Archive - Sep 2013 - Story

While the US president is spinning his Nobel Peace Prize-backed case on the national media to garner support for yet another "defensive" war of moral and ideological US aggression against Syria, his Russian counterpart is already planning the next steps in the middle east, and solidifying his anti-western alliance, whose key oil-producing member is Iran. According to RIA, Russian President Vladimir Putin and Iran Hassan Rouhani will meet in the near future, said the deputy head of the Russian Foreign Minister Mikhail Bogdanov at a meeting with his Iranian counterpart Hoseynamirom Abdollahiyanom. "In the near future there will be a summit with the new President of the Islamic Republic of Iran. Additionally, we now have new leadership in the Foreign Ministry," - said Bogdanov. The immediate reason for such a meeting is clear: to provide Russian support to Iran ahead of what may be a conflict that "inadvertently" drags Iran into a confrontation with Israel. Both moral and military. The bigger reason behind the meeting, however, probably has something to do with this chart...

In the US, retail sales on Friday will be the main data release. In addition, Congress will return from its 5-week recess on Monday and will likely keep their focus on Syria this week. Finally, San Francisco Fed President Williams (who does not vote on FOMC policy this year) will speak on Monday. Last week, Williams argued that the FOMC should maintain its focus on the unemployment rate, despite its limitations. After Friday's employment report saw the unemployment rate drop again due to falling participation, this issue is likely to resurface. The Fed's communication blackout period begins on Tuesday so Williams will be the last FOMC speaker before the September meeting ends on the 18th.

• Hedge Funds Cut Back on Fees (WSJ) as we predicted would happen in May
• Syria's Assad denies chemical weapons use; U.S. presses case for strike (Reuters)
• Unemployment Falling for Wrong Reason Creates Fed Predicament (BBG)
• U.S. tapped into networks of Google, Petrobras, others (Reuters)
• Chinese Zombies Emerging After Years of Solar Subsidies (BBG)
• Monte Paschi doubles planned capital hike to 2.5 billion euros (Reuters)
• Loan Size to Be Cut for Fannie, Freddie (WSJ)
• Japan Growth Revision Opens Door to Sales Tax Rise (FT)
• Inside the End of the U.S. Bid to Punish Lehman Executives (NYT)
• Financial Crisis: Lessons of the Rescue, A Drama in Five Acts (WSJ)
• Time Warner Joins IBM in Health Shift for Retirees (WSJ)
• Mideast Derails Key Issues in Congress (WSJ)

As macro news continues to trickle in better than expected, the latest batch being benign (if completely fake) Chinese inflation data (CPI 2.6%, Exp. 2.6%, Last 2.7%) and trade data released overnight which saw ahigher than expected trade balance ($28.5bn vs Exp. $20.0; as exports rose from 5.1% to 7.2%, and imports dipped from 10.9% to 7.0%, missing expectations), markets remain confused: is good news better or does it mean even more global liquidity will be pulled.  As a result, the release of an encouraging set of macroeconomic data from China failed to have a meaningful impact on the sentiment in Europe this morning and instead stocks traded lower, with the Spanish IBEX-35 index underperforming after Madrid lost out to Tokyo to win rights to host 2020 Olympic Games. Even though the news buoyed USD/JPY overnight, the pair faced downside pressure stemming from interest rate differential flows amid better bid USTs. The price action in the US curve was partly driven by the latest article from a prolific Fed watcher Jon Hilsenrath who said many Fed officials are undecided on whether to scale back bond purchases in September. Hilsenrath added that the Fed could wait or reduce the programme by a small amount at the upcoming meeting. Going forward, there are no major macroeconomic data releases scheduled for the second half of the session, but Fed’s Williams is due to speak.

All the latest updates and developments in the lethal Syrian foreplay farce.

Emerging markets’ currencies are crashing, and their central banks are busy tightening policy, trying to stabilize their countries’ financial markets. Who is to blame for this state of affairs? The cause of this state of affairs, in one word, is austerity. Weak demand in Europe is the real reason why emerging markets’ current accounts deteriorated (and, with the exception of China, swung into deficit). Thus, if anything, emerging-market leaders should have complained about European austerity, not about US quantitative easing. Fed Chairman Ben Bernanke’s talk of “tapering” quantitative easing might have triggered the current bout of instability; but emerging markets’ underlying vulnerability was made in Europe.

Presented with little comment...

