The holiday shortened, and very busy, week includes the following highlights: [on Monday] US Chicago PMI; [on Tuesday] US ISM Manufacturing, Construction Spending, and Vehicle Sales, in addition to a host of PMI Manufacturing in various countries; [on Wednesday] US ADP Employment, Factory Orders; [on Thursday] US Non-farm Payrolls and Unemployment, MP Decisions by ECB and Riksbank, in addition to various Services and Composite PMIs; [on Friday] US holiday, Germany Factory Orders and Sweden IP.
As individuals, it is entirely acceptable to be "optimistic" about the future. However, "optimism" and "pessimism" are emotional biases that tend to obfuscate the critical thinking required to effectively assess the "risks". The current "hope" that Q1 was simply a "weather related" anomaly is also an emotionally driven skew. The underlying data suggests that while "weather" did play a role in the sluggishness of the economy, it was also just a reflection of the continued "boom bust" cycle that has existed since the end of the financial crisis. The current downturn in real final sales suggests that the underlying strength in the economy remains extremely fragile. More importantly, with final sales below levels normally associated with the onset of recessions, it suggests that the current rebound in activity from the sharp decline in Q1 could be transient.
Despite exuberant Services and Manufacturing PMIs, Bloomberg's index of CEO sentiment remains stagnant near 2014 lows as April's hope for Q2 has faded into 'more of the same' by June. As Bloomberg's Rich Yamarone points out, in reality (in spite of all the hope), the second quarter is drawing to a close and it was a rough one for corporate America, with CEOs citing "slower growth in household income overall", "the recovery remains fragile, especially for customers on a budget", and perhaps most concerning, "whether or not this softness in store traffic is representative of a permanent sea change in customer behavior or a temporary phenomenon is hard to tell at this stage."
Following June's initial largest miss in 18 months, UMich consumer confidence 'final' print inched higher to 82.5, modestly beating expectations - but well below April's peak. In case you were confused at whether you should be exuberant (conference board confidence at highest since 2008) or dysphoric (Gallup survey at lowest in 2014), we don't blame you. What is most worrisome about the UMich data, aside from the non-confirmation of exuberance offered by the government survey, is the tumble in the "outlook' index to 3 month lows.
Following yesterday's S&P surge on the worst hard economic data (not some fluffy survey conducted by a conflicted firm whose parent just IPOed and is thus in desperate need to perpetuate the market euphoria) in five years, there is little one can comment on how "markets" react to news. Good news, bad news... whatever - as long as it is flashing red, the HFT algos will send momentum higher. The only hope of some normalization is that following the latest revelation of just how rigged the market is due to various HFT firms, something will finally change. Alas, as we have said since the flash crash, there won't be any real attempts at fixing the broken market structure until the next, and far more vicious flash crash - one from which not even the NY Fed-Citadel PPT JV will be able to recover. For now, keep an eye on the USDJPY - as has been the case lately, the overnight USDJPY trading team has taken it lower ahead of the traditional US day session rebound which also pushes the S&P higher with it. For now the surge is missing but it won't be for longer - expect the traditional USDJPY ramp just before or as US stocks open for trading.
The S&P500 has now gone 47 days without a gain or loss of more than 1% - a feat unmatched since 1995, according to AP. Overnight markets are having a weaker session across the board (except the US of course). Even the Nikkei is trading with a weak tone (-0.7%) seemingly unimpressed by the Third Arrow reform announcements from Prime Minister Abe yesterday (and considering in Japan the market is entirely dictated by the BOJ, perhaps they could have at least coordinated a "happy" reception of the revised Abe plan). Either that or they have largely been priced in following the sizable rally in Japanese stocks over the past month or so. Abe outlined about a dozen reforms yesterday including changes to the GPIF investment allocations and a reduction in the corporate tax rate to below 30% from the current level of 35%+. Separately, the Hang Seng Index (-0.06%) and the Shanghai Composite (-0.41%) 98closed lower as traders cited dilutive IPOs as a concern for future equity gains.
The American consumer has not been as confident as this since January 2008... can you feel the confidence? The reaching for credit, the spending beyond your means; what could go wrong? Oddly, despite the exuberance, fewer people expect an increase in income (borrow or charge we assume?). The biggest driver of this confidence appears to be the spike from 79.7 to 99.5 in the Pacific region's confidence... but plunged in the Mountain and Central regions. Only 26.7% believe stocks can fall from here - near the lowest since 2009. Furthermore, those aged under-35 saw confidence plunge to 2014 lows.
