The middle of the month brings a mixture of second-tier macro numbers punctuated by the market-moving (and Taper-cementing) retail sales report. We get IP, CPI and PPI from the US this coming week. In terms of hard activity numbers, US retail sales on Tuesday will be the highlight which as a reminder is, in addition to Jackson Hole, seen as one of two key pre-Taper catalysts to keep an eye on. Outside the US, the key data will be the quarterly publication of German, French and Eurozone GDP, as well as Japanese GDP, which has already been released (weaker real growth, higher inflation). The second week of the month also tends to show the first survey results with the Phily Fed and Empire surveys on Thursday. In Germany the ZEW will come on Tuesday. Finally, from an FX point of view, we will be focused on balance of payments related data, with the trade balance in India and TIC data in the US. After a few very weak TIC releases in recent months we would expect more evidence of weak capital inflows into the US.
- JPMorgan Nears Settlement With SEC on London Whale Loss (BBG)
- Without even a wristslap: Iksil to face no U.S. charges in 'Whale' probe (Reuters)
- China’s Credit Expansion Slows as Li Curbs Shadow Banking (BBG)
- China slowdown shows signs of abating (FT), even as...
- Australia central bank Lowers Growth Outlook as Economy Transitions From Mining (BBG)
- SAC Business Plan Goes to Judge, Plan Would Allow Firm to Maintain Business Operations but Restrict Its Ability to Move Assets (WSJ)
- Another buyer of Herbalife? - Norway’s oil fund plans to turn active (FT)
- Mark Carney plays down scepticism over interest rate policy (FT)
- Orders Evaporate for Celebrity Perfumes (WSJ)
The good, if fake, Chinese "data" releases continued for a second day in row, dominating the overnight headlines with a barrage that included CPI, PPI, retail sales, industrial production, fixed investment, money growth, car sales, and much more (summary recap below). Needless to say, all the data was just "good enough" or better than expected. Yet judging by both the Chinese market (which is barely up, following the drop on yesterday's "surge" in made up trade data) and the US futures, not even algos are dumb enough to fall for the goalseek function in China_economy.xls. Either that, or traders are taking the "rebound" in the Chinese economy as a further indication that the Taper (which will take place in September), will take place in September. And since global risk sentiment continues to be driven by the USDJPY, the Yen pushing to overnight highs is not helping the "China is bullish" narrative.
Traditionally, metals markets are supposed to be a solid fundamental signal of the physical and psychological health of our overall economy. Steady but uneventful commodities trade meant a generally healthy industrial base and consumption base. An extreme devaluation was a signal of deflation in consumer demand and a flight to currencies. Extreme price hikes meant a flight from normal assets and currencies in the wake of possible hyperinflation. This is how gold and silver markets were originally designed to function – however, welcome you to the wacky world of 2013, where bad financial news is met with the cheers of investors who believe stimulus will last forever, where foreign investors dump the U.S. dollar in bilateral trade while mainstream dupes argue that the Greenback is invincible, and where everyone and their uncle seems to be buying precious metals yet the official market value continues to plunge. The reason our entire fiscal system now operates in a backwards manner is due to one simple truth - every major indicator of our economy today is manipulated by our central bank...
Confidence leads to spending; spending strengthens the economy; and economic strength buttresses confidence. It’s a circular, self-fulfilling prophesy. Confidence can also fuel market movements. Belief that the price of an asset will rise causes people to buy the asset... making its price rise. This is another way in which confidence is self-fulfilling. But, of course, as Oak Tree Capital's Howard Marks points out, the confidence that underlies economic gains and price increases only has an impact as long as it exists. Once it dies, its effect turns out to be far from permanent. As the economist Herb Stein said, "If something cannot go on forever, it will stop." This is certainly true for confidence and its influence. As far as confidence today, Marks notes significant uncertainty is one of the outstanding characteristics of today’s investing environment. It discourages optimism regarding the future and limits investors’ certainty that the future is knowable and controllable. In other words, it saps confidence. This is a major difference from conditions in the pre-crisis years. In fact, Marks warns he doesn't remember when his list of 'uncertainties' was this long...
