...You will need it. The EURUSD has officially confirmed the much dreaded "Insane YoYo" formation. As a reminder the last time we had a dreaded chart spotting (The Hindenburg Omen from August 12, 2010), the Fed was forced to launch QE2 two weeks later. On a more serious note, the imminent announcement of a favorable Troica report on Greece will likely send the pair up 100 pips.
Two charts that confirm that the US economy is, and has been for the past 3 years, in nothing short of a depression...
Take away the Birth/Death adjustment of 206,000 and the Real NFP is: -150,000. This is the biggest monthly B/D adjustment in over a year. And if as all the pundits claimed last month, demanding the McDonalds addition of 62,000 janitorial, part-time jobs be added to the May number, the economy really lost over 200,000 in May. Time to price in QE 666.
Massive collapse in the American employment situation: May NFP at 54K, down from 244K, and not only below consensus of 165K, but below the lowest economist prediction of 65K. Private payrolls increased just 83K on expectations of 170K. Manufacturing payroll dropped 5K on expectation sof a 10K rise. The unemployment rate was 9.1%, although U-6 declined from 15.9% t 15.8%. The absolute number of unemployed increased fom 13.747 million to 13.914 million. For the third month in a row the Labor Force Participation rate remained flat at 64.2%.
Some may recall that it was the abysmal August 2010 NFP number that set off the QE 2 chain of events (courtesy of Goldman Sachs, which promptly downgraded the economy, only to upgrade it 4 months later in the worst call to ever come out of its economic department). We may be 45 minutes away from another August... On the other hand, a solid beat in NFP means QE 3 is off the table for a long time, which will really spook stocks.
Here are the key scheduled events over the next several months in Europe. These are the known events. Uknown ones, such as the expulsion of Greece, or the unwind of the monetary experiment, a revolution here and there, are obviously not noted.
In addition to the weak NFP number expected today which should put further pressure on a dollar, already trading at a several week low, Greek Ta Nea reports that the catalytic announcement by the Troika on the Greek economy is expected to come out later today. Unlike previous rumors that Greece was expected to miss every bailout parameter, the rumor this time is that the report will show a "mixed picture" meaning that the market is supposed to believe that there is a risk that the next tranche, worth €12 billon, of Greece's current E110 billion aid package, may not be disbursed. Of course it will be: the last thing Europe's bankers will do, especially after all the recent posturing, is to shoot themselves in the foot, and before the weekend at that. As a result we expect a double whammy of USD hits, which however will mean that the EURUSD will soon be back to levels that are high enough (1.46-1.48) that will make the announcement of QE3 problematic, as the next step lower in the USD would likely lead to a EURUSD of 1.70-1.80.
- Still no go on the white smoke, a few more weeks: Hilsenrath - Dallas Fed's Fisher Says More Easing by Fed Not Needed (WSJ)
- Chinese Economic Slowdown May Lead to 75% Plunge in Commodities, S&P Says (Bloomberg)
- EU should control member states' budgets, says bank boss (Guardian)
- Syrian Violence Tests U.S. (WSJ)
- SAC Again? Probe Deepens of Alleged Inside Trades at FDA (WSJ)
- Pushing for a return to the gold standard (LATimes)
- Wheat Futures Climb for Second Day on Weather Concerns in U.S., EU, Canada (Bloomberg)
- Europe E. Coli Outbreak is Deadliest on Record (Bloomberg)
- EU, IMF Wind Up Greek Economy Review (Bloomberg)
- China Ministry: 1H Industry Output To Slow to 13.5% (Market News)
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge
It is still not too late to short that consumer discretionary basket, albeit with a footnote: whatever you do don't short the ultra luxury retailers. Those will be doing very good, courtesy of all their shoppers having the Amex Discount Window credit card. Everyone else: better luck next time. As the chart below from BofA shows the May retail SSS data turned very sour with 12 misses and only 5 beats, and just like every other segment, very soon the stock market, which since Jackson Hole has been reacting to newsflow like a retárd, will finally grasp that even with nobody paying their mortgage, the reality of diminishing squatter returns is unavoidable. That said, since the data comes from Bank of America, naturally there would be a scapegoat: "may results were negatively impacted by unseasonably cool weather as well as pressure from high gas prices." That's ok: In keeping with tradition, QE3 will very soon be blamed on unreasonably normal weather.
