Archive - Jul 29, 2014 - Story

After unleashing a 10-page report of the death and destructive economic impact they could have on Russia via sanctions, the European leaders have agreed to issue travel bans, some asset-freezes, and trade curbs on various new individuals and business entities. The Goldilocks sanctions... just enough to please Washington, not enough to infuriate Putin into 'boomerangs'.

While headlines are flashing red about how exuberant the consumer is, there appears to be some 'new normal' oddness under the covers. Projecting this positive news into the future (as every talking-head is) does not add up with the fact that "plans to buy a car" and "plans to buy a major appliance" both tumbled in July. But the biggest problem for the 'recovery', "plans to buy a home" collapsed to its lowest since Feb 2013...  perhaps not a total surprise when 77 million Americans have debt past due. Welcome to the new normal definition of confidence.

On the heels of UMich confidence tumbling to 4-month lows, the Conference Board's consumer confidence exploded higher to the highest since October 2007. This is the 3rd monthly rise in a row and the biggest beat in 13 months all led by a spike in future expectations to its highest since Feb 2011. The Conference Board proclaims this is due in part to a "brighter outlook for personal income," though reality of falling real hourly wages suggests that is simply false. The last time the conference board confidence diverged this much from UMich confidence was June 2007 and that did not end well...

With all other operating holdcos having already declared bankruptcy, the anxiety over Banco Espirito Santo is growing (despite DE Shaw and Goldman Sachs recommending investors buy the shares). Despite Bank of Portugal reassurance last night that "BES is able to raise capital), the stock is plunging on news of "unexpected facts" this morning...

*BANCO ESPIRITO SANTO SAYS SHAREHOLDER MEETING WAS CANCELLED DUE TO "UNEXPECTED FACTS''
*BANCO ESPIRITO SANTO FALLS MORE THAN 13% IN LISBON TRADING

Remember, this is systemic (as the Portugues President has warned), and the contagion is potentially global... not "contained."

Fourth time was sadly not the charm...

But it was supposed to be the weather? S&P/Case-Shiller home prices dropped in May and missed expectations for the 2nd month in a row. Against a forecast rise on 0.3%, prices dropped in May by 0.3% - the biggest drop since December 2011. It appears we are going to need more Chinese hot money flow buyers. Of note, while in April Case-Shiller reported only 5 cities out of the tracked 20 posting sequential price declines, in May this number has soared to 14. And so the fourth dead cat bounce in housing appears to be over.

This morning makes as much sense as most mornings. US equity markets, after some weakness in the European session have been lifted wholesale towards Friday's highs on the heels of a USDJPY 102 stop-running algo. At the same time bonds are being bnought aggressively with 10Y and 30Y yields now lower on the week. The USD index is surging higher on EUR and GBP weakness and commodities are sliding.

In the aftermath of the news from the past week that at least two US citizens have been infected with the Ebola virus, a very unpleasant if nagging question has appeared: can the virus spread to the US? According to NBC, "the Ebola virus, which has infected two U.S. humanitarian workers in Liberia, is only a short plane ride from any city on Earth. But federal health officials say it’s not a big worry for most Americans." Are they wrong?

• EU finalises Russian sanctions as BP warns of impact on business (FT)
• Geopolitical Risk Rises for Global Investors (BBG)
• Jaded Argentines brace for looming debt default (Reuters)
• In Argentina, Mix of Money and Politics Stirs Intrigue Around Kirchner (WSJ)
• Mom ‘Trusting God’ for Ebola-Infected U.S. Doctor’s Life (BBG)
• Thanks NSA: Tech Companies Reel as NSA's Spying Tarnishes Reputations (BBG)
• Goldman unit eyes foray into China amid metals financing scandal (Reuters)
• Cash out time: London’s Gherkin Tower Offered for Sale by Its Lenders (BBG)
• Apenomics strikes again: McDonald’s Japan axes profit guidance amid food safety scandal (FT)
• Do you see what happens Larry when you are the only USDJPY bid? Nomura Profit Falls More Than Estimated on Broking Slump (BBG)

Overnight markets have been a continuation of the relative peace observed yesterday before the onslaught of key data later in the week, with the biggest mover standing out as the USDJPY, which briefly touched 102 before sliding lower then recouping losses. This sent the Nikkei 225 up 0.57% despite absolutely atrocious Japanese household spending data, coupled with a major deterioration in employment: at this rate if Abenomics doesn't fix the economy it just may destroy it. Aside from that the last 24 hours could be summed as having a lot of noise but not a lot of excitement. This was best illustrated by the S&P500’s (+0.03%) performance which was the second smallest gain YTD. And while the SHCOMP is starting to fade its recent euphoria and China was up only 0.24%, Europe continues to cower in the shade of Russian sanctions as both German Bund yields rose to record highs, and Portugal's BES tumbled by 10% once again to 1 week lows. Today Europe is expected to formally reveal its latest Russian sanctions, which should in turn push Europe's already teetering economy back over the edge.