Beige Book

Much like the Beige Book attempts to summarize the 'economic conditions' of all the 12 regional Federal Reserve branches, so Goldman's David Kostin screens the companies in the S&P 500 for common themese from their earnings calls. This anecdotal evidence provides critical insight into the current fundamental and thematic trends. The three key findings are (1) Managements delayed capital investment and hiring and gave conservative guidance given uncertainty about the real economy and near-term policy risk from the ‘Fiscal Cliff’; (2) Companies grappled with slow global growth: stagnation in the US, recession in Europe, and an unclear path in China; and (3) Many firms took strong action to protect high margins against tepid revenue growth, rising input costs, and frugal customers. Meanwhile, a near-record percent of small businesses rank government requirements as their biggest challenge!

Stronger Periphery close will be the usual opportunity for politicians to rant about the lack of clout of rating agencies.

Good Jump in Risk appetite. Question is how far. Lack of absence of negative news, or better, markets simply ignoring the latter, doesn’t make for a convincing bullish rebound.

I’d say: We won’t get fooled again! European Bull trap.

Stocks popped on some bloomberg flashing red headlines from the Fed's Beige Book but quickly faded as bonds did not move. The reality - summed up in the worldcloud - is 'mixed' - for sales, for prices, for demand, for jobs:

• *FED DISTRICT BANKS SAID `CREDIT STANDARDS WERE LITTLE CHANGED'
• *FED DISTRICT BANKS SAID MANUFACTURING WAS `SOMEWHAT IMPROVED'
• *FED DISTRICTS SAID `OVERALL LOAN DEMAND INCREASED SLIGHTLY'
• *MOST FED BANKS SAID `WAGE PRESSURES REMAINED MODEST'
• *FED BANKS SAID `EMPLOYMENT CONDITIONS WERE LITTLE CHANGED'
• *FED DISTRICTS SAID CONSUMER SPENDING WAS `FLAT TO UP SLIGHTLY'

Eerily quiet after yesterday’s post-ECOFIN cacophony…

No real take-away today: sometimes you need a breather and everyone agrees.

The overnight session has been largely listless, with the market digesting a less than impressive start to earnings season by Alcoa, which reported declining cash flows, and various other negative earnings preannouncements out of major industrial companies. The IMF has not helped the somber mood with its analysis that by the end of 2013 European banks will need to dispose of up to $4.5 trillion in assets. Asian weakness (even the SHCOMP couldn't rally much on further easing rumors for the simple reason that the PBOC will simply not ease with QEternity out there and a food price hike over the horizon) has dominated the trading session so far. What little goods news there was came out ironically out of Italy and France, both of which reported better than expected August Industrial Production data. Italy IP rose 1.7% on expectations of a -0.5% drop, and up from -0.2% last, while the French Industrial Production posted a surprising surge, following weeks of poor data out of the country, with IP up 1.5% on expectations of a -0.3% print, and up from last month's 0.6%. However, even France warned not to read too much into a number driven by, well, cars and drinks.

Key take-aways from today were: The IMF is gloomy, so is Draghi. Banking Union is months away. ESM and OMT ready to go, but no one wants that first dance. Spain is analyzing.

Oh, and an iPhone is just that. A phone.

Nothing new, nowhere.

Didn't get fooled again yesterday, but still facing denial today...

Some correction of Friday’s Bull trap: European Risk Off, EGB credit torsion and weaker equities.

Doubtful whether any fireworks will come out of the ECOFIN meeting.

Seems to be more about maintaining the relative market quietness and status-quo.

Usually on semi-US holidays such as today, when bonds are closed but equities left to the whims of vacuum tubes, equities do their mysterious ramp and never look back. So far today, however, this has failed to happen with futures at lows, driven by a noticeably weak EURUSD, which has traded down nearly 100 pips from the Friday late day ramp close, currently at 1.2940. It is unclear what has spooked the Euro so far, although all signs point to, as they did 2 months ago, the Spanish lack of willingness to throw in the towel and demand a bailout, thus easing conditions for everyone else if not for Spain PM Rajoy. Today's main event will be European finance ministers meeting in Luxembourg to discuss the recent Spanish economic transformation efforts as well as an attempt to accelerate banking cooperation and implement a banking regulator - something which is needed for the ESM to monetize bank debt, and something which Germany has been firmly against from day one. Additionally, a day ahead of Merkel's visit to German (where she will be protected by 6-7,000 cops), the ministers are likely to make a positive statement on Greece’s progress toward austerity targets, according to European viceroy Olli Rehn said. In other overnight news, German Industrial Production saw a -0.5% decline, which was modestly better than the -0.6% expected. Over in Asia, China reopened from its 1 week Golden Week hibernation with the SHCOMP down -0.56% to 20.76.42 following a small bounce in the China HSBC Services PMI to 54.3 from 52 in August, and with average house prices rising for a 4th month in a row, and even more repo operations by the PBOC, the result is that the market's ungrounded hopium for an immediate PBOC liquidity injection was taken away pushing regional markets lower.

What can be said? Rinse, repeat, rinse, repeat.

Everyone basking into the market truce provided by Super Mario. And taking some easy time off… 

Friday afternoon Periphery squeeze barn stomp

The consensus view of China is that the country is imploding due to the collapse of the export sector.  Such arguments make sense.  But they may also be dead wrong. 

The market does not seem ecstatic with the relative positivity from the Fed's Beige Book - good news is bad it seems - as via Bloomberg:

• *FED DISTRICTS SAW ECONOMY GROWING `GRADUALLY' IN JULY, AUGUST
• *FED SAYS MOST DISTRICTS SAW STABLE PRICES FOR FINISHED GOODS
• *FED SAYS `UPWARD WAGE PRESSURE' WAS `VERY CONTAINED'
• *FED SAYS REAL ESTATE MARKETS `GENERALLY SAID TO BE IMPROVING'
• *FED SAYS SIX DISTRICTS SAID ECONOMY EXPANDED `AT A MODEST PACE'
• *FED SAYS MOST DISTRICTS SAW INCREASE IN RETAIL SALES
• *FED SAYS BANKERS IN SIX DISTRICTS SAW RISING LOAN DEMAND

Greece’s climb towards solvency is steep and the underlying question remains; can the country return to growth and reduce its debt before it’s too late?

With the world's suckers investors (CEOs, politicians, and peons alike) all hanging on every word the man-behind-the-curtain has to say on Friday, Stone & McCarthy has crafted an excellent 'what-if' of key takeaways and interpretations ahead of Friday's Jackson Hole Symposium speech by Bernanke. Will Draghi toe the line? Will China be pissed? and what rhymes with J-Hole? On balance, we think Bernanke will save the policy directives for the FOMC meeting (potentially disappointing the market) while highlighting that the Committee is vigilant and flexible, and ready to act.

Weidmann rejected suggestions that he was isolated on the ECB Governing Council in having such reservations. "I hardly believe that I am the only one to get a stomach ache over this," he said. Alexander Dobrindt, a senior German politician who has been the Executive Secretary of the Christian Social Union of Bavaria since 2009, was more direct, saying Draghi risked passing into the history books as the "currency forger of Europe". A conservative ally of Merkel, Dobrindt echoed Bundesbank’s Weidmann that Greece should leave the currency bloc by next year. The comments show the huge divisions in Germany over the debt crisis now in its 3rd year and the understandable concerns of inflation and even hyperinflation. The Bundebank and senior politicians and allies of Merkel may thwart Mario Draghi’s big plans to do “whatever it takes” to solve Europe’s financial collapse. One way or another, the euro is certain to fall in value in the long term.