The Federal Reserve, just like Atlas, continues carrying the weight of if not the world, then certainly the stock market on its shoulders. As expected, both the Fed's balance sheet, and its economic equivalent, the Adjusted Monetary Base, just hit fresh all time records. This will continue for 4 more weeks at which point QE2 will end and what happens next will depend entirely on what side of the bed Bernanke wakes on.
Adding insult to injury, the SEC costs business billions of dollars annually – probably scores of billions, if you take all the secondary and trickle-down costs into account: direct fees, legal fees, printing, mailing, and other costs of compliance. They have a direct budget cost of something over a billion dollars per year, but that’s trivial relative to the indirect costs they impose on the economy. They ought to be ashamed, diverting a significant fraction of GDP from productive use into the pockets of parasites, in the name of protecting business and investors, when they do the opposite. The SEC is like a Pied Piper who attracts ravening hordes of rats with his flute instead of getting rid of them – and then charges people tenfold for the “service.” This is one agency I would abolish, immediately and completely. Not a single one of its functions should even be handed off to other agencies. The SEC serves absolutely no useful purpose whatsoever – just the opposite. It’s not a question of getting it under control or paring it back. It should be eliminated in toto.
Moody's Leaked Again: Told Nancy Pelosi Will "Probably Not" Downgrade US Weeks Ago; Did Her Multi-Millionaire Investor Husband Know...Submitted by Tyler Durden on 06/02/2011 - 20:30
Moody's reputation for leaking inside information is well-known: after all it was one of its own employees, Deep "Throat" Shah, who leaked to infamous hedge fund Galleon information of upcoming LBOs. But at least that wasn't information originating from Moody's: the world's most incompetent rating agency was merely a conduit. Yet we were little surprised to learn that the firm that facilitated the housing bubble, and where such apparatchiks as Mark Zandi reside, informed none other than House Minority leader Nancy Pelosi that it likely wouldn't downgrade the US debt as long as several weeks ago. Per Dow Jones: "Moody's earlier Thursday took the unusual step of warning that it might place the U.S. government's debt rating under review for a possible downgrade. The agency said the review would come if Congress doesn't make progress on raising the country's debt ceiling. Pelosi said she was alerted to the Moody's report just after House Democrats met with President Barack Obama at the White House. She said a few weeks ago she was in New York and the head of Moody's told her that it "would probably not downgrade, so this is interesting news today," she said. "But the fact is we cannot default" on the debt." We are relieved to learn that the head of Moody's, a firm which only last summer received a Wells Notice from the SEC, in an investigation which was promptly scuttled by powerful and rich people, takes its responsibility of protecting material, non-public information with such passion. Yet it is the topic of another leak of non-public information, and not Moody's criminal incompetence, that bothers us. Because as we noted last week, it is now proven scientifically that members of both Congress and Senate (especially democrats), tend to trade a littel too much on inside information. And even if not Ms. Pelosi, who precisely will guarantee us that Ms Pelosi's husband, multi-millionaire Paul Pelosi who just happens to be the owner of Financial Leasing Services, Inc., a San Francisco, California-based real estate and venture capital investment and consulting firm, did not procure the Moody's inside information courtesy of wagging tongues at Moody's and in his wife's mouth, and then proceed to trade accordingly. Alas, with the regulator in charge being the same one who let the whole Moody's investigation get deadended in record time, we are not hopeful of getting any information or justice. Ever.
According to China Business the earthquake and tsunami halted production at most of Japan’s giant solar power companies, including Kyocera, Sharp and Sanyo because of the subsequent lack of electricity. Prior to the earthquake China and Japan essentially shared the European photovoltaic (PV) market; since the earthquake analysts predict that Japan will lose one quarter of its market share. The shift has already started, as The Nikkei business daily reported on Wednesday that Softbank Corp, Japan's third-largest mobile phone operator, has announced plans to assist in the construction of about ten 20-megawatt facilities, costing about 8 billion yen ($100 million) each. But, as in many Western countries dominated by the nuclear and oil industries, solar energy policies have up to now enjoyed fitful support in Japan, where pioneers such as Sharp Corp and Kyocera Corp have lost their lead to overseas rivals that received larger subsidies and lower production costs. Furthermore, the cost of solar panel installation in Japan is double that in Germany. So, who will be one of the major beneficiaries of this policy shift towards reducing solar costs? China, surprise surprise.