Global macro data has surprised to the upside in recent weeks in general. For major economies the last 3 months has seen such an 'impressive' rise that it has reached a point at which (historically) market expectations have become relatively exuberant. As the chart below shows, not only is the macro surprise index near its normalized highs (suggesting there is not much room for further positive surprises here) but each time the pace of apparent improvement has been so fast, the US equity market has faded lower as "hard" data simply does not support the hope in the markets and "soft" data (including survey-based PMI data as BAML destroys that myth below). Each time macro data has weakened and stocks have faded, central banks have rescued it - but with "taper" now required, we ask - is this as good as it gets?

An exuberant Japanese investing public bid the open of equity trading in their oh so-penny-stock-like prestigious Nikkei 225 stock index by 540 points from Friday's close. That these 4% rips in major global stock markets have become ubiquitous is now no surprise to anyone but, sadly, for Abenomics supporters the world over, final Q2 GDP missed expectations modestly (+0.9% vs +1.0% exp.) with the 3rd worst trade balance (on a BoP basis ) ever not helping matters. Is that GDP hit enough to maintain Abe's decision to hike taxes? Maybe, maybe not. In thge hour since the data hit, the Nikkei has collapsed back 220 points and USDJPY, having surged up over 100.00 into the GDP print, is fading lower (stronger JPY). The rest of Asia is quiet for now, gold and Treasury bond prices are very slightly lower and amid very thin trading in S&P futures, equities are up 3 points.

Sadly reflective of the dismal reality of the US 'system' that we described here first and here most recently, the following cartoon summed up 1000 words very succinctly...

Preferring to "wait until the dust settles," to make a decision on who will replace Ben Bernanke as Fed Chair, Bloomberg resports. Former Obama advisor David Plouffe notes, "Syria right now has kind of paralyzed the town." It would appear that with the Senate planning to start debating the Syrian strike decision tomorrow, the fed-head is yet another bargaining chip on the table. With Summers still the strong "bookies" favorite, it would seem should the Syrian strike become a protracted conflict then Bernanke will stay since, as the NYTimes notes, Summers has "a reputation that is replete with evidence of a temperament unsuited to lead the Fed."

"What's more fun than a Barrel of Monkeys? Nothing!" What could be better than assembling a long chain of tangled monkeys, each reliant on those either side of it for purchase, with just the one person holding onto a single monkey's arm at the top end of the chain, responsible for all those monkeys dangling from his fingers. Of course, with great power comes great responsibility; and that lone hand at the top of the chain of monkeys has to be careful - any slight mistake and the monkeys will tumble, and that, we are afraid, is the end of your turn. You don't get to go again because you screwed it up and the monkeys came crashing down. On May 22nd of this year, Ben Bernanke's game of Barrel of Monkeys was in full swing. It had been his turn for several years, and he looked as though he'd be picking up monkeys for a long time to come. The chain of monkeys hanging from his hand was so long that he had no real idea where it ended... indeed, "
If the Fed really thinks that the rest of the world will have to "adjust to us" as it insists on draining global liquidity come what may, it may have a very rude surprise, yet again." One false move and all the monkeys may end up in a heap on the floor.

Sylvio Berlusconi is no stranger to being a catalyst for European crisis: in November 2011 it was his unwillingness to leave the PM post (and be replaced with a Goldman technocrat), that precipitated a bond crisis accented by the ECB's unwillingness to interject and buy Italian bonds until the career politician had left. Tomorrow, an Italian Senate committee is due to begin hearing arguments on whether to eject ex-PM Berlusconi from Parliament and on. The special Senate Elections and Immunities Committee will have its first hearing on Berlusconi’s expulsion from the Parliament and six-year ban on 9 September. It seems now less likely that a vote will already take place on 9 September. The decision of the commission will be followed by a vote of the whole Senate. According to Deutsche Bank, the duration of the process is unclear. Indeed, it could be lengthened by several months if the commission (or the parliament) asks for a ruling of the Constitutional Court. However, a worst case scenario could see the government fail, early elections being called, and a repeat of this February's political circus all over again, only this time with even less political capital, if such a thing ever existed in Italy.

The topic of "minimum wage" had been a hot one recently until Obama's red line and Syria stole the front pages. However, no matter how much one explains the dilemma of 'who, eventually,' pays for the increases in minimum wage that will, supposedly, bring a livable wage to all, everyone still wants more - for less. So we looked around the world to see - on a real purchasing power parity basis - just how 'tough' America's minimum wage earners have it. Turns out, only 9 nations in the world have a higher real minimum wage than the US.