Archive - May 2014 - Story

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.

Court challenges to constitutionally dubious laws that have been introduced since the WTC attack, as well as to the highly questionable activities of the national security apparatus, have been regularly stopped in their tracks with the argument that the plaintiffs 'lacked standing'. In the case of the indefinite detention provision this argument is especially bizarre, since all those who will acquire 'standing' in the future will no longer have access to the courts – the very thing the plaintiffs tried to challenge. This seems hardly compatible with how a nation of laws is supposed to operate, but as Rothbard pointed out, the State will always find a way to transcend its limits.

The weekend's re-escalation in Ukraine has sent gold popping $10 (and back above its 200DMA) and FX carry (and thus US equities) sliding in the early overnight trading. With Japan out (and Europe set for another holiday) volume are, and will likely remain, low. Critically, USDJPY is back under 102, even as Japan's central bank governor proclaims:

*KURODA SAYS PRIVATE ECONONISTS UNDERESTIMATE JAPAN, CNBC SAYS (but the government ones are spot on?)

Which means Nikkei futures are also lower - down over 300 points from Friday's highs (and Chinese stocks are falling on the back another weak PMI print). Treasury futures are bid suggest 2bps more yield compression back below Friday's low yields at 2.57% for the 10Y.

For the 6th month in a row, China HSBC Manufacturing PMI missed expectations. With a 48.1 flash print for April (vs 48.3 expectation) this is a very modest rise from March's 48.0 but is the 4th month in a row of contraction for the broader-based HSBC-version of the PMI (as opposed to the official more-SOE-biased version which remains in modest expansion). This is the longest streak of contraction since Oct 2012 (and the 3rd consecutive month of new order contraction). As if that was not enough to upset the 'recovery is around the corner' crew, home sales in China in the most recent (most frenetic typically) period, collapsed 47% year-over-year (and a stunning 65% in tier-2 cities). But apart from that - everything's great in the newly appointed largest economy on earth...

The clip below explains that in response to Russia no longer following the globalist playbook, NATO has tripled its air policing mission assets guarding the skies over the Baltic region.  In the video: Danish fighter jets land in Estonia, while Poland and the United Kingdom take over guarding the skies in Lithuania, tripling the NATO air policing mission strength in the Baltic region.

From fears of Argentinian devaluations (and a 26-year-old running policy) to Japan's structural collapse; from Europe's false hope to China's bubbles; and from the Fed taper to the US hydrocarbon revolution, Hayman Capital's Kyle Bass provides a broad-based presentation of global risks and opportunities in the clip below. The Q&A is where Bass comes alive and is well worth the price of admission for a hedge fund manager unafraid to discuss the possibility that the status quo is unsustainable. Bass sums it all up perfectly succinctly, "proceed with caution."

Only one thing is relied upon when words turn to deeds...UK warship HMS Edinburgh sails home via Arctic Ocean- 5 tons of Russian gold on board, part payment for war supplies

Simply put, there are three downside risks for markets - that appear to be off the 'meme of the day' beaten track of any average investor nowadays eyeing the record highs and gloating at any bear left standing:

1) China has shifted from a monetary policy of choice to a monetary policy of necessity.

2) The Narrative of Fed Omnipotence continues to reign supreme, but now in a tightening monetary policy environment.

3) The Hollow Market is cracked open by well-intentioned but destructive regulators.

Too long to read? Attention Deficit Disorder let you down...? Read!

"This is the future if nothing is done to stop it," is the ominous way The Atlantic describes the recent Big Brother tactics used by LA County Sheriffs to "police" areas such as Compton. Residents were unaware ("A lot of people do have a problem with the eye in the sky, the Big Brother, so to mitigate those kinds of complaints we basically kept it pretty hush hush")that, as the police stated, "we literally watched all of Compton during the times that we were flying, so we could zoom in anywhere within the city of Compton and follow cars and see people," as they trialled a new system which if adopted, would mean Americans can be policed like Iraqis and Afghanis under occupation. As The Atlantic concludes, the sheriff didn't conclude that the "wide area surveillance" wouldn't be like Big Brother after all, just that Big Brother capabilities would help to solve more crimes... so why not tryout mass surveillance?

If the advance from January 2013 to the top in early 2014 isn't a blow-off top, it's certainly a pretty good imitation of one. If the NASDAQ surpasses the high of 4,371 and moves higher, the head and shoulders pattern is negated. If the NAZ fails to rally to new highs, that could be a signal that the rally from 2009 is reversing or has entered a new phase.