Archive - Apr 15, 2015 - Story

BULLARD: CUT RATES IF ECONOMY SUFFERS SHOCK AFTER FED LIFTOFF

Isolated Russia continues to see its currency dramatically outperform the US Dollar. Breaking below 50 today, this is the strongest the Ruble has been since Nov 2014... The Ruble is now up almost 22% against the US Dollar year-to-date.

German yields cratered-er today (as DAX flash-crashed into the close). 10Y yields are now at 10.5bps - record lows - and the entire German yield curve is now at negative rates to 8 year maturity. Must all be a signal of the economic success of Q€ right?

To think it was just recently in September of last year when the S&P, seemingly unaware of the tragic reality facing Greece in just a few months (by reality we meen democratic elections which overthrew the previous regime which was merely a group of Troika picked technocrats), upgraded Greece to B and said "The upgrade reflects our view that risks to fiscal consolidation in Greece have abated." Well, the risks have unabated, and two months after S&P flipflopped and downgraded Greece back to B- on February 6, moments ago it downgraded it again, this time to triple hooks, aka the dreaded CCC+. But, as City AM reports, the biggest news is that the Greek Finance Minister "will on Friday meet with infamous sovereign debt lawyer Lee Buchheit, who has helped numerous countries restructure their debt. Buchheit is a partner at top US law firm Cleary Gottlieb."

No apparent headlines as the European close looms and DAX Futures just plunged on heavy volume...

Following the incident at the ECB earlier today, in which Mario Draghi was attacked by a female protestor, moments ago the central bank issued the following statement.

Gold, crude oil and U.S. equities are dollar denominated, are notional inflation hedges, and have reliable long term price records. Two anomalies pop out in the relative value across this threesome...

We have known for quite some time now that the NY Fed's market group, aka the Plunge Protection Team, is opening a second office in HFT-capital Chicago. What was not known is what is the official reasoning behind the Fed's move to be even closer to its Citadel executions arm. Overnight, courtesy of Reuters we found that the "The New York branch of the U.S. Federal Reserve, wary that a natural disaster or other eventuality could shut down its market operations as it approaches an interest rate hike, has added staff and bulked up its satellite office in Chicago."

For the 14th week in a row, US crude inventories rose; but against expectations of a 3.5mm build (and weak API overnight), DOE printed a mere 1.294mm bbl build - the lowest since the build streak began on the first week of January. Crude prices are spiking on the news (though we note last week saw the biggest build in 30 years with the 2 week average above trend). Total crude inventrory continues to make new record highs (and pressure Cushing capacity).

It appears the homebuilders have got over the weather issues as NAHB optimism surged to 56 - beating expectations of 55. However this surge merely brings NAHB confidence back to its average stagnant levels of the last 2 years. Only Midswest saw confidence drop as homebuilders hope soared with future buyers at the highest since Dec 2014. Let's just hope sales follow through or the weather excuse is going to get old...

A new St. Louis Fed study finds that the delinquency rate for student borrowers in repayment is 27.3%, meaning nearly one in three of the Americans laboring under a debt load that has now swelled to $1.3 trillion are more than a month behind on their payments. Ackman says there's "no way they are going to pay it back." We can hear the "cancel the debt" cries now. 

Mortgage Apps tumble, Empire Fed slumps, and now Industrial Production plunges... Against expectations of a 0.3% drop MoM, US Factory Output was twice as bad at -0.6% - the worst since August 2012 (and lamost worst since June 2009). This is the 4th miss in a row. What is even more stunning is that despite the coldest of cold winters that crashed the US economy, Utilities saw their output crash 5.9% - the most in 9 years (explained as follows - largely reversing a similarly-sized increase in February, which was related to unseasonably cold temperatures). Motor Vehicles saved the data from being a catastrophe with a 3.2% rise (following a 3.6% drop In Feb).

So the Chinese economy is weakest in 6 years, there is a record inventory, near-record production, and record drop in rig count... and now WTI Crude has surged to its highest since Dec 2014 (running stops above last week's highs).