Today’s clueless Keynesian central bankers essentially believe that they can keep the pedal-to-the-metal until a 1970’s style inflationary spiral arises. But none is coming because the worldwide central bank money printing spree of the last two decades has generated massive excessive capacity and malinvestment all around the planet. What is coming, therefore, is not their father’s inflationary spiral, but an unprecedented and epochal global deflation. So the central banks just keep printing, thereby inflating the asset bubbles world-wide. What ultimately stops today’s new style central bank credit cycle, therefore, is bursting financial bubbles. That has already happened twice this century. A third proof of the case looks to be just around the corner.
While global equity markets hover near record-er highs, global GDP growth expectations have erased their February dead cat bounce hopes and tumbled back towards cycle lows. This is all confirmed by the latest data from Goldman Sachs whose Global Leading Indicator remains mired in "contraction" for the 4th month in a row...
It has been another whiplash, rollercoaster, illiquid session which saw US equity futures tumble early overnight driven by a bout of USDJPY and Nikkei selling, only to regain all losses as European, and BIS, traders walked in, and promptly BTFD. In fact at last check, it was as if all the fireworks that took place just a few short hours ago and sent the ES as low as 2037, and below what has become the key support level, the 50-DMA never happened.
Following February's drop from 'recovery' cycle highs (which has now been erased by previous revisions! why are confidence measures seasonally-adjusted anyway?), despite surging gas prices, terrible economic data, and dismal weather, March consumer confidence explodes higher. Printing 101.3, massively beating expectations of 96.4, this is just shy of the cycle highs in January. Of course, it's all hope... the present situation index actually dropped notably from 112.1 to 109.1 as future expectations surged from 90.0 to 96.0, but fewer people plan to buy homes or major applicances in the next 6 months.
Weather-crushed January saw seasonally-adjusted Case-Shiller home prices - and as a reminder Case-Shiller expressly warns not to use seasonal data but opts for raw, unadjusted reporting - rise 0.87% MoM (better than expected), slower than the revised 0.91% gain in December. However, away from the 'make-everything-feel-better' adjustments, home prices slipped in January following December's brief interlude, leaving the index down 4 of the last 5 months. Of course, it goes witghout sayiung that weather was blamed, as they suggest, "unusually cold and wet weather may have weakened activity in some cities." What is more worrisome however, and farcical, is Case-Shiller's ominous warning against rate hikes, "home prices are rising roughly twice as fast as wages, putting pressure on potential homebuyers and heightening the risk that any uptick in interest rates could be a major setback."
- Iran, powers push for nuclear deal as clock ticks toward deadline (Reuters)
- How DIY Bond Traders Displaced Wall Street’s Hot Shots (BBG)
- MillerCoors Caught in a Downdraft (WSJ)
- Saudi-led strikes again hit Yemen overnight (Reuters)
- Even With Free Money, Merkel Still Reluctant to Spend (BBG)
- Britain Uses Tax Breaks to Lure Digital-Game Developers (WSJ)
- China to Insure Deposits in Move Toward Scrapping Rate Curbs (BBG)
- As China Expands Its Navy, the U.S. Grows Wary (WSJ)
Did stocks window dressing come one day early in this volatile, bipolar, stop-hunting, HFT-infested market? Looking at futures this morning, which are down about 12 points already on yet another surge in the USD which has sent the EURUSD just above 1.07, the lowest since March 20 , and the USDJPY back under 120 now that the "strong dollar is bad for stocks after all" algo seems to be back from vacation, all those hedge funds who chased risk higher yesterday because their peers did the same, may find they are all selling on the way down. It will be oddly ironic if all of yesterday's widely touted gains evaporate comparably in the first 10 minutes of trading today, and lead to an end in the longest streak of quarterly increases in two decades.
