Archive - Jan 20, 2015 - Story

NAHB Sentiment in January printed 57 (missing expectations of 58) down 1 from last month's upwardly revised 58 print. This headline mediocrity, however, hides a relative plunge in future sales expectations which tumbled to their lowest since June. Only the Midwest region saw improvement with the West region plunging 9 points to 66.

As stocks, copper, crude, and bond yields plunge this morning, gold (and silver) prices are surging. With gold near $1,300 - 5-month highs, and silver topping $18 - 4-month highs; it appears investor demand for non-fiat currency is growing (and not just for China and Russia)...

It was all so awesome. Chinese GDP 'beat' expectations which means everything is great (apart from it being the worst growth in 24 years) and so stocks rallied, helped by even moar ECB QE jawboning. But this morning's plunge in crude and copper (global growth?) finally knocked on into equity market reality as the opening ramp quickly gave way to selling pressure and erased all 'wealth' created by Chinese data. US Treasury yields are 3-5bps lower with 30Y testing 2.39%.

In what Bloomberg's Richard Breslow calls "a sign of the times, and not a good one" the weekend has been dominated by politicians commenting on the ECB. Not only did Erdogan un-independently suggest Turkish policy action today (as we noted here), but now Merkel, Hollande, Noonan etc. are all telling you what the ECB should do or indeed will do and then telling you that, of course, the ECB is independent. Central Banks have essentially become enormous sovereign wealth funds manipulating the markets and very much in the thrall of geo-political events. This is a very problematic development which is an inevitable follow-on to the activism of central banks in their policy conduct.

Another day, another unambiguously bad announcement from America's bettered energy sector which are bolting down ahead of the crude storm, and firing thousands. Last week it was Schlumberger which announced it would fire 9000, today it is Baker Hughes which just warned it too will hand out about 7000 pink slips in the first quarter. And as a reminder, when it comes to comp: each Baker Hughes job is equivalent to about 10 waiter and bartender jobs, which have been the basis of this "recovery." To wit: BAKER HUGHES SEES WORKFORCE REDUCTION OF 7,000 WORKERS

WTI Crude prices are back below $48 having tumbled in the last few minutes. Copper prices are also sliding notably (as gold and silver slip). No immediate catalyst aside from delayed reaction from last night's slow and sure realization by The IMF that all is not well will global growth.

The problem, and the source of hope for Eurozone equity investors, is that Eurozone corporate profits have not matched this strong equity price performance. Headline EPS and DPS growth have not advanced since 2012. In fact, aggregate earnings and dividends as measured by MSCI are down by 7% and 5% respectively, whilst the equity index is up 50%."  We'll repeat that again: in the past 2 and a half years, Eurozone earnings are down 7%! So where did this upside come from? "This strength in share prices but not in profits has meant the reported P/E multiple on Eurozone equities has risen from 11.5x to 18.7x today – a multiple expansion of over 60% in 30 months – and now stands at a premium to both the rest of Europe and RoW."

• Obama to focus on middle class in State of Union address (Reuters) - all 4 of them?
• European Stocks Buoyed by ECB Hopes (WSJ)
• China's 2014 economic growth misses target, hits 24-year low (Reuters)
• Federer on Swiss Franc Shock: "Does It Mean I've Got to Win Now?" (BBG)
• First-time buyers help Christie’s reach record sales (FT)
• So it was the NSA? U.S. Spies Tapped North Korean Computers Prior to Sony Hack (BBG)
• Why Chinese Developer Kaisa's Default Risk Has Money Managers Spooked (BBG)
• Morgan Stanley Misses Estimates on Drop in Bond-Trading Revenue (BBG)

Ahead of today's Turkey central bank decision, consensus was expecting no change in either the benchmark repurchase rate (at 8.25%), nor the overnight lending and borrowing rates (at 11.25% and 7.50%, respectively). And then, out of the blue, the Turkish deputy Prime Minister was kind enough to inform markets precisely what non-consensus move the Turkish central bank will do today: TURKEY SEES RATE CUT TOMORROW BY CENTRAL BANK, DEP. PM SAYS.  Sure enough, moments ago we got confirmation that when it comes to "independent" central banks leaking information to so-called heads of state such as France's Francois Hollande, Turkey is not far behind:  TURKEY'S CENTRAL BANK CUTS BENCHMARK REPO RATE TO 7.75%

Hours after the IMF cut its global economic growth forecast yet again (which for the permabullish IMF is now a quarterly tradition as we will shortly show), now expecting 3.5% and 3.7% growth in 2015 and 2016, both 0.3% lower than the previous estimate (but... but... low oil is unambiguously good for the economy) and both of which will be revised lower in coming quarters, and hours after China announced that its entirely made up 2014 GDP number (which was available not 3 weeks after the end of the quarter and year) dropped below the mandatory target of 7.5% to the lowest in 24 years, it only makes sense that stock markets around the globe are solidly green if not on expectations of another year of slowing global economies, which stopped mattering some time in 2009, but on ever rising expectations that the ECB's QE will be the one that will save everyone. Well, maybe not everyone: really only the 1% which as we reported yesterday will soon own more wealth than everyone else combined and who are about to get even richer than to Draghi.