Archive - Aug 14, 2014 - Story

“Commercial shale gas production in Europe can begin not earlier than in 2016-2018 even with positive geological surveys. But production volumes will not bring about major changes in the European gas market due to a decline in conventional gas production,” Gazprom. Which, sadly for Europe, means that Putin will be dictating his terms on the energy-strapped continent for a long, long time.

While the mainstream media has become used to the daily buying of bonds by The Fed, mention that they are buying 'stocks' and suddenly one is labeled a conspiracy theory wonk - despite 1) the fact that they are, and 2) they have admitted that equity wealth creation is a policy tool. However, ignoring the almost daily vertical ramps in US stocks and volatility from a seemingly bottomless pit of margin; the Bank of Japan has been buying stocks (directly through ETFs) for years... and as the Nikkei began to turn down in early August, the WSJ reports the BoJ undertook the longest and largest consecutive buying streak since it started purchasing ETFs in December 2010.

With the USDollar giving up all the week's gains this morning on the heels of EUR strength (repatriation), weak claims data coupled with import prices sparked a leg higher in gold and leg lower in the yields of bonds on either side of the Atlantic. Gold poked its head above $1320 briefly, having been smacked lower twice overnight. 10Y US Treasury yield is now 2.39%.German 2Y yields traded at -1bp, there lowest in 15 months as 10Y Bunds dropped below 1% for the first time ever. Equity futures are fading back into the red.

In July, the rest of the world once again succeeded in exporting its deflation to the US, confirmed by a -0.2% drop in the Import Price Index, its first decline since April following a 0.1% increase in June, if just a fraction better than than the -0.3% consensus.This was also a 0.8% increase Y/Y, suggesting June may have been a Y/Y top following 5 consecutive months of annual increases. The key drivers for the decline: Fuel imports as well as car prices. To wit: the price index for import automotive vehicles declined 0.8 percent in July, the first monthly decrease for the index since a 0.1-percent decline in February and the largest 1-month drop since the index fell 1.1 percent in December 1992. Why? Because foreign car sellers have no choice but to slash prices to compete with the US subprime flood making domestic car prices effectively "free."

With expectations set at multi-year cycle lows of 295k, the 311k print is a major disappointment (the biggest miss since early May) as initial jobless claims jumped 21k to the highest since June. Ithas now been 3 weeks without a new cycle low in claims - perhaps too early to call a trend change - but notably 31k off the lows in late July. Continuing claims also rose markedly, missing expectations for the 6th of the last 7 weeks.

• Police fire tear gas, stun grenades at Missouri protesters (Reuters)
• Putin’s Pipeline Bypassing Ukraine at Risk Amid Conflict (BBG)
• Russia's Largest Oil Company Seeks $42 billion to Weather Sanctions (WSJ)
• Shells hit central Donetsk, Russian aid convoy heads towards border (Reuters)
• U.S. Tightens Sanctions, Putting More Russian Companies at Risk (BBG)
• How to Blindly Score 43% Profit Overnight in China Stocks (BBG)
• Tears guaranteed: San Diego Pension Dials Up the Risk to Combat a Shortfall (WSJ)
• Euro Recovery Halts as Germany Shrinks, France Stagnates (BBG)
• Billionaire Found in Middle of Bribery Case Avoids U.S. Probe (BBG)
• Hillary Clinton, Barack Obama 'Hug It Out' on Martha's Vineyard (WSJ)

Remember this chart from November, when everyone was predicting a surge in global GDP and "escape velocity" growth for the US economy on the latest burst of irrational hopium that central-planning works (it doesn't)? It just got worse....

The hammer finally hit for Europe when overnight both Germany and France reported Q2 GDP prints that missed expectations, the first actually contracting at a 0.2% rate with consensus looking for -0.1%, while France remained flat vs expectations for a tiny 0.1% rise. As a reminder, this GDP is the revised one, which already includes the estimated contribution of drugs and prostitution, suggesting the actual underlying economic growth is far worse than even reported. Then again, this is hardly surprising considering all the abysmal data out of Europe and the rest of the world in recent weeks, and with the Russian trade war sure to trim even more growth, look for all of Europe to join Italy in its first upcoming triple-dip recession in history.