Yesterday we poked fun of Goldman for suggesting that the reason for the late-day sell off was "Prudent profit-taking as folks remember Europe isn’t closed tomorrow." Turns out Goldman could not have been more right: around 4 am Eastern this morning Europe reported a series of economic updates which showed that the European economy continues to be nothing but a slow motion trainwreck and is getting far worse. Starting with final April Eurozone Manufacturing PMI which printed at 45.9 vs an initial print of 46.0, a 9 month low with a core breakdown is as follows: Italian manufacturing PMI 43.8 at a 6 month low, est 47.1 (prior 47.9), German manufacturing PMI at a 33 month low 46.2 vs initial 46.3 (prior 48.4), France manufacturing PMI 46.9 vs initial 47.3 (prior 46.7), which also followed Italy by recording sharpest drop in manufacturing new orders in 3 yrs in April, and so on as can be seen in the chart below. As every sellsider who has opined so far this morning, these numbers are all "hugely disappointing."
Confirming what we already knew last night, HSBC just announced their final manufacturing PMI (revised slightly higher from the flash PMI) but confirming - via their data - that China is now in its sixth month of manufacturing contraction. Of course this is entirely irrelevant as last night China itself pointed out via its manufacturing PMI data that all was well and in fact the Chinese economy is expanding at its fastest in 14 months. The April HSBC print was modestly higher than the March print (so green shooters will be happy with their second derivatives) but the divergence between HSBC and China on this data point remains vast and digging into the sub-indices we see manufacturing output decreased for the second month in a row, new business fell marginally, but employment was down at the fastest rate in over three years as the need to streamline workforce numbers was cited by many as a response to lower output requirements.
While cycle or wave analysis is often dismissed for its tough-to-utilize-going-forward nature, Charles Hugh-Smith and Gordon T. Long expertly and thoroughly discuss a myriad of critical processes that the world (and endogenously or exogenously human beings and markets) transitions through in this clip. The intersection of Hugh-Smith's four critical trends (generational (or Fourth Turning), wage-inflation/stagnation, credit expansion/contraction, and energy extraction/depletion) is where we find ourselves as he notes directly that the generational cycle (of four twenty-year cycles culminating in massive geopolitical upheaval) is due to climax in the not-too-distant future. This presentation, which builds on the idea of behavioral changes and the generational knowledge transfer that for instance is now missing from the last great depression (do we need to learn the lesson of "excess credit is bad" once again?), is akin to 'everything you wanted to know about long-waves in social, political, and economic cycles but were afraid to ask'.
Something funny happened when last August CNBC hired access journalist extraordinaire Andrew Sorkin to spiff up its 6-9 am block also known as Squawk Box: nothing. At least, nothing from a secular viewership basis, because while the block saw a brief pick up in viewership driven by the concurrent (first of many) US debt ceiling crisis and rating downgrade, it has been a downhill slide ever since. In fact, as the chart below shows, the Nielsen rating for the show's core 25-54 demo just slid to multi-year lows. And as NY Daily News, the seemingly ceaseless slide has forced CNBC to start panicking: "CNBC insiders tell us executives at the cable business channel are “freaking out” because viewership levels are down essentially across-the-board, particularly with its marquee shows, “Squawk Box” and “Closing Bell." “Their biggest attractions have become their biggest losers,” says one TV industry insider familiar with the cable channel’s numbers. According to Nielsen ratings obtained by Gatecrasher, from April 2011 to April 2012, “Squawk Box” is down 16 percent in total viewers and 29 percent in the important 25-54 demographic bracket that advertisers buy." Yet is it really fair to blame the slide of the morning block's show on just one man?
Obama's highly-anticipated TV address from Afghanistan, where he landed in a secret trip that was not disclosed until late this afternoon and where he is forming a strategic alliance with president Karzai, has begun. Watch live.
Goldman's sales desk brings us the FTW "analysis" of why today's rally fizzled: "What happened to the equity rally? SPX slips 65bps from the day’s high, NDX an even more substantial 1.15%. Post-ISM glow just fading? Prudent profit-taking as folks remember Europe isn’t closed tomorrow?"
There is so much #win (not to be confused with #yuan) in the following article from today's edition of China Daily, that we just felt compelled to post it in its entirety for three reasons: i) an article like this will never appear in the US press - here the best one could get is the calculation of the lack of power of one's easily borrowed Charmin'; ii) it contains the phrase: "There are no lies, just statistics" when discussing data released by the China's National Bureau of Statistics, iii) being on the front page of the paper, and addressing a topic near and dear to everyone: namely how much pay Chinese workers are receiving in absolute and relative terms, in an attempt to spin the data, it confirms what everyone knows - that more and more Chinese workers are getting antsy about the only number that matters: the bottom one. So without further ado, here is China Daily and "Calculating the power of your hard-earned yuan."
