House Republicans are expected to formally approve their lawsuit against President Obama today. As John Boehner wrote earlier in the week, "President Obama has overstepped his constitutional authority — and it is the responsibility of the House of Representatives to defend the Constitution." Voting has started on the 'impeachment lite' bill...
While equity markets were in focus for the mainstream, the big moves today occurred in Treasuries and oil prices. From the GDP release this morning, Treasury yields surged higher, rallied briefly after FOMC, before closing near the high-yields of the day (up around 10bps or the most in 9 months). Oil prices started to tumble at around 1030ET, flushed again on EU close, tumbled early afternoon on sanctions headlines, then pumped-and-dumped after FOMC to close at near 3-month lows (below $100). Equity markets surged on GDP, dumped on sanctions, pumped-and-dumped on FOMC, then lifted to the close. Only the Nasdaq ends the day above pre-GDP data levels. On the day, only the Dow closed the day red. Gold and silver chopped around in a narrow range as the USD index roundtripped from early GDP gains after FOMC. VIX closed modestly higher on the day. The Russell 2000 is -4.2% for July, its worst month in 2 years.
Two weeks ago the head of the "most transparent administration ever" (perhaps to the NSA?), president Obama, told the common American to "not be cynical" and have hope. Today, speaking appropriately in an ornate theater in Kansas City, he had a message for republicans: "Stop being mad all the time. Stop. Stop. Stop just hatin’ all the time."
Following yesterday's scandalous release of the Obama-Natanyahu phone call transcript by Israel's Channel 1, which officials on both sides have claimed was a fake (due to its clearly negative implications for US foreign policy which appears painfully weak) yet which the media outlet has defended as authentic, citing a "senior American official" as a source, one was wondering how long it would take for the White House to "teach" Israel a lesson, and put it in its place. The answer: less than 24 hours. Moments ago, the White House officially "condemned" the shelling of a United Nations school in Gaza that local authorities estimated killed at least 15 Palestinians who were sheltering there.
As always, for the best take of what the Fed was thinking, skip Hilsenrath and go straight to the people who provide it with its talking points. Here is Goldman's Jan Hatzius with hos post-mortem of the just released FOMC minutes.
Oil prices are holding below $100 and gold (after oscillating) is flat post FOMC. Stocks have roundtripped and given up the kneejerk gains as the USDollar has sold off notably (retracing its gains from GDP earlier in the day). Treasury yields are lower post-FOMC.
As had been rumored all day, The G7 just issued yet another statement on Ukraine showing its wholehearted support for sanctions:
- *G-7 LEADERS ISSUE STATEMENT CONDEMNING RUSSIAN ACTS IN UKRAINE
- *G-7 LEADERS SAY READY TO 'INTENSIFY THE COSTS' ON RUSSIA
The statement, released by The White House, also demands "transparent" access to the MH17 crash site. As this was released, the EU announced its sanctions list (8 people, 3 entities).
As expected, The FOMC continued its taper pace at $10bn but what was supposed to be a 'steady as she goes' statement had a few surprises:
- *PLOSSER DISSENTS ON DECISION, CITING GUIDANCE ON RATE OUTLOOK
- *FOMC SEES SIGNIFICANT UNDERUTILIZATION OF LABOR RESOURCES
- *FOMC: ODDS OF PERSISTENT SUB-2% INFLATION `DIMINISHED SOMEWHAT'
More of the same but some modestly hawkish sentiment sneaking in regarding improving labor markets. Oddly - no trade recommendations from Yellen. Full redline below...
Pre-FOMC: S&P Futs 1961.5, 10Y 2.55%, JPY 102.90, Gold $1294
It appears global geopolitical risk is fixed... WTI crude futures have tumbled back below $100 this afternoon to their equal lowest since early May. Despite warnings from Russia over higher energy prices, oil is well below MH17 headlines levels...
"More of the same," should summarize today's FOMC statement. There will be no press conference or refresh of the 'dot plot' economic projections. The Fed is expected to continue to taper by $10 billion with confirmation that the "growth meme" is playing out just as they projected (especially after today's GDP print). Goldman believes the focus will be on the jobs 'dashboard' and recent inflation data enables the dovish Fed to argue recent moves were noise and stay easier for longer. The downside risk (for markets) may be that Fed hawks will likely have little luck in altering the way forward guidance is employed by the Fed (and chatter over a Fisher dissent is possible).
If Venezuela is the case study of a country in the late stages of transition into a socialist utopia, then France is the clear runner up. The most recent case in point, aside from the already sliding French economy, whose recent contraction can be best seen be deteriorating PMI data which hints at the dreaded "triple dip" recession, nowhere is the economic collapse in France more evident than in its housing market which as even Bloomberg admits, citing industry participants, is now "in total meltdown." Pierre-Andre de Chalendar, chief executive officer of Saint-Gobain, summarized the current dire situation best: "Current figures are worrying and will be disastrous if nothing is done; clients of the building sector are sounding the alarm bell.”
Treasury yields are surging across the complex with the long-end steepening notably. Today's 10.5bps jump in 10Y yields is the biggest percentage shift since early November 2013... and a significant tail in the 7Y auction just made things worse.
"It's a troubling continuation/expansion of trade as a geopolitical tool," warns one Washington-based consulting firm as Russia prepares to unleash retaliatory actions to US and European sanctions. As Bloomberg reports, Russia said yesterday it may ban imports of chicken from the U.S. and fruit from Europe and is investigating McDonald's cheese for safety. In addition, a Russian lawmaker has drafted legislation that might result in U.S. accounting firms being barred from doing business in his country. All of this is odd given Jack "trust me" Lew's reassurance that Russian sanctions would have no impact on the US economy. Russia's response, US will feel 'tangible losses' from 'destructive, myopic' sanctions.
There are grounds for optimism about Europe’s single currency area. Yet beneath the surface of favorable sentiment towards the euro zone, the seeds of the next financial crisis are being sown. If markets connected all these dots - a weak and fragile economic recovery, the failure to break the “doom loop” between banks and sovereigns and, most importantly, scant prospect of a more secure political and economic union - the glaring disconnect between asset prices and underlying fundamentals in the euro zone would be a source of much greater concern.
A 4.0% GDP print - time to get out in front of the people and take the credit...