In the US, retail sales on Friday will be the main data release. In addition, Congress will return from its 5-week recess on Monday and will likely keep their focus on Syria this week. Finally, San Francisco Fed President Williams (who does not vote on FOMC policy this year) will speak on Monday. Last week, Williams argued that the FOMC should maintain its focus on the unemployment rate, despite its limitations. After Friday's employment report saw the unemployment rate drop again due to falling participation, this issue is likely to resurface. The Fed's communication blackout period begins on Tuesday so Williams will be the last FOMC speaker before the September meeting ends on the 18th.
As macro news continues to trickle in better than expected, the latest batch being benign (if completely fake) Chinese inflation data (CPI 2.6%, Exp. 2.6%, Last 2.7%) and trade data released overnight which saw ahigher than expected trade balance ($28.5bn vs Exp. $20.0; as exports rose from 5.1% to 7.2%, and imports dipped from 10.9% to 7.0%, missing expectations), markets remain confused: is good news better or does it mean even more global liquidity will be pulled. As a result, the release of an encouraging set of macroeconomic data from China failed to have a meaningful impact on the sentiment in Europe this morning and instead stocks traded lower, with the Spanish IBEX-35 index underperforming after Madrid lost out to Tokyo to win rights to host 2020 Olympic Games. Even though the news buoyed USD/JPY overnight, the pair faced downside pressure stemming from interest rate differential flows amid better bid USTs. The price action in the US curve was partly driven by the latest article from a prolific Fed watcher Jon Hilsenrath who said many Fed officials are undecided on whether to scale back bond purchases in September. Hilsenrath added that the Fed could wait or reduce the programme by a small amount at the upcoming meeting. Going forward, there are no major macroeconomic data releases scheduled for the second half of the session, but Fed’s Williams is due to speak.
The topic of "minimum wage" had been a hot one recently until Obama's red line and Syria stole the front pages. However, no matter how much one explains the dilemma of 'who, eventually,' pays for the increases in minimum wage that will, supposedly, bring a livable wage to all, everyone still wants more - for less. So we looked around the world to see - on a real purchasing power parity basis - just how 'tough' America's minimum wage earners have it. Turns out, only 9 nations in the world have a higher real minimum wage than the US.
A dispassionate discussion of the weekend events and a look at the week ahead.
Just when the market thought it had priced in a new equilibrium without (or with - it is not quite clear) a Syria war, here comes Thursday with a data dump that will make one's head spin. Central bankers are once again on parade starting overnight, when the BOJ announced no change to its QE program and retaining its monetary base target of JPY270 trillion. The parade continues with both the BOE and ECB, the latter of which is expected to address the recent pick up in Eonia rates and take praise for the recent very much unsustainable "recovery" in the periphery even as Germany continues to slide lower (this morning's factory orders plunged 2.7% on exp. -1.0%), which in turn lead the Bund to pass above 2.0% for the first time since March 2011. Speaking of bonds blowing out, the US 10Y is now just 6 bps away from 3.00%, the widest since July 2011, and likely to breach the support level, taking out a boatload of stops and leading to the next big step spike in rates as the second selling scramble ensues. And just to keep every algo on its binary toes, today we also get a NFP preview with the ADP private payrolls at 8:15 am (Exp. 180K, down from 200K), Initial Claims (Exp. 330K), Nonfarm Productivity and Unit Labor Costs (Exp. 1.60% and 0.9%), Factory Orders (Exp. -3.4%), Non-mfg ISM (Exp. 55), Final Durable Goods, EIA Nat Gas and DOE Crude Inventories, oh and the G-20 meeting in St. Petersburg where Putin and Obama are not expected to share much pleasantries, and where John Kerry's swiftboat may not be allowed to dock.
China's Unspoken "Catastrophe" - 11.6% Of The Population, Or 114 Million, Have Diabetes: More Than The USSubmitted by Tyler Durden on 09/04/2013 12:50 -0500
While China was absorbing all the best that the "West" had to export to it over the past three decades (credit cards, MTV, inflation, apps, youtube), it was also importing the worst. Such as a sedentary, lazy lifestyle which at a massive social scale, usually has one inevitable conclusion - diabetes. And even as the world is focused on all the other pending crashes China has to offer: housing, credit, demographic, it has been largely ignorant of what is rapidly becoming a "catastrophic" epidemic. According to Bloomberg, which cites just released findings in the Journal of the American Medical Association, "the most comprehensive nationwide survey for diabetes ever conducted in China shows 11.6 percent of adults, or 114 million, has the disease. This means that another 22 million diabetics, or the population of Australia, have been added to a 2007 estimate and means almost one in three diabetes sufferers globally is in China. By comparison in America "only" 11.3% of the population have been diagnosed with diabetes.