In one of the most complete documentaries undertaken on the financial crisis, PBS Frontline's "Money, Power, & Wall Street" series stretches from the origins of the credit derivative business with a bikini-clad pool-side Blythe Masters and her JPMorgan colleagues to the scary (but absolutely true) fact that the financial crisis never ended. The four-part series (of which we present the first two below) continues tonight at 730ET and the entire set of 20 in-depth interviews with the various players (from Sheila Bair to Rodgin Cohen with a smattering of Jared Bernstein and Dick Fisher in between) can be found here. A must-watch series from beginning to end to get a grasp of how we got here (despite what Chairman Greenspan told us all this morning), where exactly we are now (in spite of today's FTMFW ISM print), and what we can expect in the next few years.
There is nothing quite like a $70 billion debt auction settlement at the last day of a month to bring total US debt to a record $15.692 trillion, which happens to be just $600 billion shy of the $16.394 trillion debt ceiling. (and no, contrary to simple economic textbook lesson, this does not mean that the private sector just got another $70 billion in debt capacity courtesy of taxpayers, as explained here). And now that we know what Q1 GDP was at the end of Q1, or namely $15.462 trillion, it is simply math to divine that today alone total US/debt to GDP rose by 50 bps to a mindboggling 101.5%.
Equity indices managed to close green on a generally lower-than-average volume day but while the morning was dominated by a 20pt rip post-ISM's 4.5-sigma surprise, the post-Europe-close afternoon session saw us give back over 60% of those gains on rising volume and average trade-size. As the day-session closed, ES (the S&P 500 e-mini futures) was right around yesterday's highs and today's VWAP in a relatively balanced manner but after-hours was leaking lower still. AAPL also had a big rotation day as it opened red, surged into the middle of the day then gave it all back to close within a few pennies of its 50DMA (and in fact is trading below it in after-hours trading). Stocks pushed well ahead of credit markets as they rallied and HYG was far less impressed. Sure enough by the close, equities had limped back in line with credit's reality but in the meantime, HYG was back down at last Wednesday's levels. The ISM caused the USD to pop, stocks to pop more, oil to pop about the same and gold/silver/Treasuries to drop. The post Europe-close action saw stocks give back most of those gains, the USD leak back lower (as CAD strengthened), Oil maintained it bid over $106 (month highs) and Gold/Silver pulled back up nicely. Treasuries remained under pressure though with only a very late-day dip lower in yields to show for the dips in stocks. As expected, Energy and Financials outperformed close-to-close on a rally-day but also retraced the most in the afternoon as Discretionary and Materials also joined the high-beta fray. The strength in oil and weakness in TSYs was enough to juice risk-assets in general and provided some support for the rally but stocks remain rich relative to risk in general and we wonder how the bulls have it both ways - rally on unsustainable good news (but no QE3) and on bad news (Ben's got yr back) as the first day of May (absent any European hedging) seemed a chaotic rush to buy this morning that may have been a short-term climax.
While the price of food to the American end consumers has been relatively flat over the past few months (at least according to official CPI data), behind the scenes another food inflationary storm for the "rest of the world" is quietly brewing. The reason: after creeping higher all year, soybean prices are just shy of record highs. And while that may not mean much for a population that is used to dining out on 99 cent meals, soy is one of the most highly prized and used broad spectrum use food commodities around the world. From the FT: "The price of soyabeans is heading towards the record high set during the 2007-08 food crisis, which is set to reignite fears of runaway global food inflation. The surge in prices is because of falling global production levels following dry weather in Latin America and increased China imports. Soya’s wide range of use as feed for cows, sheep, pigs and poultry – and as a source for oil used in foodstuffs such as biscuits and cakes – means its high price could trigger food inflation fears." Most importantly, soy is one of China's most important agricultural imports, with soy prices very closely linked to Chinese inflation. So for all those wondering why the great Chinese goal seek model continues to confound expectations and keep coming in stronger than expected (at least in a Schrodinger sense) despite the country's economy sputtering based on both electrical usage and net trade, that's the reason: the last thing China needs in a critical political election year (ahem Bo Xilai) is a sudden spike in food inflation which would be only exacerbated by more PBOC easing. Just recall how closely the media was following reports out of China last year as many thought a rerun of the Arabian spring in the streets of Beijing was virtually inevitable.
While it might have slipped your notice, today was a holiday in most of the world as it celebrates May-Day. In Europe, The Economist notes, this day typically 'belongs' to 'international workers' of the world, and has been associated with left-wing anti-government protest. This year even more so as extreme political parties are on the rise and austerity seems to have no end in sight - but most of all because of the broad-based high-levels of unemployment. Outside of Greece (and perhaps the UK), violent confrontations have so far been rare in the wake of the financial crisis but tensions are mounting (notably in Spain) and as the following graphic shows - with Spain now the 12th nation in Europe to fall into recession - the dramatically bad changes in unemployment and GDP since the crisis began (especially among the youth) suggest more angst is to come as the political compact is pushed to its limits.