Archive - Aug 27, 2015 - Story

So does this mean a September rate hike is back on the table?

War-torn Ukraine has reportedly reached a restructuring deal with a group of creditors headed by Franklin Templeton, according to the country’s finance minister Natalie Jaresko. The terms of the agreement call for a 20% writedown and a reprofiling that includes a maturity extension of four years and an across-the-board 7.75% coupon. Vladimir Putin isn't interested.

Americans associate the morning with “Time to trade equities”. They hear news – in the case of the last few days, bad news from overseas – first thing in the morning. By the time the market opens, they have made their decisions and entered their orders. About half as many will check in around the close to see how things turned out, but for many the next piece of market news won’t hit their mental “Screen” until 20 hours or so later. 

Well, if the Fed is truly data-dependent, September is now squarely back on the table following the first revision of (double seasonally-adjusted) Q2 GDP data which soared from 2.3% to a whopping 3.7%, blowing out the Wall Street consensus estimate of 3.2%, and printing above the highest Wall Street forecast (the 3.6% from JPM). The reason for the surge was simple: from an inventory build of $124 in the first GDP estimate, the BEA now sees a total of $136.2 billion in inventory build in Q2. This is an all time record, and a number which suggests the upcoming inventory liquidation will be truly epic, not to mention recessionary.

After four weeks of rising - the longest streak since Feb 2009 - initial claims dropped very modestly to 271k this week. This means initial jobless claims has gone nowhere since January 23rd.

Crash waves are notoriously volatile – several of the biggest one day rallies in history have occurred before and during crash waves. This makes short term forecasting even more of a coin flip than it normally is. However, we believe it is important not to lose sight of the forest for the trees; stock markets around the world have been in bubbles driven by extremely loose monetary policy, which ipso facto allows us to identify them as an example of artificial price distortion. Such bubbles always collapse sooner or later – unless the monetary authority decides to simply destroy the currency it issues, as has happened in Zimbabwe and is currently happening in countries like Venezuela and to a slightly lesser extent Argentina. We don’t expect the central banks of the developed nations to follow suit, at least not yet.

Even the rich are starting to feel the pinch, at least according to the favorite jeweler of the upwardly mobile middle-to-upper class (especially in China and Japan), Tiffany & Co., which earlier today reported Q2 EPS of $0.86, below the $0.91 expected, with GAAP EPS of $0.81 some 16% below the $0.96 record last year. Like other retailers, TIF was quick to blame the surging dollar (which isn't going anywhere if the Fed indeed proceeds with a rate hike),  blaming it for lowering the value of the Tiffany’s sales overseas, where the company gets most of its revenue. Currency fluctuations also have kept tourists from making purchases at U.S. stores, dealing a second blow to revenue.

• Virginia TV journalists killed by suspect with 'powder keg' of anger (Reuters)
• Policeman shot to death and three women stabbed, one fatally, in Louisiana (Reuters)
• China Intervened Today to Shore Up Stocks Ahead of Military Parade (Reuters)
• Margin Calls Bite Investors, Banks (WSJ)
• "Computer glitch" is preventing dozens of mutual funds, ETFs from promptly pricing their securities (WSJ)
• Oil prices rise more than 4 percent as equities rally (Reuters)
• Oil Industry Needs Half a Trillion Dollars to Endure Price Slump (BBG)

After a 5 day tumbling streak, which saw Chinese stock plunge well over 20% and 17% in just the first three days of this week, overnight the Shanghai Composite was hanging by a thread (and threat) until the last hour of trading. In fact, this is what the SHCOMP looked like until the very end: Up 2.6%, up 1.2%, up 2.8%, up 0.6%, up 2%... down 0.2%. And then the cavalry came in: "Heavyweight stocks like banks and insurance companies helped pull up the index, and it’s possibly China Securities Finance entering the market again to shore up stocks," Central China Sec. strategist Zhang Gang told Bloomberg by phone. Net result: the Composite, having been red just shortly before the close, soared higher by 156 points or 5.4%, showing the US stock market just how it's down.