Archive - Feb 13, 2014 - Story

The machines have learned well that 1015ET is buying time... Why, you ask? Well, it's POMO time - when the Fed hands out its fully fungible, rehypothecatable, infinitely leveragable free-money and risk assets pop... apart from today, there is no POMO... USDJPY 102 was all that mattered - no excuses. At least the currency manipulation crack down has fully rooted out all the front-running, options-strike-searching behavior...

Winter Storm 'Pax' has already crippled much of the South, snarling traffic and dumping more snow than most can remember on places that are unarguably ill-prepared to cope. But, as The Weather Channel warns, up to 18 more inches of snow is forecast for the Northeast as Pax pushes up the East Coast. With no thaw expected in the South until at least the weekend (and freezing winds causing havoc), forecasters expect more power outages. Trouble has already started though further North with DC over 13 inches of snow and NYC having over 7 inches this morning alone. It's not everyday that snow is falling in Atlanta and Boston at the same time! 585,000 households are without power in 7 states this morning. Flight cancellations have begun from DC to NYC building on the 4,000 that were cancelled yesterday.

It was only two weeks ago when Goldman's Jan Hatzius, as we predicted he would, took a hammer to its GDP forecasts for Q1 GDP upon the shocking realization that Q4 "growth" was all inventory driven. This morning, the hammering resumes as Goldman, in the aftermath of today's disastrous retail sales, not only cut its Q4 2013 GDP forecast from 2.8% to 2.4% (vs the 3.2% initially reported), but slashed its current quarter estimate from 2.3% to 1.9%. As a reminder, this number was 3.0% three weeks ago. Once again, nothing beats an economist forecast to know what the future will not be.

The retail sales control group - the components of retail sales that feed straight into the GDP calculation - rose at a pace of 2.4% in December, the lowest since 2009, and dropped 0.3% sequentially, the biggest drop since December 2011. What this means is that GDP growth - expected to be flourishing until recently and which Joe LaVorgna has at about 4% for 2014 - is about to be monkeyhammered. Why? Snow in the winter, of course.

Having rallied yesterday and totally ignored the fact that Letta's 10-month-old government was about to collapse, Italian equity and sovereign bond markets are falling this morning by their most in two weeks. The main bone of contention for Renzi-Letta fight is jobs and growth - there is none of either - and while Prime Minister Letta assures that the Italian economy grew in Q4 (GDP data to be released tomorrow) for the first time in 10 quarters, as Bloomberg's Niraj Shah notes, real GDP is still smaller than it was in 2000. Letta has just canceled his UK visit (planned for 2/24) and did not take part in the Democratic Party meeting with a Renzi friend saying "[Letta] will resign." Italians are, of course, used to the farce that is politics - there have been 64 government since 1945.

And so, prepare to see much more of this chart which as we warned will be used as justification to explain why retail sales not only just tumbled, but posted their worst miss since June 2012. Retail sales, which incidentally, just happen to be seasonally adjusted precisely to account for such shocking phenomena as snow in the winter:

• Headline retail sales plunged -0.4% on expectations of a 0.0% print.
• December headline retail sales were revised from 0.2% to -0.1%, which also means that the December data was in fact a miss of expectations of 0.1%, not a beat as was reported at the time, and also means retail sales have now missed three months in a row. We know, we know: the weather.
• Retail sales ex autos were unchanged atg 0.0%, on expectations of 0.1%, with December also revised from a "beating" 0.7% to a miss of 0.3%
• Retail sales ex autos and gas dropped -0.2%, on expectations of a 0.1% increase, with December revised far lower from 0.6% to 0.1%

In other words: yet another confirmation that the US consumer is tapped out thanks to draining his savings during the holiday season, and also hinting that the inevitable untaper is coming far sooner than expected.

At 339,000 initial jobless claims, this is the 3rd miss in thelast 4 weeks and back above the 8-month average suggesting that the best in the layoff trajectory of this 'recovery' is over. Continuing claims remains slid modestly and, of course, emergency benefits remain at zero. Of course, as we showed here, it is not layoffs (and thus initial jobless claims) that matters - what is crucial is that there is no hiring...

Now that we have entered the Post Taper world, at least until the data gets so horrendous that the Fed is forced to admit defeat and resumes Untapering, here is a cliff notes version of the "reality" narrative as spun by the media and pundits: if the data is "good" it is because of the recovery; if the data is "bad" it is due to the weather.  Which is why when retail sales are reported in a few minutes, we expect nothing less than more weather scapegoating. In fact, courtesy of Guggenheim's Scott Minerd we can almost predict with surgical accuracy just how bad the retail sales miss will be based on the series' correlation to average January temperatures. Because, you see, when it is snowing outside people just don't use their computer to go to amazon.com and order negative margin loss leaders for Jeff Bezos...

Something funny happened on the Grecovery: the Grecession.... Actually, make that the Gepression. In a nutshell - according to Elstat, Greek unemployment in November rose to a record high on both a seasonally adjusted and unadjusted basis with 28% of the labor force without a job, the number of people unemployed rose to a record high 1.382 million, even as the number of labor inactive people keeps rising, hitting 3.377 million and on its way to catch up with the rapidly declining 3.55 million people employed, which incidentally in November also posted a new record low. And tying it all together was the Greek youth unemployment rate which posted a record high for November at 61.4%, and after a few months of declines which gave some hope that things are indeed improving is back to its old, soaring ways.

• Comcast Agrees to Buy Time Warner Cable for $45.2 Billion (BBG)
• Italian leadership squabble weighs as shares halt hot run (Reuters)
• Russia says Syria aid draft could open door to military action (Reuters)
• China trust assets rise 46% in 2013  (WSJ), China Trust Assets Surge to $1.8 Trillion Amid Default Risks  (BBG)
• Australian Unemployment Jumps to 10-Year High (BBG)
• Tea Party Scorns Republicans as House Lifts Debt Ceiling (BBG)
• Peso plunge forces Argentine soya hoarding (FT)
• BNP Paribas Net Falls After $1.1 Billion U.S. Legal Charge (BBG)
• Hacking Joins Curriculum as Businesses Seek Cyber Skills (BBG)
• Android's 'Open' System Has Limits (WSJ)
• Blackstone-Fueled Single-Family Home Boom Lifts Chicago (BBG)

With so much of the recent bad news roundly ignored or simply "priced in" and blamed on the snow, it is unknown just what it is that catalyzed the overnight round of risk-offness, but whatever the ultimate factor, it first dragged the Nikkei lower by 1.8%, as we noted previously, then sent the SHCOMP down by 0.55%, then ultimately dragged the USDJPY below the key 102 support area which in turn pulled US equity futures to set the scene for a red open (with no POMO and no Yellen testimony today which also was canceled due to snow), and, putting it all together, suddenly Europe too is back on the scene, with a blow out in Italian yields driven by the realization that the Letta government is on the edge of collapse, in a deja vu moment to those hot summers of 2011 and 2012.

S&P 500 futures remain up 15 points on the week but have retraced 16 points from today's highs; Dow futures are down 150 points from today's highs; and Nikkei 225 futures are down almost 500 points from their Yellen-Tuesday peak (and down 200 on the week) as USDJPY fades back towards the critical 102.00 level. Emerging Market FX is fading rapidly also.