The early session risk on trade, which materialized after the Pfizer confirmation it was seeking to buy AstraZeneca, and which sent the GBPUSD to its highest level since 2009, and also sent the EURUSD and EURJPY soaring in the process lifting US equity futures, has started to fizzle on the most recent news out of Ukraine, where the pro-Russian mayor of Ukraine's second largest city of Kharkiv was shot in the back in an apparent assassination attempt, which happened hours before the US is set to announce more sanctions against the Kremlin and its closest financial oligarchs. As a result, futures have pared gaisn modestly, especially since AstraZeneca made it clear with its initial reponse it has no interest in Pfizer's offer in its current format.
- No need to use military force in Ukraine for now: Putin (Reuters)
- Russia Orders Drill Troops Back to Bases (WSJ)
- Ukraine premier agrees to reforms for aid package (FT)
- Japan Base Wages Rise for First Time in Nearly Two Years (WSJ)
- Only the algos are trading: Citigroup Joins JPMorgan in Seeing Trading-Revenue Drop (BBG)
- Vietnam sends blogger to prison for critical posts (AP)
- At White House, Israel's Netanyahu pushes back against Obama diplomacy (Reuters)
- Obama to offer new tax breaks for workers in election year budget pitch (Reuters)
- China Banks Show Too-Connected-to-Fail Link to Shadow Loans (BBG)
- Ex-BOK Deputy Lee Named to Head South Korea Central Bank (BBG)
- No mortgage origination problem in the UK: Mortgage approvals climb to six year high (Telegraph)
Despite fresh record highs for stocks, previously exuberant Conference Board consumer confidence was unable to make new highs and instead tumbled by the most in 4 months, missing expectations by the most since October. This catches down to Bloomberg's less confident consumer and suggests the hopes and dreams of a nation looking for moar multiple expansion may be drifting away...
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.
Take your pick of which "confidence" measure you choose to watch to confirm your previous "common knowledge" meme. Unsurprisingly, the government's own Conference Board indicator provides the highest level of confidence relative to recent months but today's beat by UMich (81.2 flat from last month but above 80.2 expectations) is the highest overall level among the indices. It seems not even the weather can dampen the enthusiasm of the US consumer (who is retail spending at a dismally low level?) Hardly surprising is the fact that the tumble in the current conditions index was entirely dissolved by the hope for the economic outlook which stands at 6 month highs! Short-dated inflation expectations also ticked up. Of course what really matters is keeping the dream alive that multiple-expanding confidence will cover up any and all missed expectations in macro and micro data.
The last month has made the baffle-'em-with-bullshit Schrodinger-driven central planning confusion proud as the all-important measures of confidence in the US (which stoke the fires of multiple expansion) have dropped, been revised, risen, and stalled. However, today's third indication - from Bloomberg - of Consumer Comfort shows a notable fall to near three-month lows - diverging dramatically from the other measures. The last time this happened, the Conference Board and UMich data rapidly deteriorated to the year's lows. It ha snow been a month since this indicator was in the 'comfort' zone but perhaps most notably those earning over $100k saw their biggest drop in comfort since July 2011.
Back in December 2013, as we do after every periodic bout of irrational exuberance by Goldman's chief economist Jan Hatzius et al (who can forget our post from December 2010 "Goldman Jumps Shark, Goes Bullish, Hikes Outlook" in which Hatzius hiked his 2011 GDP forecast from 1.9% to 2.7% only to end the year at 1.8%, and we won't even comment on the longer-term forecasts) designed merely to provide a context for Goldman's equity flow and prop-trading axes, we said it was only a matter of time before Goldman (and the rest of the Goldman-following sellside econo-penguins) is forced to once again trim its economic forecasts. Overnight, two months after our prediction, the FDIC-backed hedge fund did just that, after Goldman's Hatzius announced that "we have taken down our GDP estimates to 2½% in Q1 and 3% in Q2, from 2.7% [ZH: actually 3.0% as of Thursday] and 3½% previously."
