We could say that news is actually relevant or matters in this "market" but we would be lying, just as we would be lying if we said that this market has not become so utterly predictable, with yesterday's late day market surge - on yet another ridiculous catalyst - visible from so far away, it was almost painful to watch it take place in real time. Sure enough, futures are now sliding back, and giving back much of yesterday's gains - but don't worry, in a day full of even more meetings and flashing red headlines, at least some combination of carefully phrased MSM words will set off today's algo-driven buying frenzy, guaranteeing yet another "retail investor" decides they have had it with this farcical "free market" casino for ever.
Just as we saw with UMich, it appears the hope for change is wearing thin among the people. Today's Consumer Confidence data missed by its biggest margin in 7 months, dropped below the year's average, and saw the largest 2-month drop in over 15 months. All age cohorts lost confidence with the eldest most and it appears those earning over $35k are also beginning to worry (as those between $35k and $15k seem more confident). Over 40% expect stock prices to decline and it is expectations that have plummeted from a hope-filled 80.9 to a 13-month low of 66.5. In other news, we got the November New Homes Sales report from the Census Bureau. On the surface the number was good, but like the initial claims dats, below the surface its not as pretty - on an unadjusted, unannualized basis, November saw a tiny 27K houses sold - lowest since Feb 2012. In fact, the only thing that really did soar was the number of homes for sale at the end of the period which rose to 151K: the highest since November of 2011.
While the market will look with some last trace of hope to Obama's return from Hawaii to D.C. today, the reality is that even the mainstream media, which had so far gotten everything about the cliff spectacularly wrong (proving that sample polling and actual "predicting" are two very different things), is waking up and smelling the coffee. As Politico reports, "nearly all the major players in the fiscal cliff negotiations are starting to agree on one thing: A deal is virtually impossible before the New Year. Unlike the bank bailout in 2008, the tax deal in 2010 and the debt ceiling in 2011, the Senate almost certainly won’t swoop in and help sidestep a potential economic calamity, senior officials in both parties predicted on Wednesday. Hopes of a grand-bargain — to shave trillions of dollars off the deficit by cutting entitlement programs and raising revenue — are shattered. House Republicans already failed to pass their “Plan B” proposal. And now aides and senators say the White House’s smaller, fall-back plan floated last week is a non-starter among Republicans in Senate — much less the House. On top of that, the Treasury Department announced Wednesday that the nation would hit the debt limit on Dec. 31, and would then have to take “extraordinary measures” to avoid exhausting the government’s borrowing limit in the New Year."
As DB's Jim Reid summarizes, "it is fair to say that newsflow over the next 72 hours will be fairly thin before we head into a tense final few business days of the year." It is also fair to say, that the usual tricks of the new normal trade, such as the EUR and risk ramp as Europe walks in around 3 am, precisely what happened once again overnight to lift futures "off the lows", will continue working until it doesn't. In the meantime, the market is still convinced that some compromise will appear miraculously in the 2 trading sessions remaining until the end of the year, and a recession will be avoided even as talks now appear set to continue as far down as late March when the debt ceiling expiration, not cliff, will become the primary driving power for a resolution. That said, expect to start hearing rumors of a US downgrade by a major rating agency as soon as today: because the agenda is known all too well.
The slew of economic releases over the last couple of days have all had two things in common: 1) the data has been markedly improved which has given a silver lining to the economic storm clouds we have witnessed over the last several months; and 2) the fingerprint of Hurricane Sandy has been very visible. This is not a surprise. The question that needs to be addressed, however, is whether these surges are sustainable in the months ahead?
From Gas Prices to Food Stamps; from 'Bulk Ammo' to Consumer Confidence; and from Earnings to Economic Data, these 12 charts of the 12 months of 2012 are definitely Not Jim Cramer's.
Trailing the US, as not much else to do. EGBs firming up, but mostly because they‘re supposed to do so, as Equities end a little softer, because they have to, as well. Credit likewise. So no Risk highs under the Xmas three… All because of the US. Blue.