If there was any doubt that the taper would take place shortly, it can be wiped out following the just released June international trade data, which showed a surge in exports to a record high $191.2 billion, an increase of $4.1 billion compared to May, even as imports declined by $5.8 billion to $225.4 billion, resulting in a trade deficit of just $34.2 billion, or 22.5% lower compared to the $44.1 billion in May, which is the lowest trade deficit since October 2009. It is also the biggest beat to expectations of -$43.5 billion since March 2005. Whether this plunge in the deficit was the result of the new GDP methodology is unknown, however the resulting surge in revised Q2 GDP following this bean-counting addition to the last month of Q2, means that the economy grew even more than expected and that the Fed's tapering course is now assured. It also means Q3 GDP based on July trade data will be dragged down as there is no way this surge in the collapsing deficit can be sustained.
- Washington Post Company Chairman and CEO Donald Graham talks about the sale, what it means for the future of The Post (WaPo)
- Private-equity firms are adding debt to companies they own to fund payouts to themselves at a record pace (WSJ)
- U.S., U.K. Urge Citizens to Leave Yemen (WSJ)
- India Names Rajan Central Bank Governor as Rupee Plunges (BBG)
- Family Offices Chasing Wealthy’s $46 Trillion in Assets (BBG)
- UK 'bad bank' repays $2.9 billion to taxpayers in first half (Reuters)
- Sony rebuffs Daniel Loeb’s push for entertainment spin-off (FT)
- Public Pensions Up 12% Get Most in 2 Years as Stocks Soar (BBG)
- Hidden Billionaire Found With Food Fortune in California (BBG)
- Fonterra under fire over milk scare; more product recalls (Reuters)
- Crédit Agricole Profit Rises After Greek (WSJ)
The summer doldrums continue. Overnight news included an expected 25 bps rate cut in Australia to a new record low of 2.50%, although the statement surprised by not retaining its expected dovish outlook. Perhaps this is due to the PBOC finally folding and despite raging for weeks that it was dead serious about its tightening experiment, injected another CNY12 billion in its banks via 7-day reverse repos at 4.0% compared to the previous, July 30 CNY14 billion 7 day injection at 4.40%. The Chinese central bank came, saw, and didn't like what it found in the Chinese interbank liquidity situation. Whether and how this will change the Politburo's reform agenda, and whether the provided liquidity will do much if anything, remains to be seen. Elsewhere, in Europe, German factory orders soared 3.8% on expectations of +1.0%, however all driven by Paris airshow orders which boosted bulk orders, and without which orders would have fallen -0.7%. The UK upward momentum continues with Industrial Production's turn now to soar to the highest since January 2011, while Italian GDP declined less than expected, dropping -0.2%, on expectations of a -0.4% slide. In other words Europe continues to rep and warrant that it does not need any assistance from the ECB despite a complete lock up in private lending and credit creation. Good luck with all that.
- Botulism toxin? There's an apology for that - Fonterra CEO apologizes, sees China dairy curbs lifted within days (Reuters)
- Patent troll-In-Chief strikes again: Veto of Apple Ruling Likely to Upend Big Patent Battles (WSJ)
- Because scapegoating means justice FTW - SEC Gets ‘Shot in the Arm’ With Victory in Tourre Case (BBG)
- Insider-Trading Probe Caught in a Washington Knot (WSJ)
- Miners return to hedging as gold (FT)
- Toyota’s $37 Billion Cash Pile Means Turning Point for Abenomics (BBG)
- Inside the battle at Germany's Siemens (Reuters)
- ‘One million’ UK workers on zero hours contracts (FT)
- Wag the dog, part 1984: Iran Seen Trying New Path to a Bomb (WSJ)
- Tokyo Cheap to Hong Kong Luring Asian Bargain Hunters (BBG)
Compared to last week's macro-event juggernaut, this week will be an absolute bore, although with a bevy of Fed speakers on deck - both good and bad cops - there will be more than enough catalysts to preserve the "upward channel" scramble in the S&P and the zero volume levitation to new all time daily highs despite the lack of daily bad news. Speaking of Fed speakers, we have Fisher today, Evans’ tomorrow followed by both Plosser and Pianalto on Wednesday. The key overnight data point was the continuation of July PMIs out of Europe, this time focusing on the service industry. As Goldman summarizes, the Final Euro area Composite PMI for July came in at 50.5, marginally above the Flash reading and consensus expectations (50.4). Relative to the June final reading, this was a sold 1.8pt increase, and building on consecutive increases in the past three months, the July Euro area PMI stands 4.0pts above the March print. Solid increases were observed across all of the EMU4 in July, most notably Italy. The July reading is the highest Euro area PMI level observed since July 2011.