With the rest of the developed world's central banks waiting for the Fed to admit defeat for one more year and delay its proposed rate hike (or launch NIRP/QE4 outright) it was all about China (the same China which a month ago we said would launch QE sooner or later) and hope that its central bank would boost asset prices, when over the weekend the PBoC governor hinted that more easing is imminent to offset the accelerating drag after he admitted that the nation’s growth rate has tumbled "a bit" too much and that policy makers have scope to respond. How much scope it really has now that its bad debt is rising exponentially is a different question. It got so bad, Shanghai Securities News leaked a false rumor earlier forcing many to believe China would announce an unexpected rate cut as soon as today, in the process sending the Shanghai Composite soaring by 2.6%.
After a few days of dollar weakness due to concerns that the Fed's rate hike intentions have been derailed following some undisputedly ugly economic data (perhaps the Fed should just make it clear there will never be rate hikes during the winter ever again) the USD has resumed its rise, and as a result risk assets, after surging early in the overnight session driven by the Nikkei225 and the Emini, the "strong dollar is bad for risk" trade has re-emerged, with the Nikkei dropping almost 500 points off its intraday highs, with US equity futures poised to open lower once more, sliding nearly 20 points in the overnight session, and surprising the BTFDers who have not seen five consecutive days of "risk-off" in a long time.
In a somewhat surprising turn of events, this morning's futures reaction to last night's shocking start of a completely unexpected Yemen proxy war, which has seen an alliance of Gulf State launch an air, and soon land, war against Yemen's Houthi rebels, is what one would expect: down, and down big. This is surprising, because on previous occasions one would expect the NY Fed, or its pet hedge fund, Citadel, or the BOJ or ECB (via the CME's "Central Bank Incentive Program") to aggressively buy ES to prevent a slide, something has changed, and for the BTFDers, that something may be very fatal with the e-Mini rapidly approaching a 1-handle yet again. The offset to tumbling stocks, as previously observed, is oil, with WTI soaring over 6% in a delayed algo response to the Qatar headlines.
Four and a half years after Brazil's FinMin Guido Mantega first re-introduced the world to the term "currency wars," it appears the Brazilians have admitted defeat. Amid what Goldman calls a sharp decline in consumer confidence - to the lowest level in series history - which could also extend the ongoing macroeconomic adjustment processes and therefore delay the recovery of the economy; Brazil's central bank has announced that it will no longer intervene to support the Real via its Dollar-Swap program. In a SNB2.0-esque move, though somewhat anticipated by the market, Brazil enables the devaluation that has occurred to perhaps extend (improving competitiveness) and removing what was becoming a notable fiscal drag. Implicitly, Brazil just followed the Swiss and admitted defeat in the global currency war...
As previously observed (skeptically), a main reason for the surge in the DAX, and thus the S&P, on Friday was premature hope that the Greek talks earlier were a long-overdue precursor to a Greek resolution, and as we further noted yesterday, subsequent bickering and lack of any clarity as we go into today's critical "final ultimatum" meeting between Merkel and Tsipras, is also why the Dax was lower by 1.1% at last check, even if the EURUSD continues to trade like an illiquid, B-grade currency pair whose only HFT purpose is to slam all stops within 100 pips of whatever the current price may be.
"Perhaps the central bankers and economists from all over the world should take a break from the theory and their focus on economic models and instead have a look at the real world and spend some time talking to Volcker in order to remember that deflation is not the disaster they imagine it to be."
Many analysts regard this as further evidence that the Fed is caught in a bind. What is yet to be appreciated by most analysts is that it is unlikely that the massively over-leveraged and debt-saturated financial system can weather increases in interest rates.
This week's main event will be the FOMC announcement on Wednesday at 2:00 pm and the subsequent press conference, the conclusion of the March 2-day Fed meeting, in which it is widely expected that Yellen will announce the end of the Fed's "Patience" with an economy in which resurgent waiters and bartenders continue to skew the job market even if it means consistently declining wages for 80% of the US labor force. Here is a summary of what else to expect this week.