Archive - Sep 2013 - Story

While gold, silver, and crude oil prices had already recovered their initial knee-jerk losses from the "war-off" moves Sunday night, US equities were sticking to their BTFD guns until Boehner, Pelosi, Cantor, and Levin came out behind President Obama's Syria strike plan. S&P futures slumped to Sunday night's open, vacillated, then the Dow dumped over 120 points from its pre-ISM highs to break red (followed by Trannies and the S&P). Treasuries have been slow to react; holding on to losses (30Y +12bps) until the decision was clear from stocks, and then yields fell more significantly as investors greatly rotated back to safety. The USD is not moving much but JPY strength (carry-off) is driving it modestly lower. VIX is back over 17%.

With utmost firmness I condemn the use of chemical weapons.

— Pope Francis (@Pontifex) September 3, 2013

On a purely humanitarian basis, Syria’s tragedy is exceeded by many conflicts that the US abstained from participating in. So when thinking about civil wars and how the US defines its national interest, one has to ask why Syria would qualify for direct intervention while others conflicts did not.

It is not a good time for Janet Yellen. The one time Bernanke-replacement favorite who many were confident would be the next Fed chair, and whose odds in the initial stages of the Fed race were 75%, is so far out of the running one can almost ignore her candidacy. At least if the market makers behind Paddy Power, and the Fed Chair market betting participants have it right. As of today, her odds have slumped to the lowest in the life of the contract, or 29.4%, below the 36.4% from mid August. The leader by an even greater margin: Larry Summers whose 2/5 odds, or 70%, mean that absent a material change in rhetoric, will be the person Obama announces as Fed chairman replacement over the next month.

Gold and silver prices are jumping, bonds are bid off their high yields, and US equities have dropped to the lows of the day as Boehner gets behind Obama:

BOEHNER SAYS WILL SUPPORT OBAMA'S CALL FOR ACTION IN SYRIA, BELIEVES COLLEAGUES SHOULD DO THE SAME
BOEHNER SAYS `ONLY THE UNITED STATES' CAN RESPOND TO SYRIA
BOEHNER SAYS UN, NATO UNLIKELY TO TAKE ACTION ON SYRIA

Not surprisingly, Boehner's call is promptly supported by both Cantor and Pelosi.

Of course, given the military's moves over the weekend, was there really any de-escalation (as we warned Friday)?

After a modestly weak start, India's FX and stock markets accelerated lower overnight in the currency's second biggest daily collapse in 17 years, and stocks second biggest daily plunge in 2 years. Rubbing further salt into an already gaping wound of capital outflows, S&P re-iterated its downgrade threat overnight following India dismal PMI print and this appears to have pushed the Indian government to Plan D. Following the failure to halt outflows of Plan A (status quo and blame it on the Fed/Speculators), Plan B (well something is up so 'capital controls' on FX and tariffs on gold), Plan C (that's not working so let's confiscate people's gold), the Indian government is trial-ballooning Plan D - ditch the USD for trade-payments (especially oil which is up 50% in INR terms in 4 months).

Whether it is growth hopes or Taper fears, good-news was bad-news for bond bulls this morning as better-than-expected ISM and construction spending data jarred bond yields from already rising levels to their biggest jump in two months. With the 30Y up 11bps and back over 3.8% and the 10Y pushing 10bps higher in yield to 2.89%, the line in the sand level of 3.00% grows ever closer. Equity markets are unsure of what to make of it but appear to have a bias to the downside on this good-news-is-bad-news data but gold, silver, and crude oil is rising.

What is the best way to avoid a veiled threat? Unveil it.

• ISRAELI PRESIDENT PERES COMMENTS SENT IN E-MAILED STATEMENT
• PERES SAYS HE ADMIRES OBAMA'S EXAMINING `EVERY POSSIBILITY'
• PERES SAYS `ASSAD WILL DISAPPEAR ONE WAY OR THE OTHER'

Truly a great line for any Hollywood action movie, which is what the whole staged conflict in the middle east resembles more and more with every passing day.