In a somewhat shockingly blunt comment from the mouthpiece of Chinese officialdom, Yao Yudong of the PBoC's monetary policy committee has called for a new Bretton Woods system to strengthen the management of global liquidity. In an article in the China Securities Journal, Yao called for more power to the IMF as international copperation and supervision are needed. While comments seem somewhat barbed towards the rest of the world's currency devaluers, given China's growing physical gold demand and the fixed-exchange-rate peg that 'Bretton Woods' represents, and contrary to prevailing misconceptions that the SDR may be the currency of the future, China just may opt to have its own hard asset backed optionality for the future; suggesting the new 'bancor' would be the barbarous relic (or perhaps worse for the US, the Renminbi). Of course, the writing has been on the wall for China's push to end the dollar reserve supremacy for over two years as we have dutifully noted - since no 'world reserve currency' lasts forever.
Those long the Kiwi (NZDUSD) woke up to an unpleasant shock this morning when the pair opened nearly 100 pips lower following news that China and Russia, and likely other countries soon, have halted imports of New Zealand milk powders after Fonterra announced that three batches of whey protein "may have been" contaminated with botulism-causing bacteria: a situation that is a tad more problematic than the diplomatic haggling over genetically modified crops. Since milk powders accounted for a whopping 15% of total New Zealand exports in 2012, it becomes obvious that unless Fonterra, and the NZ government, engage in some prompt damage control, the Kiwi may have much more room to drop as the country's 2013 GDP forecast may be the next thing to go toxic.
A discussion of this week's key events and data within the context of the investment climate characterized by shifting Fed tapering expectations, evidence still pointing to a soft landing of the Chinese economy, a cyclical recovery in Europe and renewed capital outflows from Japan, while foreign investors slow their purchases of Japanese equities.
Everybody in America wants health care - but most Americans seem to want someone else to pay for it. In the United States today, the way that our system works is that the hard working, productive members of society pay for the health care of everyone else. At least under socialism everyone gets the same benefits. Our system of health care is a very twisted version of socialism where millions upon millions of very hard working people are forced to pay for the health care of others, but often can't afford to purchase decent health insurance for themselves. When you add it all up, the hard working, productive members of society are at least partially subsidizing the health care of well over half of all Americans while having to pay for their own health care at the same time. Needless to say, it isn't too hard to see who is getting the raw end of the deal.
A week that has been all about acronyms - GDP, PMIs, FOMC, ECB, BOE, ADP, ISM, DOL, the now daily record highs in the S&P and DJIA - is about to get its final and most important one: the NFP from the BLS, and specifically an expectation of a July 185K print, down from the 195K in the June, as well as an unemployment rate of 7.5% down from 7.6%. The number itself is irrelevant: anything 230 and above will be definitive proof Bernanke's policies are working, that the virtuous circle has begun and that one can rotate out of everything and into stocks; anything 150 or below will be definitive proof the Fed will be here to stay for a long time, that Bernanke and his successor will monetize everything in sight, and that one can rotate out of everything and into stocks, which by now are so disconnected from any underlying reality, one really only mentions the newsflow in passing as the upward record momentum in risk no longer reflects pretty much anything.