In the week following the Fed's admission it is not only market-driven but now has a 4th mandate, which is to respond to China's hard landing on a day-to-day basis, US macro events mecrifully slow down to give everyone a chance to digest what the Fed just did. Here are the highlights.
After sliding early in Sunday pre-market trade, overnight US equity futures managed to rebound on the now traditional low-volume levitation from a low of 1938 to just over 1950 at last check, ignoring the biggest single-name blowup story this morning which is the 23% collapse in Volkswagen shares, and instead have piggybacked on what we said was the last Hail Mary for the market: the hope of more QE from either the ECB or the BOJ. Tonight, it was the latter and while Japan's market are closed until Thursday for public holidays, its currency which is the world's preferred carry trade and the primary driver alongside VIX manipulation of the S&P500, has jumped from a low of just over 119 on Friday morning to a high of 120.4, pushing the entire US stock market with it.
The title does give it away: the only event that everyone will be focusing on this week will be the Fed's announcement and Yellen's press conference on Thursday. Here is what else is on deck.
While any moves in the US stock market ahead of Thursday are largely irrelevant, as only Yellen's statement in 4 days will unleash epic algo buying or short covering (yes, according to JPM the Fed statement is bullish no matter what), it is what happened in China that is concerning, because while we had expected Chinese stocks to go nowhere in particular now that index future trading volumes have plunged by 99% or perhaps rise on hopes of even more easing after the latest terrible economic data, the Shanghai Composite dropped 2.7%, but it was the retail darling Shenzhen Composite which tumbled 6.7% - its worst selloff since August 25, while China's Nasdaq, the ChiNext crashed -7.5%.
Retail Sales Slump On Deck: Consumer Spending Slides To Lowest Since March After Worst August Since 2012Submitted by Tyler Durden on 09/08/2015 13:31 -0400
according to the latest Gallup report on US consumer spending, in which a random sample of 15.724 adults were interviewed by phone, Americans' self-reported daily spending averaged just $89 in August, down not only from August in 2014 and 2013 but the fourth month in a row of year-over-year spending declines, as well as was also the lowest monthly spend since March of 2015. And this time there are no "scapegoats" to blame the spending slowdown on: the weather in August was uniformly gorgeous around the US.
Businesses get “crunched” in the Oil Patch, consumers lose it, indexes hit Financial Crisis levels.
After July's disappointing drop in UMich Consumer Confidence, August did not help. Printing 91.9, below expectations of 93.0, UMich is hovering at the 2015 lows. Both current and future sub-indices dropped with hope falling to its lowest since 2014 (biggest 7mo decline in 2 years). Income growth expectations dropped and business expectations dropped to lowest since Sept 2014. This follows the highest conference board confidence in 2015 and lowest Gallup confidence in a year. Bill Dudley will be disappointed after proclaiming this a key driver of The Fed's rate hike call (more important than jobs).
We warned on Friday, after last week's China rout, that the market is getting ahead of itself with its expectation of a RRR-cut by China as large as 100 bps. "The risk is that there isn't one." We were spot on, because not only was there no RRR cut, but Chinese stocks plunged, with the composite tumbling as much a 9% at one point, the most since 1996 when it dropped 9.4% in a single session. The session, as profile overnight was brutal, with about 2000 stocks trading by the -10% limit down, and other markets not doing any better: CSI 300 -8.8%, ChiNext -8.1%, Shenzhen Composite -7.7%. This was the biggest Chinese rout since 2007.
The July index of leading indicators, from The Conference Board, cratered in July. The self-referential index (which includes Treasury yields) tumbled to -0.2% as the curve steepened. The last time it was weaker than this was March 2013.
It was a quiet start to the week today with just the June Euro area trade balance (which rose €21.9bn vs €23.1 bn expected, up from €21.3 bn) in the European timezone and Empire manufacturing and NAHB housing market index for August this afternoon in the US. Under the radar, but perhaps the most news today, is the June TIC data which will likely confirm the ongoing liquidation of "FX Reserves" aka TSYs by "Belgium" aka China. Expect another $15-20 billion drop in Belgian Treasury holdings in the month of June.
There is much stunned confusion among Wall Street's "best and brightest" following China's historic Yuan devaluation overnight which was predicted by exactly zero of said best and brightest, just like nobody expected the SNB to give up its own peg to the EUR in January.
While many labor market indicators were softer in July, some important service sector indicators, such as ISM nonmanufacturing employment, were significantly stronger; and on balance, they expect job growth roughly consistent with the 223k increase in June. The participation rate showed a surprising drop of 0.3pp in June to 62.6% - due in large part from a calendar effect caused by the timing of the reference week relative to the end of the school year - they therefore expect an at least partial rebound in July.
Hope, quite simply, just isn’t close to enough for a real recovery. There is an undeniable element of troubling prevarication in the whole attempt to coax unearned optimism, as taken to the extreme it means that policymakers will never quite be honest about especially realistic downsides. That may even mean, in their zeal to “fool” consumers, they fool themselves on the circular logic.
Just the tip of the iceberg?