Unless this Friday's NFP number plummets, the taper is now assured. Moments ago the US joined the rest of the world in its "manufacturing renaissance" spurt reported over the past two months, with the Manufacturing ISM headline number rising from 55.4 to 55.7, beating expectations of a 54.0 print, and printing the highest number since April 2011 and the biggest beat since August 2011. The components which posted a notable increase were New Orders, which rose from 58.3 to 63.2, recording the largest 3 month rise in 4 years, Prices jumped the most or 5 from 49.0 to 54.0, while exports also rose by 2.0 to 55.5 as it appears everyone is exporting more to everyone else at the same time: hopefully someone is reminded that trade just happens to be a zero sum game. Among the decliners, the most notable one was Employment which dropped from 54.4 to 53.3, Production down 2.6 to 62.4, and  Customer Inventories down 5 to 42.5. Maybe there is a reason why customers are rapidly destocking despite the the ramp up of production at the material stage.

Whether or not the Nokia-Microsoft deal makes any economic sense is up for analysts to argue but judging by the market's reaction to MSFT this morning, we'd say 'not' as the stocks is down almost 5% (devouring the entire Ballmer-bounce). However, Nokia is up a stunning 41% as investors seem not just relieved at the firm's dumping of the loss-making mobile business (always a greater fool?) for $7.2 billion; but concerned at the massive short-interest in the name. While the absolute number of shares short has dropped in recent weeks, it remains high at 11.9% of float (according to Markit); but in terms of days-to-cover it has never been higher and in fact will take around 15 days at average volume to unwind fund's massive short positions.

While we understand Europe's desperation to telegraph an improvement in its economy, driven by both GDP and such sentiment indicators as PMI data, very much as we saw in early 2011 before the carpet was pulled from beneath Europe and it promptly slid into a double dip, one thing that is unclear is why Europe continues to insist using Spain as the marginal indicator of improvement. After all, for every 50+ PMI print or "just barely positive" GDP there is a total (or youth) unemployment chart rising to fresh highs and confirming there is no consumption, and certainly no loan creation - the two driving forces of Keynesian economic growth. But while those two data dynamics are well-known to most, perhaps the true Ying and Yang indicators of Spain's economy are these two, somewhat less popular, charts.

It seems the hopes and dreams of a Japanese public (and their illustrious leaders) is being dashed on the same rocks as the US worker. Amid surging input prices (thanks to a devalued currency) with consumer prices rising at the fastest rate since 2008, Bloomberg notes that Japanese salaries extended the longest slide since 2010 squeezing the consumer as the failure of demand pull inflation becomes more than real. Despite a stock market that is surging and politicians the world over proclaiming Japan's victory, "companies aren't confident enough on the sustainability of the economic recovery," instead cutting salaries (in an oh-so-American manner) to manage higher input costs. With a sales-tax increase on its way, the consumer faces even more pressure, "if wages don't improve much, it may pose a political risk" to Abe's administration.

Yesterday we presented an amusing propaganda video clip remix of the Syrian S-300 Surface to Air missile. We found it hardly surprising, especially following today's news of a missile test launch by Israel, that there is a matching counterparty propaganda video showcasing Israel's Arro-3 missile interceptor from February of 2013.

More on this morning's unexpected joint Israel-US missile test launch. From Bloomberg:

• Israel missile defense organization, U.S. missile defense agency completed successful flight test of new version of the “sparrow target missile” today, Israeli Defense  Ministry says in e-mailed statement.
• Arrow weapon system’s radar successfully detected, tracked target; all elements performed according to configuration
• Main contractor of arrow weapon system is MLM of IAI, in conjunction with Boeing, according to statement
• ISRAEL DEFENSE MINISTER SAYS MISSILE TEST WAS SUCCESSFUL
• ISRAEL'S YA'ALON SAYS NEW DEFENSE TECHNOLOGIES MUST BE TESTED

• Mediterranean 'Ballistic Targets' Were Part of Israeli Test – Defense Ministry (RIA)
• Microsoft to Buy Nokia’s Devices Unit for $7.2 Billion (BBG)
• Long-Term Jobless Left Out of Recovery (WSJ)
• Swiss banks apologize for assisting tax cheats (Reuters)
• As Obama pushes to punish Syria, lawmakers fear deep U.S. involvement (Reuters)
• India Looking to Expand Rupee-Payment System (WSJ)
• Citigroup Dialing Back Its 'Alternative' Holdings (WSJ)
• Libya Seeks New Solutions to Oil Crisis (WSJ)
• Lenovo Chief Yang Shares Bonus With Workers a Second Year (BBG)