Archive - Aug 25, 2014 - Story

Following last week's housing starts data, everyone was expecting a new home sales number that was even better than the consensus 430K. Instead, the July print of 412K was not only the 5th miss in the last 6 prints, but also the lowest number since March's 403K. The biggest drop took place in the Northeast where the sequential plunge was some 31% to just 18K new houses, and a whopping 44% from a year ago. There were declines in the Midwest which dropped 8.8% and in the West, which dropped 15.2%, while the only increase was recorded in the South which rose 8.1%. In fact, of all regions, only the South posted an increase from July 2013, surging by 33%, with new home sales in all other regions dropping.

Mission Accomplished... Retirement for all. A year ahead of Goldman's schedule, and with Treasury yields plumbing multi-month lows, US equities are opening this morning at new record-er highs as the S&P crosses the 'awesome' 2,000 Maginot Line for the first time (despite Yellen's hawkishness and Kuroda's playing down moar QQE leaving Draghi left to save the world). Can you feel the wealth effect surging through your income streams?

US Services PMI dropped from multi-year highs to a still expanding 58.5, 3 month lows and the biggest MoM drop in 6 months. This is the 10th month of expansion in a row but employment growth continues to slow, as opposed to the priced-in escape velocity to the moon levels the market expects, even if this particular piece of bad news may just be the good news the "market" needs for that nudge above 2,000.

UPDATE: An “all clear” was issued shortly before 10 a.m., according to Fort Lee media relations. No other information at this time.

Active shooter incident reported at CASCOM HQ, Bldg. 5020. All personnel enact active shooter protocols immediately. Post on lockdown.

— U.S. Army Fort Lee (@ArmyFortLee) August 25, 2014

Far be it for us to comment that anything like "fundamentals" matters anymore, or that, blasphemy, bad news is anything but good news, however what the Central Bank of Cyprus revealed today is a little troubling to say the least: as of the most recent, June, data, the total percentage of non-performing loans in the Cypriot banking system just rose to a mind-blowing 45%, up from 44.3% in May, and nearly double the 23.6% which was reported at March 2013 when the local banking system cratered, leading to the first European forced "bail-in" of (mostly Russian) depositors.

The outbreak of Ebola virus disease in west Africa is unprecedented in many ways, including the high proportion of doctors, nurses, and other health care workers who have been infected, warns the World Health Organization. Despite all precautions possible, more than 240 health care workers have developed the disease in Guinea, Liberia, Nigeria, and Sierra Leone, and more than 120 have died. Simply put, they conclude, the current outbreak is different. The loss of so many doctors and nurses has made it difficult for WHO to secure support from sufficient numbers of foreign medical staff. Even WHO admits, if doctors and nurses are getting infected, what chance does the general public have?

Following the 'success' of the first humanitarian convoy, Bloomberg reports that Russian foreign minister Sergei Lavrov said the nation plans to send a second convoy loaded with humanitarian aid to Ukraine. he U.S. and the European Union condemned the decision to send the first convoy of about 280 trucks, which the government in Kiev called an "invasion," and the US accused Russia of painting military vehicles white. This time will be different, according to Lavrov, as the government in Moscow is maneuvering to avoid the border standoff and uproar that marred its first convoy last week, adding “We’ll work on ensuring security guarantees from the side of the militias." Ironically, Lavrov also reminded a "disinformation"-prone media that Russia remains the only nation that continues to seek an MH17 probe as Ukraine has still not released Dnipropetrovsk air traffic control recordings.

UPDATE: Every dip is to be bought... USD now higher and gold, silver lower

After a week of punishment, precious metals are kneejerking higher this morning on the heels of a Citi FX note explaining they are cutting all USD longs - "This is an opportunistic exit as we feel we may be due for a squeeze of USD long positions similar to what happened at this point in the cycle last year." The USD Index is sliding quickly and Treasury yields inched higher (but remain -1.5bps despite equity strength).

Key highlights in the coming week: US Durable Goods, Michigan Conf., Services PMI, PCE, and CPI in Euro area and Japan. Broken down by day: Monday - US Services PMI, New Home Sales (Consensus 4.7%); Singapore CPI; Tuesday - US Durable Goods (consensus 7.5%) and Consumer Confidence; Wednesday - Germany GfK Consumer Confidence; Thursday - US GDP 2Q (2nd est., expect 3.70%, below consensus) and Personal Consumption; Euro area Confidence; CPI in Germany and Spain; Friday - US Michigan Conf. (consensus 80.1), PCE (consensus 0.10%), Chicago PMI; Core CPI in Euro area and Japan (consensus 2.30%). Additionally, with a long weekend in the US coming up, expect volumes into the close of the week to slump below even recent near-record lows observed recently as the CYNKing of the S&P 500 goes into overdrive.

Earlier this morning, those expecting an out of control European deflationary tumble got one step closer to their goal when French President Francois Hollande asked his prime minister, who only assumed the post a few short months ago in March, to form a new government, following what Reuters reported was him "looking to impose his will on the cabinet after rebel leftist ministers had called for an economic policy U-turn" spearheaded by economy minister Arnaud Montebourg demanding an end to French "austerity." The Guardian is somewhat more direct and to the point: "France has entered uncharted political waters after the prime minister, Manuel Valls, presented his government's resignation amid a political crisis triggered by his maverick economy minister who called for an end to austerity policies imposed by Germany."

• Jackson Hole Theme: Labor Markets Can’t Take Higher Rates (BBG), or anything else for that matter
• Kidnappers free American missing in Syria since 2012 (Reuters)
• More unpatriots: Burger King in merger talks with Canada's Tim Hortons (Reuters)
• California Quake to Cost Insurers Up to $1 Billion, Eqecat Says (BBG)
• Congo declares Ebola outbreak in northern Equateur province (Reuters)
• Missouri Governor Defends Ferguson Prosecutor (BBG)
• Kuroda Douses Japan Stimulus Expectations (WSJ)
• London Jihadi Call Vies With Banks in Canary Wharf Shadow (BBG)
• Netanyahu Signals Expansion of Air Attacks in Gaza (WSJ)
• Libya's Islamist Militias Claim Control of Tripoli (WSJ)

It's been one of those days. First, the CME broke for 4 hours due to what some suggested were HFT connectivity issues, then Russia announced it would send a second humanitarian convoy into Ukraine (a big risk off move the first time it was announced, now not even an algo stirred), then Germany reported that the IFO Business Confidence/Climate dropped for the fourth consecutive month to 106.3 from 108.0, below the 107.0 expected, with the IFO chief economist stating that German GDP expectations are likely to be cut to 1.5% from 2.0% later in the year, and finally the French government collapsed due to disagreement over policy between finance minister Valls and economy minister Montebourg. All in all, a typical day in Europe's slow-motion implosion. So why are Spanish and Italian bank stocks soaring and European bond yields reaching new record highs? Simple: following Draghi's speech on Friday at Jackson Hole, which at initial read was hardly as dovish as many had expected, the FT and various other media outlets promptly changed the narrative and made it seem as if the ECB head was about to unleash QE.