- Putin Suggests Statehood for Southeast Ukraine as Sanctions Loom (BBG)
- Ukraine accuses Russia of 'open aggression' as rebels advance (Reuters)
- Ruble Hits New Record Low Against Dollar (WSJ)
- Further Russia Sanctions Seen `Almost Inevitable' (BBG)
- Europe holds nerve as Russia-Ukraine warnings ratchet up (Reuters)
- China manufacturing slowdown ripples through region (Reuters)
- Brazil enters recession in election blow to Rousseff (Reuters)
- Disruptive Hong Kong protests loom after China rules out democracy (Reuters)
- Coal Miners See Signs of Recovery as Prices Stabilize (WSJ)
If last week's disappointing global economic data, that saw Brazil added to the list of countries returning to outright recession as Europe Hamletically debates whether to be or not to be in a triple-dip, was enough to push the S&P solidly above 2000, even if on a few hundreds ES contracts (traded almost exclusively between central banks), then the overnight massacre of global manufacturing PMIs - when not one but both Chinese PMIs missed spurring calls for "more easing" and pushing the SHCOMP up 0.83% to 2,235.5 - should see the S&P cross Goldman's revised year end target of 2050 (up from 1900) sometime by Thursday (on another few hundreds ES contracts).
If Japan’s results and programs hold any true difference, it is only that they are further down the same road than the rest of us. As Japanification continues in the US and Europe, we are gaining good observations about what lays ahead until the political will to use that same textbook time and time again is exhausted, or, more likely, removed.
This seems to be the biggest question in financial markets for me right now because the math just doesn`t add up any way you slice it.
S&P Futures Surge Over 2000, At Record High, On Collapsing Japanese, European Economic Data, Ukraine EscalationsSubmitted by Tyler Durden on 08/29/2014 07:07 -0400
Following Wednesday's laughable tape painting close where an algo, supposedly that of Citadel under the usual instructions of the NY Fed, ramped futures just over 2,000 to preserve faith in central planning, yesterday everyone was expecting a comparable rigged move... and got it, only this time milliseconds after the close, when futures moved from solidly in the red, to a fresh record high in seconds on no news - although some speculate that Obama not announcing Syrian air strikes yesterday was somehow the bullish catalyst - and purely on another bout of algo buying whose only purpose was to preserve the overnight momentum. Sure enough, this morning we find that even as bond yields around the world continue to probe 2014 lows, and with the Ruble sinking to fresh record lows as the Ukraine situation has deteriorated to unprecedented lows, so US equity futures have once, driven by the now generic USDJPY spike just after the European open, again soared overnight, well above 2000 and are now at all time highs, driven likely by the ongoing deflationary collapse in Europe where August inflation printed 0.3%, the lowest since 2009 while the unemployment remained close to record high, while the Japanese economic abemination is now fully featured for every Keynesian professor to see, with the latest Japanese data basically continuing the pattern of sheer horror as we reported yesterday.
Following the unexpected surge in Q2 GDP, which beat most analyst estimates, there was widespread expectation that based on real-time data, the revised Q2 print would be worse. So perhaps it is appropriate that the Bureau of Economic Analysis punked everyone once again, when moments ago it released the first revision to the Q2 GDP print, which instead of dropping to the consensus expected 3.9%, it instead rose to 4.2%, up from the 4.0% initial report.
If you like your de-escalation, you can keep your de-escalation. To think that heading into, and following the Russia-Ukraine "summit" earlier this week there was so much hope that the tense Ukraine civil war "situation" would somehow fix itself. Oh how wrong that thinking was considering overnight, following rebel separatists gains in the southeast of Ukraine which included the strategic port of Novoazvosk and which is "threatening to open up a new front in the war" including setting up a land corridor to Russia controlled-Crimea, Ukraine's president Poroshenko for the first time came out and directly accused Russia of an "Invasion", or at least a first time in recent weeks, saying he has convened the security council on the recent Russian actions.
While weather may affect the economy, the recent contraction has little to do with winter’s bitter cold; the US economy is far too diverse and complex. Instead, we are witnessing the ongoing effects of failed monetary and fiscal policies. As the Wickersham Commission noted years ago, “These laws [of economics] cannot be destroyed by governments, but often in the course of human history governments have been destroyed by them.”
