After last week's relatively quiet, on macro data if not central bank news, week the newsflow picks up with the usual global PMI survey to start, and end the week with the US January payrolls report.
It didn't take much to fizzle Friday's Japan NIRP-driven euphoria, when first ugly Chinese manufacturing (and service) PMI data reminded the world just what the bull in the China shop is leading to a 1.8% Shanghai drop on the first day of February. Then it was about oil once more when Goldman itself said not to expect any crude production cuts in the near future. Finally throw in some very cautious words by the sellside what Japan's act of NIRP desperation means, and it becomes clear why stocks on both sides of the pond are down, why crude is not far behind, and why gold continues to rise.
After crashing to post-Lehman lows in December, there was some hope for a bounce in January but this is simply idiotic. Chicago PMI soared 30% - the most sicne 1980 - from 42.9 (7 year lows) to 55.6 (1 year highs). This was miraculously driven by double-digit and all-time record gains in new orders and order backlogs.
It is safe to say that nobody expected the BOJ stunner announced last night, when Kuroda announced that Japan would become the latest country to unleash negative interest rates, for one simple reason: Kuroda himself said Japan would not adopt negative rates just one week ago! However, a few BIS conference calls since then clearly changed the Japanese central banker's mind and as we wrote, and as those who are just waking up are shocked to learn, negative rates are now a reality in Japan. The immediate reaction was to send the USDJPY surging by nearly 200 pips, back to levels seen... well, about a month ago.
Following a rerun of September 2015, when Draghi sent market expectations about ECB action sky-high only to massively disappoint in December (we will have to wait until March to see if it is deja vu all over again) last week, this week is just as big for central bank jawboning with the FOMC (Wednesday) and the BoJ meeting on Friday, with hopes that they will at least hint of more easing if not actually do much.
Happy New Year: Global Stocks Crash After China Is Halted Limit Down In Worst Start To Year In HistorySubmitted by Tyler Durden on 01/04/2016 06:46 -0500
It all started off relatively well: oil and US equity futures were buoyant on hopes Iran and Saudi Arabia would break out in a bloody conflict any minute boosting the net worth of shareholders of the military industrial complex, and then, out of nowhere, like a depressed China in a bull shop, the "mainland" crashed the party and it all well south very, very quickly...
Wall Street forecasts for 2015 were largely wrong across the board. Now we have no problem with anybody being wrong, but wwhat we do take issue with is that Wall Street largely insisted on staying wrong even though the facts were changing in 2015. The only thing that really changed was the narrative, i.e. “well if earnings are down so what then markets go up because fund managers have to chase performance”. And hence you end up with overly optimistic forecasts not based on reality. But Wall Street is in the business of selling supply to the public. If there was one key trading lesson to draw from 2015 it is this: Ignore the noise and focus on the technicals.
America has never - ever - avoided a recession when Chicago's Business Barometer has collapsed to these levels. At 42.9, missing the expectations of 50.0 by the most ever, down from 48.7 in November, the final US economic data point of the year sums up perfectly what a disaster Yellen has hiked rates into.
It has come down to this: a year in which the US stock market (led by a handful of shares even as the vast majority of stocks has dropped) has gone nowhere, but took the longest and most volatile path to get there, is about to close either red or green for 2015 based on what happens in today's low-volume session following yesterday's unexpected last half hour of trading "air pocket" which brought the S&P back to unchanged for the year.
“To the intelligent man or woman, life appears infinitely mysterious, but the stupid have an answer for everything.” ~Edward Abbey
There was something for everyone in last night's much anticipated Chinese PMI data, with the official number sliding to the lowest in over 3 years, suggesting the PBOC will need to do more stimulus and is thus bullish, while the unoffocial Caixin print rising to the highest since June, suggesting whatever the PBOC is doing is working, and is also bullish. Not unexpectedly, global stocks decided to take the bullish way out, and have risen across the globe led by Asia, where stocks rose as much as 1.8%, Europe also green and US equity futures up 10 points as of this writing.
"The US corporate financing gap – the difference between cash flow generation and spending on capex and dividends – has turned strongly negative. In the past, when the financing gap went strongly negative, the next downturn was just around the corner."
One month ago, the Chicago PMI soared, printing at 56.2, far above the highest estimate. It was not meant to be, and printing moments ago at 48.7, a mirror image of last month, as this time it printed below the lowest estimate of 49, with consensus expected a 54.0 print. And confirming that that US is indeed in a manufacturing recession is the starting fact that the PMI has been below 50 (shrinking) for more months in 2015 (6) than it has been above this expansionary threshold.
As noted earlier, after last week's snoozefest, this week starts off with a bang when the IMF announces in a few hours it will accept the Chinese Yuan in the pantheon of world reserve currencies alongside the USD, EUR, GBP and JPY the only question being what the alotted weighing of the currency will be. Things then progress to tomorrow's global PMI numbers, Yellen speeches on the economy to the Economic Club of Washington and Congress (Weds/Thurs), the eagerly anticipated ECB meeting on Thursday and finally Friday's OPEC meeting and US payroll print - the last before the FOMC in 2 weeks time.
Without a rerun of last Friday's Chinese stock market rout, European traders could focus on what "really matters", namely how much of the ECB's upcoming 20 bps rate cut and €20 billion QE expansion (with Commerzbank saying Draghi may even hint at Europe's QE3) is priced in, and whether the ECB's actions are just modestly priced in, or more than fully, and just how big the "sell the news" event will be.The result: the Euro falls to a new 7 month low, the dollar spot index hits a new all time high, and European stocks and US futures stage another remarkable overnight comeback on the usual low volume levitation and central bank intervention.