While France's Hollande demands action - amid his country's "political earthquake" this weekend - Goldman warns investors should not expect any signal that the Governing Council is pondering in earnest a large-scale asset purchase program. Goldman expects the ECB to lower policy rates by 15bp at the June meeting and the announcement of targeted credit easing measures, probably in the form of a vLTRO as Draghi warns "the potential for a negative spiral to take hold between between low inflation, falling inflation expectations and credit, in particular in stressed countries."
It has gotten beyond ridiculous: a few short hours ago the yield on the 10 Year bond tumbled to a fresh low of 2.49% (and currently just off the lows at 2.50%), wiping out all of yesterday's "jump" on better than expected Durables and leading to renewed concerns about the terminal rate, deflation and how slow the US economy will truly grow. Amusingly, this happened just as US equity futures printed overnight highs. Doubly amusing: this also happened roughly at the same time as Spanish 10 Year yields dropped to a record low of 2.827%, or about 30 bps wider than the US (moments after Spain announced that loan creation in the country has once again resumed its downward trajectory and a tumble in retail deposits to levels not seen since 2008). Triply amusing: this also happened just about when Germany had yet another technically uncovered 30 Year Bund issuance, aka failed auction. So yes: nothing makes sense anymore which is precisely what one would expect in broken, rigged and centrally-planned markets (incidentally those scrambling to explain with events in bond world where one appears to buy bonds to hedge long equity exposure, are directed to the minute of the Japanese GPIF pension fund which announced it would buy junk-rated bonds to boost returns - good luck to Japanese pensioners).
Following last month's drop and missed expectations - just when a post-weather bounce was hoped for - May's 83.0 print (in line with expectations) is disappointing to those seeing all-time highs in stocks. As reminder, the US consumer decided they were most confident in March - amid the shitty weather and stumbling stock market - and now with warm weather and record highs, things are less exuberant. Looking forward, plans to buy an appliance dropped as did plans to buy a home (even as rates drop).
- Vietnam, China trade accusations after Vietnamese fishing boat sinks (Reuters)
- SEC Set to Spur Exchange Trading (WSJ)
- Bank of Japan quietly eyes stimulus exit (Reuters)
- Japan Risks Low Growth Even as Easing Spurs Inflation (BBG)
- Hello Japan: Bond Market Message to Fed: Your 4% Rate Outlook Is Too High (BBG)
- Malaysia, UK firm release satellite data on missing MH370 flight (Reuters)
- Fighting rages in eastern Ukraine city, dozens dead (Reuters)
- Bad Credit No Problem as Balance-Sheet Bombs Rally 94% (BBG)
- Draghi’s Asset-Backed Drive Rouses Academic Skeptics (BBG)
- For-Profit Colleges Face Test From State, Federal Officials (WSJ)
The melt up is accelerating and with the momentum tailwind back, newsflow is once again irrelevant: any news that are even remotely good are trumpeted, and any bad news - such as Europe's right storm rising in the northern states, and left storm surge in the states that demand more handouts from the northern states or China sinking a Vietnamese boat, the most serious bilateral incident since 2007 - are once again (and as usual) nothing more than a catalyst for even more liquidity injections. End result: the S&P futures this morning are 5 points above Goldman's year end target of 1900 and 45 points away from its June 30, 2015 target. Can this breakneck scramble on zero volume continue until Grantham's bubble peak level of 2,200 is hit? Well of course: after all anything goes in the centrally-planned new normal. To be sure, this is an equity only phenomenon: moments ago the Bund future hit its highest level since May 19, while the 10 Year remains unchanged at 2.53% as it continues to price in the new "deflationary" (and Japanese) normal. And as has been the case during all such divergences of late, either bonds or equities are making a horrible mistake: the question remains: who? Since all equities are doing is tracking FX pairs to the pip and have completely forgotten all about fundamentals, we have a pretty good idea what the answer is.
This week markets are likely to focus on a few important data prints in DMs, including Philly Fed in the US (expect solid expansionary territory) and 1Q GDP releases in the Euro area (with upside risks). In DMs, the highlights of the week include [on Monday] Japan’s trade balance data and Australia business conditions; [on Tuesday] US retail sales, CPI in Italy and Sweden; [on Wednesday] US PPI, Euro area IP, CPI in France, Germany and Spain; [on Thursday] US Philly Fed, CPI, capacity utilization, Euro area and Japan GDP; and [on Friday] US Univ. of Michigan Confidence. In the US, we expect Philly Fed to print in solidly expansionary territory (at 14, similar to consensus) and to inaugurate what we call the active data period of the month. We also expect CPI inflation to print at 0.3% mom (similar to consensus), and core CPI inflation at 0.18% mom (slightly above consensus).