Previous month's epic miss and hurriedly revised expectations from UMich confidence was 'baffled with schizophrenic bullshit' when the Conference Board printed at near record post-crisis highs earlier in the week. It is perhaps not unexpected that despite a drop MoM, following the huge miss last month that UMich confidence would very modestly beat expectations. As in the last 2 cycles, we saw an echo surge in confidence and that has now (just as in the last two cycles of confidence) begun to fade. Both current conditions and economic outlook fell MoM.
Confidence is soaring (or sliding) depending on what survey you choose to believe. The UMich confidence's collapse (the biggest miss in 8 years) has been matched by more 'baffle 'em with bullshit' as the Conference Board beats expectations by the most in 5 months and pushes back towards 2013 highs (near the highest in over 5 years). Both the Present situation and Expectations rose notably - despite 1.4 million people losing their benefits, a lackluster holiday season for retailers, and stagnant incomes - but the Present Situation index rose to the highest since April 2008.
We have some great news for those Americans who are still in the labor force (so that excludes about 92 million working age US citizens) and still have a (full-time) job: you are now working longer than ever! In fact, as JPM's Michael Cembalest observes using Conference Board data, the average manufacturing workweek is now just shy of 42 hours - the longest in over 60 years. And there are those who say Americans are lazy...
Goldman forecasts a gain of 200k non-farm payroll jobs tomorrow (against a 196k consensus +/-25k). Factors arguing for a solid print include the recent trend, an improvement in most employment indicators already released for the month, the compressed holiday hiring period, and a potential "couriers and messengers effect." On the negative side, Goldman warns cold weather is a downside risk. With respect to other aspects of the release, in general they note that the December report has not shown an overwhelming tendency to contain back-revisions in one direction or the other; and forecast an unchanged unemployment rate at 7.0%, and a 0.2% month-on-month gain in average hourly earnings.
Similar to UMich's confidence measure soaring by the most in 4 years, the Conference Board's confidence measure beat expectations and jumped the most in 6 months (though remains below the year's highs). This is the best beat in 4 months. The improvement is all based on "expectations" which soared the most in 6 months. Confidence is critical (as we noted below) especially since the massive majority of actual investors are already bullish...(and definitely not bearish)...
No matter what measure of confidence, sentiment, or animal spirits one uses, the consumer is not encouraged by the record-er and record-er highs in the US equity market. The Conference Board's consumer confidence data missed for the 2nd month in a row - its biggest miss in 8 months - as it seems in October consumers were un-confident due to the government shutdown... but in November they are un-confident-er due to its reopening. As we have noted in the past a 10 point drop in confidence has historically led to a 2x multiple compression in stocks (which suggests the Fed will need to un-Taper some more to keep the dream alive). Ironically, more respondents believe stocks will rise of stay the same over the next 12 months even as the 'expectations' sub-index collapsed to its lowest in 8 months.
In fitting with the pre-holiday theme, and the moribund liquidity theme of the past few months and years, there was little of note in the overnight session with few event catalysts to guide futures beside the topping out EURJPY. Chinese stocks closed a shade of red following news local banks might be coming under further scrutiny on their lending/accounting practices - the Chinese banking regulator has drafted rules restricting banks from using resale or repurchase agreements to move assets off their balance sheets as a way to sidestep loan-to-deposit ratios that constrain loan growth. The return of the nightly Japanese jawboning of the Yen did little to boost sentiment, as the Nikkei closed down 104 points to 15515. Japan has gotten to the point where merely talking a weaker Yen will no longer work, and the BOJ will actually have to do something - something which the ECB, whose currency is at a 4 year high against Japan, may not like.
Whether it is the conference board, Gallup, Bloomberg, or pretty much any other measure of the economic confidence or consumer comfort in the US, the numbers have been falling (or plunging) despite the incessant rise of US equities. The reason this is of particular note, as we have discussed previously, is that this pattern of exuberant highs in stocks with fading confidence-inspiration has ominous overtones for future performance... (especially for those hoping for moar multiple expansion). The UMich data this morning merely confirms the trend with the lowest print since Dec 2011 (3 misses in a row). This is the biggest miss since Feb 2006!