"At one extreme, if the market perceives the policy as a failure, credit risk and demand/supply imbalances are likely to dominate, putting even further downward pressure on yields. At the other extreme, if the policy is perceived as a loss of monetary discipline, inflation expectations would spike, leading to an aggressive re-pricing of yields higher."
Good news is still bad news after all. After last night's China 6.7% GDP print which while the lowest since Q1 2009, was in line with expectations, coupled with beats in IP, Fixed Asset Investment and Retail Sales (on the back of $1 trillion in total financing in Q1) the sentiment this morning is that China has turned the corner (if only for the time being). And that's the problem, because while China was a good excuse for the Fed to interrupt its rate hike cycle as the biggest "global" threat, that is no longer the case if China has indeed resumed growing. As such Yellen no longer has a ready excuse to delay. This is precisely why futures are lower as of this moment, because suddenly the "scapegoat" narrative has evaporated.
Heading into tonight's datagasm from China, SHCOMP tumbled and Yuan was strengthening (while money-market rates were ticking higher). Then it began... Retail Sales BEAT (+10.5% vs. +10.4% exp), Industrial Production BEAT (+6.8% vs. +5.9% exp), Fixed Asset Investment BEAT (+10.7 vs. +10.4% exp) and last - but not least - GDP MEET (+6.7 vs. +6.7% exp) - though still the weakest since Q1 2009. The post-data reaction was initially opsitive but then faded fast as reality hit on the lack of stimulus coming. Now The Fed has a problem - solid inflation, solid wages, solid jobs, and no global turmoil - we are going to need some turmoil soon or rates are going up.
In 1977, the total indebtedness of U.S. government, corporate and household borrowers was $323 billion. By 1985, that figure had grown to $7 trillion. Volcker left the Fed in August of 1987 after handing the reins over to Alan Greenspan. By year’s end 2015, U.S. indebtedness had swelled to $45.2 trillion. Tack on financials, which few do, and it’s $64.5 trillion and unabashedly growing. We are a nation transformed. What has today’s vast store of debt purchased? Certainly not freedom.
The "most transparent administration ever" appears to be making no friends in the tech industry. Following its debacle with Apple, the Obama administration now faces a suit from Microsoft that, in their words, stands up for "customers’ constitutional and fundamental rights – rights that help protect privacy and promote free expression." As Microsoft's Brad Smith notes, with rare exceptions consumers and businesses have a right to know when the government accesses their emails or records, and the suit centers around the fact that since cloud storage accelerated, it’s becoming routine for the U.S. government to issue orders that require email providers to keep these types of legal demands secret. Microsoft believe that this goes too far.
A certificate for sound money, and quite a bit of it too. Our benevolent modern-day social engineers would be appalled: not only is this a certificate for gold, it is one for 10,000 smackers worth of the stuff! Only über-turrsts could possibly have use for such a thing... it clearly embodies way too much freedom and responsibility for the average tax serf. If you’re not convinced, ask Larry Summers, and if that doesn’t help, think about the children!
America's New Impossible Trinity: You Can't Have Higher Wages, Steady Inflation And High Profits At The Same TimeSubmitted by Tyler Durden on 04/13/2016 11:57 -0400
America’s ongoing labour productivity slump has created a new impossible trinity – policymakers can only choose two of the following three desirable outcomes: higher nominal wage growth, steady inflation and high corporate profits. The theory behind this new ‘impossible trinity’ is intuitively simple. If workers’ wages rise faster than their productivity, the companies paying those higher wages face two choices. They can either pass on the extra costs to customers, thereby leading to higher overall prices and rising inflation, or they can absorb the extra costs resulting in lower profit margins.
There was a sigh of relief, when moments ago JPM reported that it had beat expectations of a $1.25 print, when it announced $1.41 in adjusted EPS, with total revenue sliding by $700 MM to $24.1 billion but also beating lowered expectations of $23.8 billion. The largest U.S. bank by assets reported a profit of $5.52 billion, or $1.35 a share before 6 cents in adjustments, a drop of 6.7% compared to the profit of $5.91 billion, or $1.45 a share, in the same period of 2015. However, perhaps reminding that not all is well, JPM's consolidated loan loss reserve was a material $439 million greater than the preceding quarter and the biggest reserve build in six years, since Q1 of 2010.
Massive borrowing to pay the interest is everywhere and always a sign that the the end is near. The crack-up phase of China’s insane borrowing and building boom is surely at hand.
This morning's 160 point spike in Dow Futures - out of nowhere - was predicated on hopes of an Italian bank bailout. While this may seem like an odd reason to "buy buy buy" US equities, in the new normal, it really is not.. and when put in context, the 'bounce' in EU banks should do more to scare than soften investors' concerns...
... consider mom and pop and other people who read Barron’s. They are saving for retirement and to put their kids through college. They might have depended on a historic 8%-like return from stocks and bonds. Well, sorry. When interest rates get to zero—and that isn’t the endpoint; they could go negative—savers are destroyed. And savers are the bedrock of capitalism. Savers allow investment, and investment produces growth.
"We continue to live in a low default world for now though. Even though defaults picked up in 2015, B/BB default rates were still comfortably below their long-term average which they have been for well over a decade now with 2009 being the only exception. Indeed last year’s default rate for global Bs (up from 0.9% to 2.7%) was still lower than all of the first two decades of the modern era of leveraged finance up to 2003. So in spite of all the challenges we face this era has been characterized by astonishingly low default rates. There are clear signs the cycle is turning though, especially in the US."
it has been a rather quiet session, which saw Japan modestly lower dragged again by a lower USDJPY which hit fresh 17 month lows around 170.6 before staging another modest rebound and halting a six-day run of gains; China bounced after a slightly disappointing CPI print gave hope there is more space for the PBOC to ease; European equities rose, led by Italian banks which surged ahead of a meeting to discuss the rescue of various insolvent Italian banks, while mining stocks jumped buoyed by rising metal prices with signs of a pick-up in Chinese industrial demand.