East Ukraine may be independent in a result which the Kremlin said it "respects" and hopes for a "civilized implementation" of the referendum results, and which assures further military escalation in the proxy war of east versus west, but stocks are happy to ignore it all again. The reason: a positive close over in Asia (ex-Japan) after China’s State Council pledged to reform markets buoyed demand for risk, although it really is just a follow through to the furious VIX slam in the last hour of US Friday trading, which said otherwise, means buying of US equities was the reason to buy US equities. More importantly and adding to the early spoo euphoria were comments by ECB's Nowotny who said that interest rate cut alone would likely be too little to combat low inflation - suggesting a European QE is coming - also acted as a catalyst for the latest uptick in stocks: when trapped like the ECB and when "guiding" to future activity, if unable to actually execute it, may as well go all the way. End result, Spoos up nearly 0.5% because, well, others are buying spoos.
This week, markets are likely to focus on US ISM Nonmanufacturing, services and composite PMIs in the Euro area (expect increases), ECB’s Monetary Policy Decision (expect no change in policy until further ahead), and Congressional testimony by Fed’s Yellen.
- UBS 180K
- HSBC 195K
- Bank of America 215K
- JP Morgan 220K
- Goldman Sachs 220K
- Citigroup 225K
- Deutsche Bank 240K
- Barclays 250K
- Ukraine attacks rebel city, helicopter shot down (Reuters)
- Euro Unemployment Holds Near Record Amid Factory Gains (BBG)
- Yellen’s Fed Resigned to Diminished Growth Expectations (BBG)
- Junket Figure's Disappearance Shakes Macau's Gambling Industry (WSJ)
- China tried to undermine economic report showing its ascendancy (WSJ)
- Liquidity Trap Hitting AAA Bonds Has ATP CEO Sounding Alarm (BBG)
- AstraZeneca Snubs Pfizer Approach That U.K. Won’t Block (BBG)
- Missing Jet Recordings May Have Been 'Edited' (NBC)
- RBS turns corner as first-quarter profit trebles (Reuters)
- Japan household spending hits four-decade high, wages key to outlook (RTRS) while Real Incomes Drop 3.3% in March, 6th straight decline
The consensus for tomorrow's non-farm payrolls print is 218k (and ranges from 155k to 292k across the 94 "economists" surveyed by Bloomberg. Goldman forecasts 220k - around consensus - thanks to the long-awaited full normalization of weather conditions in April which could provide some additional boost. In addition, the employment components of all ten major business surveys released so far improved in April, in each case to a level consistent with increased employment. They expect that the unemployment rate declined to 6.6% in April and a 0.2% increase in average hourly earnings (AHE). Wages will be the object of much attention following a flat read on AHE in March, likely reflecting the unwinding of weather distortions
Since it's not Tuesday (the only day that matters for stocks, of course), call it opposite, or rather stop hunt take out, day. First, it was the BOJ which, as we warned previously, would disappoint and not boost QE (sorry SocGen which had expected an increase in monetization today, and now expects nothing more from the BOJ until year end), which sent the USDJPY sliding, only to see the pair make up all the BOJ announcement losses and then some; and then it was Europe, where first German retail sales cratered, printing at -1.9%, down from 2.0% and on expectations of a 1.7% print, and then Eurozone inflation once again missed estimates, and while rising from the abysmal 0.5% in March printed at only 0.7% - hardly the runaway inflation stuff Draghi is praying for. What happened then: EURUSD tumbled then promptly rebounded a la the flash crash, and at last check was trading near the high of the day.
Housing data weaker than expected? Check. Consumer confidence weaker than expected? Check. New cycle highs in stocks - check, check, and check. Why not - after all, as we noted this morning, what really matters is JPY and the fact that it's Tuesday. The Dow is now practically unchanged year-to-date... but ex-Tuesdays is down over 7%. Despite stocks hitting new highs, treasury yields continue to slide, gold is up, and credit markets are not making new tights. Just remember, when it comes to investing, "it's not the economy, stupid! It's Tuesday.. oh and tomorrow is FOMC."
After March's exuberant surge to the higest level since Jan 2008, serial extrapolators drew their lines and proclaimed that Consumer Confidence would jump further to 83.2 - it didn't. Confidence dropped from a revised 83.9 to 82.3 as Present Situation dropped its most in 15 months. Hope (expectations) remains at its highest in 8 months but plans to buy a car dropped to 1 year lows (with its biggest 2-month drop in 11 years) and plans to buy a major appliance dropped to 5 month lows.