This morning both the SNB stunner from two weeks ago, and the less than stunning ECB QE announcement from last Thursday are long forgotten, and the only topic on markets' minds is the startling surge of Syriza and its formation of a coalition government with another anti-bailout party - a development that many in Europe never expected could happen, and which has pushed Europe to the bring of the unexpected yet again. And while there is much speculation that this time Europe is much better positioned to "handle a Grexit", the reality is that European bank balance sheets are as bad if not worse than in 2014, 2013, 2012 or any other year for that matter, because none of ther €1+ trillion in NPLs have been addressed and the only thing that has happened is funding bank capital deficiencies with newly printed money. You know what they say about solvency and liquidity.
Market Wrap: Chinese Stocks Crash As Financials Suffer Record Drop; Commodities Resume Decline; US ClosedSubmitted by Tyler Durden on 01/19/2015 07:12 -0500
Following last week's Swiss stock market massacre as a result of a central bank shocker, and last night's crack down by Chinese authorities, it almost appears as if the global powers are doing what they can to orchestrated a smooth, painless (as much as possible) bubble deflation. If so, what Draghi reveals in a few days may truly come as a surprise to all those- pretty much everyone - who anticipate a €500 billion QE announcement on Thursday.
While a record amount of ink has been spilled praising the benefits of plunging crude price on the US consumer, so far this has manifested merely in soaring consumer confidence, if not in an actual boost to retail sales. Less has been written about the adverse side-effects of plunging oil, even though by now even the most “undisputed” permabulls have been forced to admit that the imminent collapse in capital spending is truly “unprecedented”, a phrase Goldman uses in the chart below. So what does plunging CapEx actually mean for the economy, aside from a major haircut to 2015 GDP, and what other areas of the economy will be affected by the Saudi Arabian scorched earth war on the US shale industry?
It is important to remember that the supportive underpinnings are deteriorating. Valuations are elevated, bullishness and complacency are high, and deviations are at extremes. The combination of these ingredients has never led to a profitable conclusion and expecting a different outcome this time will likely lead to excessive disappointment.
Same slide, different day, as the crude crash continues, with both WTI and Brent tumbling to multi-year highs, below $49 and $52 respectively. This happened despite the news overnight that China is accelerating 300 infrastructure projects valued at 7 trillion yuan ($1.1 trillion) this year, suggesting that China will focus more on fiscal policy than monetary easing, which in turn led to much confusion in the SHCOMP, which fluctuated up and down for the day several times before finally closing unchanged. There was no confusion about the stops slamming USDJPY, and its Nikkei225 derivative which tumbled 3%, sending Japanese Treasury yields to fresh record lows. Record low yields were also seen in Germany, Austria, Belgium, Netherlands, Finland, France (and many other places), which in turn forced the US 10 Year to finally dip back under 2.00%. In fact, taken together, the average 10Y bond yield of the U.S., Japan and Germany has dropped below 1% for the first time ever, according to Citi.
"Russia has presented a startling proposal to overcome the tensions with the EU: The EU should renounce the free trade agreement with the United States TTIP and enter into a partnership with the newly established Eurasian Economic Union instead. A free trade zone with the neighbors would make more sense than a deal with the US."
2014 may go down as the year when gold and silver conspiracy “theories” became conspiracy “facts” as banks globally were found to have conspired to rig the prices of gold, silver, currency and many other markets.
David Rosenberg, formerly of Merrill Lynch and currently of Gluskin Sheff, who famously flip-flopped from being a self-described permabear to uber-bull last summer for the one reason that has yet to manifest itself in any way, shape or form, namely declaring that wage inflation as imminent (it wasn't, but perhaps Mr. Rosenberg was merely forecasting the trajectory of his own wages) and generally an end to deflation, has a rhetorical question for his paying clients, as asked in his letter to investors from January 2. To wit: "THIS IS WHAT PASSES FOR ANALYSIS?" We too follow up with an identical question not only for Mr. Rosenberg's clients, but for our own readers.
While existing home sales rose 0.8% (beating the 0.5% expectation) MoM in November, once again previous data was revised lower. On an unadjusted basis however, YoY home sales rose at only 1.7% - missing expectations of 2.6% growth. The Midwest region saw existing home sales drop again - for the 6th month in a row, down over 5% in that period.
Having missed expectations by the most since June 2010 in November, The Conference Board's measure of Consumer Confidence missed once again. The previous dip was revised higher (because 'revisions' is exactly what makes sense in a confidence survey) from 88.7 to 91.0 but the current level printed 92.6 against expectations of 93.9. This is the 3rd miss of the last 4 months (as stocks hit record highs and gas prices collapse?). Employment "not so plentiful" rose to its worst level in a year, employment expectations going forward dropped as did income growth expectations.
- U.S. agency gives quiet nod to light oil exports (Reuters)
- China’s Stocks Fall to Pare Biggest Monthly Advance Since 2007 (BBG)
- The Cartel: How BP Used a Secret Chat Room for Insider Tips (BBG)
- BRICs Busted as Stocks Diverge Most on Record on Outlook (BBG)
- Petrobras deadline prompts some bondholders to push for default (Reuters)
- AirAsia Captain at His Happiest When Flying, Family Says (BBG)
- UK housing crisis: brick stocks hit record low (Telegraph)
As Politico's Michael Grunwald writes below (we believe non-satirically), the midterm election’s discontent was illegitimate. The point is that Americans should cheer up! And whose fault is all the collective doom? Well, Bill De Blasio already explained that, as Grunwald confirms, the press has a problem reporting good news. So sit back, grab a drink (though swallow it first) and enjoy reading why "everything is awesome" in America (apart from a record 101.5 million Americans not working, record numbers on foodstamps, record numbers on disability, a record wealth divide, a record - and deadly - racial divide, record poverty, and record child homelessness).
We live in a new world, and the Saudis are either the only or the first ones to understand that. Because they are so early to notice, and adapt, I would expect them to come out relatively well. But I would fear for many of the others. And that includes a real fear of pretty extreme reactions, and violence, in quite a few oil-producing nations that have kept a lid on their potential domestic unrest to date. It would also include a lot of ugliness in the US shale patch, with a great loss of jobs (something it will have in common with North Sea oil, among others), but perhaps even more with profound mayhem for many investors in US energy. And then we’re right back to your pension plans.
Confused how the US economy just "grew" by 5%? The following analysis explains it all...
ConvergEx's Nick Colas quarterly review of “Off the grid” economic indicators tells a story somewhat less sanguine than the typical government data. Confidence is returning, yes. But consider just how low it got: the top 3 Google autofills for “I want to sell my …” featured “kidney” for the first 3 quarters of this year. It was replaced in the current quarter with “Laptop”. Progress, of a sort...