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In addition to the already noted fireworks out of China, where the Yuan saw the biggest daily plunge since 2008 and the ongoing and very rapid newsflow out of the Ukraine, focus this morning was very much of the latest Eurozone CPI data, which despite matching previous low levels, came in above expectations and in turn resulted in an aggressive unwind of short-EUR bets as market participants were forced to re-asses the likelihood of more easing by the ECB. Still, even though the Euribor curve bear steepened and Bunds came under significant selling pressure, the EONIA forward curve remained inverted, signifying that there is still a degree of apprehension over what is unarguably very low inflation data.
Sugar is like a heroin addiction. The effects are bingeing, withdrawal and craving or cross-sensitization.
Asian equities are trading lower across the board on the back of some negative credit stories from China. Shanghai Securities News noted that ICBC and some other banks have curbed loans to developers in sectors such as steel and cement. Slower gains in home property prices in China’s tier 1 cities are also not helping sentiment. Beijing and Shenzhen prices rose 0.4% in January, which looks to be the slowest monthly gain since October 2012 according to Bloomberg. Elsewhere there are reports that a property developer in Hangzhou (Tier 2 city in China) is reducing its unit prices by 19%. Our property analysts noted that given the strong gains seen in Tier-1 and some bigger Tier-2 cities in 2013, a slowdown or negative trends in price growth should not be a surprise. Nevertheless, it has been a very weak day for Chinese and HK markets with the Shanghai Composite and the Hang Seng indices down -2.0% and -1.2% lower as we type. Across the region, bourses in Japan and Korea are down -1.0% and -0.6%, respectively.
The last 3 weeks have seen the macro fundamentals of the G-10 major economies collapse at the fastest pace in almost 4 years and almost the biggest slump since Lehman. Despite a plethora of data showing that 'weather' is not to blame, US strategists, 'economists', and asset-gatherers are sticking to the meme that this is all because of the cold on the east coast of the US (and that means wondrous pent-up demand to come). However, as the New York Times reports, for the earth, it was the 4th warmest January on record.
A dispassionate and analytic of the macro developments for the week ahead.
"The Pig In The Python Is About To Be Expelled": A Walk Thru Of China's Hard Landing, And The Upcoming Global Harder ResetSubmitted by Tyler Durden on 02/21/2014 09:37 -0500
The die has been cast, and it appears that the world is finally on the path to the great "carry-trade unwind" endgame. If so, this is what it will look like...
This was one of the all too real Bloomberg headlines posted overnight: "Asian Shares Rally as U.S. Manufacturing Data Beats Estimates." Odd: are they refering to the crashing Philly Fed, or the just as crashing Empire Fed data? Wait, it was the C-grade MarkIt PMI that nobody ever looks at, except to confirm that where everyone else sees snow, the PMI saw sunshine and growth. Remember: if the data is weak, it's the snow; if it's strong, it's the recovery. Odder still: one would think Asian shares care about manufacturing data of, say, China. Which happens to be in Asia, and which two nights ago crashed to the lowest in months. Or maybe that only impact the SHCOMP which dropped 1.2% while all other regional markets simply do what the US and Japan do - follow the USDJPY, which at one point overnight rose as high as 102.600, and brought futures to within inches of their all time closing high. Sadly, it is this that passes for "fundamental" analysis in this broken market new normal...
We highlighted the CRB/BLS Spot Foodstuffs Index last week. It’s continuing to rise but still remains lower year-on-year at this point. The question is whether this is the start of a broadly-based period of food price inflation?
A considerable area of investor concern remains on emerging economies. As UBS' Larry Hatheway notes, the last thing that vulnerable emerging economies need at the moment is worries about a global growth slowdown, if that is indeed what is happening. That’s particularly true given that one of the relative few bright spots in the emerging complex of late was improved PMIs, reflecting some pickup in global manufacturing, exports and trade. While that lift might not help the down-trodden commodity producers within the emerging complex, it is helpful for the more manufacturing-oriented economies of Asia, selected parts of EMEA, or Latin America. But as Hatheway warns below, emerging vulnerability is about much more than just growth.
"Gold will keep rising as long as US policy is exporting volatility—we see no imminent change in this situation under Janet Yellen’s Federal Reserve."
Did you know that the drought in Brazil is so bad that some neighborhoods are only being allowed to get water once every three days? At this point, 142 Brazilian cities are rationing water and there does not appear to be much hope that this crippling drought is going to end any time soon. Unfortunately, most Americans seem to be absolutely clueless about all of this. And this horrendous drought in Brazil could potentially have a huge impact on the total global food supply. As a recent RT article detailed, Brazil is the leading exporter in the world in a number of very important food categories…
With a plethora of Fed speakers playing good cop, bad cop todasy, it is hardly surprising that the FOMC minutes (as adulterated as they are) still show disagreement...
- *SEVERAL FOMC PARTICIPANTS SAID TEMPORARY FACTORS SPURRED GROWTH
- *FED TO CHANGE RATE GUIDANCE AS UNEMPLOYMENT FALLS, MINUTES SHOW
- *SOME FOMC PARTICIPANTS FAVORED `QUALITATIVE GUIDANCE'
- *SEVERAL PARTICIPANTS FAVORED $10 BILLION QE TAPER PER MEETING
The bottom-line is that the Fed is very confused and while headlines will crow of communication and forward-guidance, it is clear they are winging it now as "qualitative" guidance is the new way forward.
It may not be one of the core three (somewhat) realistic and accurate econometric indicators of China's economy (which as a reminder according to premier Li Keqiang are electricity consumption, rail cargo volume and bank lending), but when it comes to getting a sense of capacity bottlenecks in China's fixed investment pipeline - be it in ghost cities or the latest skyscraper building spree - nothing is quite as handy as commodity, and particularly iron ore (if not copper, which as we have explained before has a far more "monetary/letter of credit" function in China's markets), stockpiles at China's major ports. The logic is simple: no stockpiles means end demand by steelmakers is brisk and there is no inventory build up which in turns keep Australia, Brazil and other emerging markets happy. Alternatively, large stockpiles indicates something is very wrong with final demand, and hence, the overall economy. One look at the chart below, which shows how much iron ore has been stockpiled at China's 34 major ports (spoiler alert: it just hit an all time high), should explain at which of these two extremes China currently finds itself.