When last week the revised Q2 GDP print was announced, which beat expectations solidly driven entirely by a surge in net exports, we said that "with China on the rocks and tightening, the Emerging Markets in free fall, and Europe still a net exporter (so not benefiting the US), anyone hoping this trade led-recovery will be sustainable, will be disappointed." Sure enough, the first trade data update for the third quarter as of July, confirmed just this, as the trade deficit widenedfrom a revised $34.5 billion deficit, to a substantially larger monthly deficit, amounting to $39.1 billion. This was $500MM more than consensus expected, or $38.6 billion, and it means that as we predicted, the downward revisions to Q3 tracking estimates are about to start rolling in, trimming ~0.1%-0.2% from US GDP for this current quarter. Specifically, imports for the month rose from $225.1 billion to $228.6 billion while exports fell from $190.5 billion to $189.5 billion. But perhaps most notable is that in July, the US trade deficit with China and the EU rose to a record of $30.1 billion (from $26.6bn last month) and $13.9 billion (from $7.1bn) respectively.
Equity markets across AsiaPac are once again a sea of crimson with India and Indonesia taking front of stage... but in divergent ways for a change. After slamming lower to new record lows (not surprising given the forwards weakness all day), speculation was rife that the RBI intervened in the Rupee and Indian stocks jumped exuberantly on the news (NIFTY +1.3%). But no such luck for Indonesia where the Jakarta Comp is -2%. Conversely (for now), Indonesia's Rupiah is relatively well bid (+1.28%) and the Rupee is still -0.6%. Elsewhere, the Philippines are being hit FX down and stocks -1.9% and even the larger equity markets of China, Australia, and Japan are red. US Treasuries are leaking higher in yield (10Y +2bps at 2.88%) and US equity futures are limping higher (now +1pt). Silver is pushing lower (-0.8%) while gold and Crude are only modestly lower.
Peak gold has yet to be considered and analysed by the international financial and investment community but there is a risk that it has happened or will happen soon with a consequent impact on the gold mining industry and on gold prices in the 21st Century.
Much data and events next week. Politics risks trumping economics.
- Al-Qaeda Links Cloud Syria as U.S. Seeks Clarity on Rebels (BBG)
- Administration Tells Lawmakers of Evidence Linking Assad to Attack (WSJ)
- Director of National Intelligence James R. Clapper to publish numbers of secret spying orders (CBS)
- U.S., Switzerland strike bank deal over tax evasion (Reuters)
- Another Budget Deal Bites the Dust (WSJ)
- Contemplating Summers Drives Investors to Seek Beltway Expertise (BBG)
- Austerity Test Looms in Australia as Abbott Pledges Cuts (BBG)
- Gay Spouses in All States Now Married Under U.S. Tax Law (BBG)
- Shadow banks face limits to securities trading (FT)
- EU's Rehn sees European recovery strengthening in 2014 (Reuters) ... or 2015... or 2022... or never?
The current external environment and consequence of past policies are limiting options for EM nations (most specifically Indonesia and India). Citi believes the best they can do now is to smooth the (inevitable) macro adjustment (weaker FX, higher risk premiums, slower growth) through improved policy credibility (to curb volatility and overshooting) and find offsets to portfolio flows to ease the pressure. The 4 choices of various rocks and hard places do not hold much hope for anything but further FX devaluation. As Citi's Matt King points out, what goes up (in terms of Emerging Market central bank FX reserves) risks coming back down with a thud... and in case you were wondering why India, Turkey, and Indonesia were the most-hammered...
If Syria is invaded by the West, then we should be getting ready for a hike in the price of Brent that some say may reach a much as $150 since it will escalate into a regional problem and affect supplies coming out of Iraq.
2013 has not been kind to Hugh Hendry, whose Eclectica Absolute Macro fund has posted an unchanged performance year to date, broadly underperforming (alongside the bulk of the hedge fund community) the market. Below are his most recent macro thoughts, his holdings (few changes most notable of which is the closure of the Yen short), and his take on how Bernanke "infamously marched his troops to the top of the hill only to march them down again, one moment promising tapering, the next, unlimited accommodation."
Next weeks events placed within the larger context.