"But it must be the weather", we are sure, will be the cry of a thousand economists whose meterologist forecasts just got torn up. Chicago PMI just missed expectations by the most in a year and tumbled to its lowest since August as it appears knowing what the weather was like in March did nothing for analysts' ability to comprehend the awful reality of the underlying economy. The business barmoter has been falling since October (pre-weather) but this month saw the employment sub-index collapsed to 50 (from 59.3), prices paid dropped, and new orders tumbled to the lowest since August. However, rest assured that all will be well, as the survey reports, "Panellists, though, were optimistic about the future."
- US, Russia talks fail to end Ukraine deadlock (AP)
- Russian forces 'gradually withdrawing' from Ukraine border (AFP)
- Turkish PM Erdogan tells enemies they will pay price after poll (Reuters)
- And Goldman arrives: Credit markets open to Argentina for first time in years (Reuters)
- Regulators Twice Failed to Open GM Probes (WSJ)
- Bad loan writedowns soar at China banks (FT)
- Investors Breathe Life Into European Banks' Bad Loans (WSJ)
- Euro zone inflation drops to lowest since 2009 (Reuters)
- Yellowstone National Park rattled by largest earthquake in 34 years (Reuters)
After ramping in overnight trading, following the spike in Japanese stocks following another batch of disappointing economic data out of the land of the rising sun and setting Abenomics which sent the USDJPY, and its derivative Nikkei225 surging, US equity futures have pared some of the gains in what now appears a daily phenomenon. Keep in mind, the pattern over the past 6 consecutive days has been to ramp stocks into the US open, followed by a determined fade all the way into the close, led by "growthy" stocks and what appears to be an ongoing unwind of a hedge fund basket by one or more entities. Could the entire market be pushed lower because one fund is unwinding (or liquidiating)? Normally we would say no, but with liquidity as non-existant as it is right now, nothing would surprise us any more.
Dispassionate look at next week's calendar.
With the Ukraine now openly appealing to the world to halt what in its own words is a Russian invasion, it only made sense that after the bigger than expected downward revision to Q4 GDP, and the miss in Pending Home Sales, that the S&P would close at a new all time high
In a stunning turn of events, Chicago, where the bulk of the polar vortex impact was felt in the past month, apparently experienced zero negative economic impact from, you know, the weather, after moments ago the Chicago PMI February print blew away forecasts of a 56.4 print, and after printing at 59.6 in January in fact rose to 59.8, just shy of the highest sellside forecast of 60. Because after beating expectations 5 times in a row why not make it six.
- Yuan suffers biggest weekly loss as PBOC punishes speculators (Reuters)
- Euro Gains as Bonds Decline With Stocks on Inflation Data (BBG)
- Biggest Sovereign Fund Forced to Sell Stocks as Mandate Breached (BBG)
- Because we don't already have enough fried foods.. (Reuters)
- Putin: Russia to Consider Aid to Ukraine (AP)
- Wall Street Hates JPMorgan Fee for $1 Trillion Junk Loans (BBG)
- Yellen Sticks to Plan Amid Weather Doubts (WSJ)
- U.S. Retail Chains See First Profit Decline Since Recession (BBG)
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.
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.
It is still all about the Yen carry which overnight tumbled to the lowest level since November, dragging the Nikkei down by 4.8% which halted its plunge at just overf 14,000, only to stage a modest rebound and carry US equity futures with it, even if it hasn't helped the Dax much which moments ago dropped to session lows and broke its 100 DMA, where carmakers are being especially punished following a downgrade by HSBC of the entire sector. Also overnight the Hang Seng entered an official correction phase (following on from the Nikkei 225 doing the same yesterday) amid global growth concerns and has filtered through to European trade with equities mostly red across the board. Markets have shrugged off news that ECB's Draghi is seeking German support in the bond sterilization debate, something which we forecast would happen a few weeks ago when we pointed out the relentless pace of SMP sterilization failures, with analysts playing down the news as the move would only add a nominal amount of almost EUR 180bln to the Euro-Area financial system. Elsewhere, disappointing earnings from KPN (-4.3%) and ARM holdings (-2.5%) are assisting the downward momentum for their respective sectors.
The worst news that could happen for stocks today was a Chicago PMI beat - after all it is becoming all too clear that the market is begging for a tapering of the tapering, and any and every bad news will be welcome. Alas, the Purchasing Managers Institute did not get the memo, and moments ago MNI-Deutsche Boerse reported (to subscribers first), that the January print was 59.6, below the revised December print of 60.8 but above the expected 59.0. This was thje third consecutive monthly fall following October’s jump to the highest since March 2011. The only silver lining for stocks was that the Employment component slipped into contraction for the first time in nine months, printing at 49.2, down from 51.6. Must have been the fault of that horrible polar vortex in January then.. Or Bush of course.
- Even Obama's fans has turning on him: "The Decline and Fall of 'Hope and Change'"
- European Stocks Drop, Head for Worst January Since 2009 (BBG)
- Euro-Area Inflation at 0.7% Builds Rate Pressure on ECB (BBG)
- Japan’s Inflation Accelerates as Abe Seeks Wage Gains (BBG)
- Unpossible - this is the USSA: Detroit Debt Proposal Favors Pension Funds (WSJ)
- Keystone Report Said Likely to Disappoint Pipeline Foes (BBG)
- YHOO still pretending someone cares about it: Yahoo says detected hacking attempt on email accounts (Reuters)
- How Google's Costly Motorola Maneuver May Pay Off (WSJ)
- Mexico Surpassing Japan as No. 2 Auto Exporter to U.S. (BBG)
The wild volatility continues, with markets set to open well in the negative wiping out all of yesterday's gains and then some, only this time the catalyst is not emerging market crashing and burning (at least not yet even though moments ago the ZAR weakened to a new 5 year low against the USD and the USDTRY is reaching back for the 2.30 level) but European inflation, where the CPI printed at 0.70%, dropping once again from 0.8%, remaining under 1% for the fourth straight month and missing estimates of a pick up to 0.9%. Perhaps only economists are surprised at this reading considering last night Japan reported its highest (energy and food-driven) inflation print in years: so to explain it once again for the cheap seats - Japan is exporting its "deflation monster", Europe is importing it. It also means Mario Draghi is again in a corner and this time will probably have to come up with some emergency tool to boost European inflation or otherwise the ECB will promptly start to lose credibility - is the long awaited unsterilized QE from the ECB finally imminent?
This week, much of the market focus will remain on the policymakers' responses to the challenges emerging out of the, well, emerging markets. In particular, the response of the Turkish Central bank will be key. This week we also have eight MPC meetings, with the US FOMC on Wednesday standing out. Consensus expects the continuation of the tapering of asset purchases – by another USD10bn, split equally between Treasuries and MBS. Other than that, the announcement should be fairly uneventful. In India GS forecasts an out-of-consensus hike of the repo rate to 8.00% after the central bank published a report on suggested changes to the monetary policy framework. In New Zealand, South Africa, Israel, Mexico, Malaysia and Colombia, consensus expects no change in the monetary policy stance. Among economic data releases, the focus will be on consumer surveys, as well as business surveys (US, Germany and Italy). There are also inflation numbers from the US, Euro Area, Japan and Brazil. Advanced Q4 GDP data prints will come out for the US and the UK. US consumption and production numbers are due at the end of the week.