- The Kerry Konfusion Kontinues: Kerry urges Kurds to save Iraq from collapse (Reuters)
- Abe Unveils Japan’s New Growth Strategy (WSJ)
- Because the recovery: Avon to Cut 600 Jobs as CEO McCoy Seeks to Trim Expenses (BBG)
- Iraqi Parties Pressure Prime Minister Nouri al-Maliki to Step Down (WSJ)
- Ukraine Rebels Call Cease-Fire to Match Government Truce (BBG)
- IRS accused of obstruction over lost emails in Tea Party affair (Reuters)
- IRS chief scorched as 'liar' (WND)
- Big Investors Missed Stock Rally (WSJ)
- U.K. Jury Finds Coulson Guilty of Conspiracy to Intercept Phone Voice-Mail Messages (WSJ)
- HSBC to halve countries served by private bank, sells assets (Reuters)
- Bond Market Has $900 Billion Mom-and-Pop Problem When Rates Rise (BBG)
Judging by the surprising reversal in futures overnight, which certainly can not be attributed to the latest data miss out of Europe in the form of the June German IFO Business Climate report (print 109.7, Exp. 110.3, Last 110.4) as it would be naive to assume that centrally-planned markets have finally started to respond as they should to macro data, it appears that algos, with their usual 24 hour delay, have finally discovered Dubai on the map. The same Dubai, which as we showed yesterday had just entered a bear market in a few short weeks after going turbo parabolic in early 2014. It is this Dubai which crashed another 8% just today, as fears that leveraged traders are liquidating positions, have surfaced and are spreading, adversely (because in the new normal this needs to be clarified) to other risk assets, while at the same time pushing gold and silver to breakout highs. Recall that it was Dubai where the global sovereign crisis started in the fall of 2009 - will Dubai also be the place where the first domino of the global credit bubble topples and takes down the best laid plans of central-planners and men?
This week brings PMIs (US and Euro area ‘flash’) and inflation (US PCE, CPI in Germany, Spain, and Japan). Among other releases, next week in DMs includes [on Monday] PMIs in US (June P), Euro Area Composite (expect 52.8, a touch below previous) and Japan; [on Tuesday] US home prices (FHFA and S&P/Case Shiller) and Consumer Confidence (expect 83.5, same as consensus), Germany IFO; [on Wednesday] US Durable Goods Orders (expect -0.50%, at touch below consensus) and real GDP 1Q anniversary. 3rd (expect -2.0%) and Personal Consumption 1Q (expect 2.0%), and confidence indicators in Germany, France and Italy; [on Thursday] US PCE price index (expect 0.20%), Personal Income and Spending, and GS Analyst Index; and [on Friday] Reuters/U. Michigan Confidence (expect slight improvement to 82, same as consensus), GDP 1Q in France and UK (expect 0.8% and 0.9% yoy, respectively), and CPI in Germany, Italy, Spain and Japan.
Following last night's laughable (in light of the slow motion housing train wreck that is taking place, not to mention the concurrent capex spending halt and of course the unwinding rehypothecation scandal) Chinese PMI release by HSBC/Markit (one wonders how much of an allocation Beijing got in the Markit IPO) which obviously sent US equity futures surging to new record highs, it was almost inevitable that the subsequent manufacturing index, that of Europe, would be a disappointment around the board (since it would be less than "optical" to have a manufacturing slowdown everywhere in the world but the US). Sure enough, first France (Mfg PMI 47.8, Exp. 49.5, 49.6; and Services PMI 48.2, Exp. 49.4, Last 49.3) and then Germany (Mfg PMI 52.4, Exp. 52.5, Last 52.2; Services 54.8, Exp. 55.7, Last 56.0), missed soundly, leading to a broad decline in the Eurozone PMIs (Mfg 51.9, Exp. 52.2, Last 52.2; Services 52.8, 53.3, Last 53.2), which meant that the composite PMI tumbled from 53.2 to 52.8: the lowest in 6 months.
So what’s a Peeping Tom, anti-democratic, Constitution-trampling intelligence crony to do after leaving decades of “public service?” Move into the private sector and collect a fat paycheck from Wall Street, naturally. So what is Mr. Alexander charging for his expertise? He’s looking for $1 million per month. Yes, you read that right. That’s the rate that his firm, IronNet Cybersecurity Inc., pitched to Wall Street’s largest lobbying group the Securities Industry and Financial Markets Association (SIFMA)
On the day after Chairman Yellen’s press conference, investors aggressively bid up inflation trades across numerous asset classes. Gold and silver rallied sharply, TIPS implied inflation breakevens widened (despite a new slug of 30-year supply), Treasury yields rose, and the yield curve steepened. Based on investor positioning and market sentiment (CFTC’s Commitment of Traders data show record net short positions exceeding $1.5 trillion in notional rates exposure among speculators in the eurodollar futures markets), there’s decent potential for additional gains in these inflation expressions in the days and weeks ahead.
As of this moment, US equity futures are perfectly unchanged despite what has been an almost comical reactivation of the 102.000 USDJPY tractor beam. Considering the pair has been trading within a 75 pips of the 102.000 level for the past month, one has to wonder when and what the next BOJ Yen equilibrium level will be reset to. Oddly enough, even as the USDJPY is very much unchanged, the Nikkei continues to rise suggesting that, as Nikkei reported, the GPIF is already investing Japanese pension funds in stocks. Which is great for the Nikkei catching up with the global bond bubble, what is not so great is what happens when the market realizes that the largest holder (excluding the BOJ) of JGBs is dumping, and the world's most illiquid major sovereign bond market rushes for the exits. Just recall the daily halts of Japanese bond trading from the summer of 2013 - we give it 3-6 months before it returns with a vengeance.
In what we are sure will be a reassuring hearing full of confirmation that markets are unrigged, safe for investors, and why retail has never had it better, the Permanent Subcommitte on Investigations will start by hearing from IEX's Brad Katusyama who will, as he did before, put them straight on the real actions of the high frequency trading community... Remember the last time HFTs tried to defend themselves... they lied.