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!
Following the lowest UMich confidence print in 2013, Gallup's economic confidence collapse, and Bloomberg's index of consumer comfort signaling major concerns among rich and poor in this country (in spite of record highs in stocks), today's Conference Board Consumer Confidence data continues to confirm a problem for all those 'hoping' for moar multiple expansion. From 80.2 in September, confidence collapsed to 71.2 (the largest MoM drop in 2 years) to its lowest in six months, and notably below expectations. 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). Hope for the future dropped to 7-month lows but what is perhaps most intriguiging, just as with the Bloomberg surveys, we are seeing the wealthiest cohorts confidence plunging (even as stocks soar to new highs). It would appear the Fed has lost its wealth effect inpiration.
For those curious what Bernanke's market may do today, we flash back to yesterday's AM summary as follows: "Just as it is easy being a weatherman in San Diego ("the weather will be... nice. Back to you"), so the same inductive analysis can be applied to another week of stocks in Bernanke's centrally planned market: "stocks will be... up." Add to this yesterday's revelations in which "JPM Sees "Most Extreme Ever Excess Liquidity" Bubble After $3 Trillion "Created" In First 9 Months Of 2013" and the full picture is clear. So while yesterday's overnight meltup has yet to take place, there is lots of time before the 3:30 pm ramp (although today's modest POMO of $1.25-$1.75 billion may dent the frothiness). Especially once the market recalls that the NOctaper FOMC 2-day meeting starts today.
Following record UMich misses, Gallup's economic confidence collapse, the slump in the conference board's measure of confidence, and Bloomberg's index of consumer comfort signaling major concerns among rich and poor in this country (in spite of record highs in stocks), today's Consumer Confidence data from UMich continues to confirm a problem for all those 'hoping' for moar multiple expansion. Falling for the 3rd month in a row, and missing expectations for the 2nd month in a row, this is the lowest confidence print in 2013. Perhaps even more worrisome for the 'hope and change' crowd is that the 12-month economic outlook has collapsed to its lowest since Nov 2011. It would seem that all that free money flooding our 'markets' has reached peak efficacy in terms of confidence inspiration, and as Citi notes, when this cycle has played out in the past, equity market corrections are often quick to follow...
Don't Blame Free Market Capitalism ... We Haven't Had It for a While
Following UMich confidence's biggest miss on record, the Conference Board misses expectations printing at its lowest since May 2013 as the last data was revsied higher. This is the largest MoM drop since March. Crucially, the headline index was saved by a surge in the "present situation" as expectations for the future plunged. As a reminder, Consumer Confidence has an awkward 4 year 4 month pattern of dysphoria to euphoria (though at progressively lower levels) and today's data merely confirms that the cycle of exuberance may have been broken.
- BOE Leaves Policy Unchanged as Carney’s Guidance Assessed (BBG)
- Surprise or not, U.S. strikes can still hurt Assad (Reuters)
- Samsung Gear: A Smartwatch in Search of a Purpose (BusinessWeek)
- 'Jumbo' Mortgage Rates Fall Below Traditional Ones (WSJ)
- Capital Unease Again Bites Deutsche Bank (WSJ)
- Technical snafus confuse charges for Obamacare plans (Reuters)
- JPMorgan subject of obstruction probe in energy case (Reuters)
- U.S. Car Sales Soar to Pre-Slump Level (WSJ) - i.e., to just when the market crashed
- BoJ lifts assessment of Japan’s economic health (FT)
- Dead Dog in Reservoir Helps Drive Venezuelans to Bottled Water (BBG)
- Russia Boosts Mediterranean Force as U.S. Mulls Syria Strike (BBG)
Consumer sentiment and confidence has been a smorgasbord of confusion recently. Bloomberg's Consumer Comfort index just had its biggest 3-week plunge in 16 months falling back to its lowest since the first week of April. Conference Board confidence was 'stable' at 5.5 year highs and now UMich Confidence, which missed expectations for the first time in 2013 last month in its preliminary print, has been revised up with its final data to the best level in 4 months. The schizophrenia is completed with this little beauty from Gallup. As we have warned before, beware 'the big con' and as these two charts suggest, confidence seems very much in the eye of the beholder.
- UN Insecptors to leave Syria early, by Saturday morning (Reuters)
- Yellen Plays Down Chances of Getting Fed Job (WSJ)
- JPMorgan Bribe Probe Said to Expand in Asia as Spreadsheet Is Found (BBG)
- No Section 8 for you: Wall Street’s Rental Bet Brings Quandary Housing Poor (BBG)
- Euro zone, IMF to press Greece for foreign agency to sell assets (Reuters)
- Brothels in Nevada Suffer as Web Disrupts Oldest Trade (BBG)
- U.S., U.K. Face Delays in Push to Strike Syria (WSJ); U.S., U.K. Pressure for Action on Syria Hits UN Hurdle (BBG)
- Renault Operating Chief Carlos Tavares Steps Down (WSJ)
- Vodafone in talks with Verizon to sell out of U.S. venture (Reuters)
- Dollar Seen Casting Off Euro Shackles as Fed Tapers (BBG)
A quiet week to send off August ahead of a deluge of key data next week and as the fateful Septembr 18 FOMC announcement approaches. Still, quite a few macro events to keep track of.
- Egypt on the edge after Mursi rebuffs army ultimatum (Reuters)
- Inside China's Bank-Rate Missteps (WSJ)
- Obama Urges Morsi to Respond to Protesters' Concerns (WSJ)
- How Fed’s 7% Jobless Avoids Deterring Bondholders Is Mystery (BBG)
- Obama Joins With Political Foe Bush at End of Africa Trip (BBG)
- China may introduce deposit insurance by year-end (China Daily)
- China’s Slowdown Could Slam Hong Kong (BBG)
- Government 'to ask Rothschild to advise on RBS split' (Telegraph)
- Martin Feldstein: The Fed Should Start to 'Taper' Now (WSJ)
- Turmoil Exposes Global Risks (WSJ)
- China Money Rates Retreat After PBOC Said to Inject Cash (BBG)
- Fed Seen by Economists Trimming QE in September, 2014 End (BBG)
- Booz Allen, the World's Most Profitable Spy Organization (BBG)
- Abe’s Arrows of Growth Dulled by Japan’s Three Principles (BBG)
- China steps back from severe cash crunch (FT)
- Smog at Hazardous as Singapore, Jakarta Spar Over Fires (BBG)
- U.S. Weighs Doubling Leverage Standard for Biggest Banks (BBG)
The good old days are back, those of the last housing bubble when money grew on trees.