"Germany will flirt with recession by Q4 of this year," warns Saxo Bank's Chief Economist Steen Jakobsen, adding that "the US is in worse shape than most people believe." It's important to underline, he notes, that major US investment houses, and certainly every single sales person we talk to, believe US is about to accelerate in growth not slow down. Jakobsen warns though that Q3 could be ok but the real damage will come in Q4 as the lead-lag factor of geopolitical risk, lack of reforms and excess global supply leads to low inflation. His conclusion, "it’s time to be defensive... very defensive."
Just in case futures buying algos forgot what the regurgitated "catalyst" that activated the overnight ramp was, the ECB was kind enough to remind everyone that the main event over the past 12 hours was the Deutsche Bank leak that while the ECB will not announce outright QE any time soon, thus denying the rumor spread in the past weak by the likes of Citi and JPM, the formerly preannounced and thus already priced-in (by the EURUSD which was about to take out 1.40 a few months ago) ABS purchase program, or as DB called it "private QE" is about to be unleashed. The ECB confirmed this earlier this morning when it announced that it had appointed BlackRock, the world’s biggest money manager, to advise on developing a program to buy asset-backed securities. In other words, Europe's largest public-sector hedge fund has just hired the world's largest private-sector hedge fund to "fix things."
There's only one small problem with relying on artifice: we haven't actually fixed what's broken in the real world.
If the big hope propelling both ES and S&P cash over 2,000 was the Ukraine-Russian talks, leading to some de-escalation and a thawing of Russian-German conditions, then it was clearly a dud. As the WSJ reports, "face-to-face talks between the Russian and Ukrainian presidents failed to produce a breakthrough for ending the conflict over eastern Ukraine, as Kiev released videos of captured Russian soldiers and rebels pushed toward a government-held city. The one-on-one session, which Ukraine's President Petro Poroshenko described as "tough and complex," ended early Wednesday after a day of talks on the crisis in the Belarusian capital of Minsk. Mr. Poroshenko said afterward that he would prepare a "road map" toward a possible cease-fire with the pro-Russia separatists." In other words, absolutely no progress. There was however escalation, when overnight the September Bund future rose as much as 36 ticks to 151.18, after Poland PM Tusk said “regular” Russian troops are operating in eastern Ukraine. And so we are back to square one, with concerns over Russia pushing European bonds to new record highs, in turn leading to more US Treasury buying, while a brand new rumor of more easing from the ECB, this time by Deutsche Bank, has propped up European equities, which like US futures are trading water around the critical 2000 level.
"Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly.... Central banks, including the U.S. Federal Reserve, have taken aggressive action, consistently lowering interest rates such that today they hover near zero. They have also pumped trillions of dollars’ worth of new money into the financial system. Yet such policies have only fed a damaging cycle of booms and busts, warping incentives and distorting asset prices, and now economic growth is stagnating while inequality gets worse. It’s well past time, then, for U.S. policymakers -- as well as their counterparts in other developed countries -- to consider a version of Friedman’s helicopter drops. In the short term, such cash transfers could jump-start the economy... The transfers wouldn’t cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them"...
Unlike the QE-lite-driven exuberance in Chinese stocks of the last few weeks (which faded dramatically overnight), China's industrial commodities (with near-record inventories) and seeing prices collapse. This may shock some who espy PMIs and government-created trade data and proclaim, China is fixed. In fact, as JPMorgan's China Sentiment Index (JSI) shows, things are anything but bright as it fell to the lowest since June last year (at 48.3 in August). Sales and margins are tumbling - despite supposedly lower input costs. Lastly, those focused on spot Yuan movements (strength in recent weeks) have suggested this also confirms China strength - inflows - but looking out 12-months shows the market is expecting a dramatic devaluation from current levels in the Chinese currency is coming.
"Utility disconnection is always considered a last resort, obviously because of consequences for households," but as Detroit News reports, but water-providers can expect more controversy, as a month-long moratorium against shutting off water for those behind on their bills expired last night. Halting service to people that don't pay generate outrage among not just Detroit residents but a wider audience who proclaim 'water should be a right'. However, as one utility director noted, "We've seen a lot more payments...They need that little kick in the pants to get in here and do it." Water industry experts say cities with high delinquency rates sometimes have few other effective options for getting customers to catch up on their bills. Roughly half of Detroit’s 170,000 customers were delinquent as of last spring.