we think tapering is now virtually inevitable with the decision between a Dec or Jan taper a virtual toss-up that may come down to Fed perceptions of market liquidity in the latter part of December." And just to add fuel to the flame here comes CNBC's own staff "Fed expert" Steve Liesman with "get ready, here it comes: A December taper."

Gold (>$1260) and silver (>$20) are extending yesterday's gains as US markets awake this morning. The crack higher at around 8:07ET caused the futures market to be halted after 3,000 Gold Futures contracts traded in one second at 08:07:45 on December 10, 2013 sending the price up $10 and tripping circuit breakers for 10 seconds. Silver is now +4% on the week and gold +2.5% as Treasuries are also bid. Stocks are stumbling overnight, driven by the "fundamentals" of a drop in EURJPY after it tagged 142 overnight and fell back.

As opposition party offices are raided and streets continue to fill with protesters, the "precarious" funding sitaution in the nation is beginning to flash red as interbank lending rates spike to 20%. Banks, clearly concerned about their own and each other's liquidity in the face of potential deposit runs (and the accompanying counterparty risk) and huge demand for liquidity. The hryvnia is falling and bond yields are rising but it is the spike in KievPrime overnight rates that is most concerning - and policy-makers have little room to help.

The average "Hope" phases last 10 months. In the US it is now running on 4 years... and counting.

• U.S. set to adopt Volcker rule to curb bank trading gambles (Reuters) After vote, lawsuits likely next hurdle for Volcker rule (Reuters)
• U.S. Congress budget talks could produce Tuesday deal, aides say (Reuters)
• Wealthy Go Frugal This Holiday Amid Uneven U.S. Recovery (BBG)
• Tearful Thai PM urges protesters to take part in election (Reuters)
• Fed’s Bullard Sees Higher QE Taper Odds as Labor Market Improves (BBG)
• Coeure Says ECB Would Offer More LTROs Only When Banks Can Lend (BBG)
• Inside China's Super-Sterile Chicken Farms (WSJ)
• Mandela Service Rivals JFK’s as Leaders Meet in South Africa (BBG)
• China data defy slowdown forecasts (FT), and of course the word is "data"
• Cold, ice grip U.S. as more snow to blanket East (Reuters)

The grind higher in equities, and tighter in credit, continues as markets brush aside concerns about a December taper for the time being. Overnight futures levitation has pushed the Fed balance sheet driven record high S&P even higher, despite as Deutsche Bank points out, the fact that we had three Fed speakers advocate or talk up the possibility of a December taper, including the St Louis Fed’s James Bullard who is viewed as a bit of a bellwether for the FOMC. Bullard said the probability of a taper had risen in light of the strengthening of job growth in recent months. Indeed, he noted that the best move for the Fed could be a small December taper given the improving jobs data but below-target inflation readings. The Fed could then pause further tapering should inflation not return toward target during the first half of 2014.  Looking at today’s calendar, the focus will be on US JOLTs job openings - a report which Yellen has previously highlighted as an important supplement to more traditional labour market indicators. US small business optimism and wholesale inventories are the other major data releases today. As mentioned above, US financial regulators are due to announce Volcker rules at some point today although as we just reported, the CFTC's meeting on Volcker was just cancelled due to inclement weather.