Archive - May 5, 2014 - Story

At 51.3, the employment sub-index of the ISM Services data is at its lowest since May 2013 (ex February's "weather" impacted plunge). But hey - who cares about jobs, the headline improved to 8-month highs and beat expectations so sell JPY and buy stocks... new export orders (and new orders overall) rose to 8 months highs (but we don't need jobs for that?)... As an aside, Prices Paid surged to its highest since October 2012 as cost-push inflation appears to be looming.

While modestly better than expected, Markit's Services PMI fell in April from March's snap-back "we are saved" post-weather bounce.. and that's the good news! While abover "50" and this in expansion mode, job creation slipped to 13-month lows! As Markit summarizes, "the surveys are also signalling an easing in the rate of job creation since the start of the year, pointing to private sector payroll growth in the region of 100k, meaning a substantial slowing compared to the recent average 225k increases signalled by official data over the past three months."

None other than status-quo-hugger Berkshire Hathaway's Charlie Munger took aim at the scourge of HFT this morning; blasting high-frequency traders as "the functional equivalent of letting rats into a granary," and exclaims "it does the rest of civilization no good at all." Buffett reminds that HFT is "not a liquidity provider, " explaining that while it does produce volume, that is not the same as liquidity; and while the Oracle opines (incorrectly) that the small investor has never had it so good, Munger is quick to point out that the money HFT makes does not come from heaven and in fact it is the small investor who is hurt by the fact that large investors (who mostly act on small investors' behalf) are severely impacted. Even the usually abstinent Bill Gates remarks upon HFT as "adding no value.. because when the liquidity is needed, it isn't there." Munger sums it up: "I don't like it."

One of the more peculiar news from last week was the grounding of all flights for several hours at several airports in the Southwestern United States and the grounding of planes bound for the region from other parts of the country. As so often happens when there is no specific reason at the time, the error was blamed on a computer "glitch" - the computer problem at a Federal Aviation Administration center slowed the journeys of tens of thousands of arriving and departing passengers at LAX. And that would have been all we heard of it had it not been for some additional digging by NBC which on Saturday, citing unnamed sources, reported a U-2, a Cold War-era spy plane still in use by the U.S. military, "passed through air space monitored by the Los Angeles Air Route Traffic Control Center and appears to have overloaded a computer system at the center."

There was a humorous moment on the tape overnight when news hit that Germany was set to propose new (and improved) Geneva talks on Ukraine, according to German foreign minister Frank-Walter Steinmeier. According to Bloomberg, the aim of new Geneva talks would be to correct failure of parties to adhere to accords forged in first talks in city. "New Geneva talks would seek to boost OSCE presence in Ukraine to ensure compliance with April accord, with observers also acting as mediators in local conflicts." Yes, utopia is great, and here's to hoping that once, just once, Russia will ignore the fact that it has every geostrategic advantage in the ongoing conflict and will pull back. In the meantime, here is what happened overnight as fighting in the Ukraine civil war continued unabated, claiming more lives and dozens of injueries overnight: UKRAINE TROOPS SUFFER 4 KILLED, ABOUT 30 WOUNDED IN SLOVYANSK

This week, markets are likely to focus on US ISM Nonmanufacturing, services and composite PMIs in the Euro area (expect increases), ECB’s Monetary Policy Decision (expect no change in policy until further ahead), and Congressional testimony by Fed’s Yellen.

With Japan out and Europe quiet, markets are without their normal random Nikkei headline or ECB quote of the day to juice JPY (unable to break back above 102) and stocks (for now)... and of course, it's not Tuesday. Treasury yields are lower for the 5th day in a row with 10Y breaking below 2.57% (Feb lows) to its lowest in 7 months; 30Y continues to tumble to fresh 11-month lows (below 3.35%). Gold remains bid, now pressing up to $1315 (and well above its 200-day-moving-average) and silver is rallying. Stock futures are weak having lost the post-China PMI lows as Ukraine fear continues to rise. As far as "costs", Russian stocks are down for the 2nd day in a row (around the same as US stocks for now) but the Ruble is modestly stronger even as Russian bonds weaken slightly to 9.43% yields.

It seems being ultimately responsible for the largest data breach is US history has its consequences for the bucks-stops-here CEO and Chairman of Target:

*TARGET SAYS CHAIRMAN, CEO STEINHAFEL TO STEP DOWN
*TGT BOARD, STEINHAFEL SAY NOW IS RIGHT TIME FOR NEW LEADERSHIP
*TGT SAYS STEINHAFEL ENTITLED TO SEVERANCE PAYMENTS
*TARGET SAYS AUSTIN NAMED INTERIM NON-EXEC CHAIR

Target share prices is down modestly on the news, testing its 200DMA.

• Fed’s Fisher Says Economy Strengthening as Payrolls Rise (BBG)
• Russia Knows Europe Sanctions Ineffective With Tax Havens (BBG)
• EU Cuts Euro-Area Growth Outlook as Inflation Seen Slower (BBG)
• U.S. Firms With Irish Addresses Get Tax Breaks Derided as ‘Blarney’ (BBG)
• Portugal exits bailout without safety net of credit line (Euronews)
• Puzzled Malaysian Air Searchers Ponder What to Try Now (BBG)
• Barclays, Credit Suisse Battle Banker Exodus, Legal Woes (BBG)
• Germany says euro level not an issue for politicians (Reuters)
• Alibaba-Sized Hole Blown in Nasdaq 100 Amid New Stock (BBG)
• Obamacare to save large corporations hundreds of billions (The Hill)

After months of ignoring events in Ukraine, HFT algos suddenly, if one for the time being, have re-discovered just where the former USSR country is on the map, and together with the latest economic disappointment out of China in the form of its official manufacturing PMI which missed expectations for the sixth month in a row, futures are oddly non-green at this moment now that talk of a Ukraine civil war is the new black (after two months of ignoring the elephant in the room... or rather bear in the room). Lighter volumes, courtesy of holidays in Japan and UK, have not helped the market breadth and stocks in Europe are broadly lower with the DAX (-1.33%) and CAC (-1.19%) weighed upon by risk off sentiment and market positioning for the eagerly anticipated ECB policy meeting especially after the EU cuts its Euro-Area 2014 inflation forecast from 1.0% to 0.8%. But what's bad for stocks continues to be good for equities, and moments ago the 10Y dropped to a paltry 2.57%, the lowest since February... and continuing to maul treasury shorts left and right.