"Blue Christmas" (Bunds 1,38% -4; Spain 5,23% +1; Stoxx 2644 -0,6%; EUR 1,318 -40)
After theatrically soaring to a 5 year high in November, when the UMich confidence final print rose above the 82 level, the final UMich consumer confidence number just tumbled by a whopping 10 point down to 72.9, well below the expected 75.0 print, and below the preliminary read of 74.5. This was the biggest percentage slide since February 2007. So much for the great pick up in confidence, driven by the foreclosure stuffed subsidized "recovering" housing market. Perhaps it's time to get a seasonally adjusted confidence number?
It may not be apparent immediately, but in the aftermath of last night's epic collapse in fiscal cliff negotiations, which incidentally was perfectly obvious to anyone with half a brain and who experienced last summer's debt ceiling fiasco, which sadly excludes all paid political and financial - including sellside - commentators, all of whom expected a prompt resolution to this polarized issue as recently as a week ago, there is major behind the scenes panic. Because while banks would write profuse, long-winded essays to explain the logic and rationality of the "deal", now that they are all faced with adjusting their narrative the best they can come up with are two sentence fragments such as this one from Citi's Steven Englander "Problem is that it is the right wing of the Republican Party that wouldn’t give Boehner their support, making it less likely that he could win broad support among Republicans for a compromise with the White House. Also he will have to spend next couple of days negotiating with both his own party and the Democrats without knowing how much he can deliver." The answer: nothing at all. In fact as Scott Rigell said “I’m not sure the people who have been up here 20 or 30 years really understand what the next iteration of this process is”. He is speaking for pretty much everyone else who has now been made a total fool by the Black Swan that is Congress. As a reminder a 3 month delay resolution assures a US recession, and a ~20% or so minimum correction in the stock market, which has been priced for absolute perfection for months, and which will once again have to be used by Wall Street as a means to get a consensus out of DC. Just as we predicted over a month ago. Finally while we may have avoided the Mayan apocalypse, we do have a quad witching and a NASDAQ rebalance to look forward to. Enjoy!
EGBs and Equities rather a side-story today, as mainly static. EUR, too. Spain ticking in. Italian 2s on new lows (with the old reference nearing 1.5%). Good US GDP, bad Gold Dump Party (GDP, too). Worse Silver sell-out. Metal weakness? Maybe the Mayans are getting rid of their stocks before tomorrow? Another shy EStoxx high and Risk low. Don’t fight (the trend)…
"Merry Christmas (I Don't Want To Fight Tonight)" (Bunds 1,42% unch; Spain 5,22% -3; Stoxx 2661 +0,1%; EUR 1,322 -40)
Very much in keeping with the tradition of Japan's now monthly QE8 (September) and QE9 (October), last night's announcement of what is effectively QE10, left a bitter taste in the mouth of salivating habitual gamblers (f/k/a traders), after Shirakawa showed he would not bend over to Abe's political demands just yet, and left out any mention of inflation targeting, whether 2% or 3%, out of the QE10 announcement. What he did include was yet another JPY 10 billion increase in the total asset purchase fund to a total of JPY 76 trillion, increasing the size of eligible JGB and Bill purchases by JPY 5 billion each. However, since this approach has proven to be a total failure in recent months, the market immediately faded the move and the USDJPY tumbled to under 84.00 overnight. Of course, this an all other overnight news items are, of course, completely irrelevant, as the market now observes the Cliffhanger drama in what may be its last day. As we expected several days ago, if the GOP indeed proceeds to vote Plan B in the House today (and is subsequently voted down by the Senate), you can drop any hope of a compromise deal in 2012.
Our biggest concern here on the cusp of 2013 is the current odd combination of extreme complacency about the risks presented by extend-and-pretend macro policy making and rapidly accelerating social tensions that could threaten political and eventually financial market stability. Before everyone labels us ‘doomers’ and pessimists, let us point out that, economically, we already have wartime financial conditions: the debt burden and fiscal deficits of the western world are at levels not seen since the end of World War II. We may not be fighting in the trenches, but we may soon be fighting in the streets. To continue with the current extend-and-pretend policies is to continue to disenfranchise wide swaths of our population - particularly the young - those who will be taking care of us as we are entering our doddering old age. We would not blame them if they felt a bit less than generous. The macro economy has no ammunition left for improving sentiment. We are all reduced to praying for a better day tomorrow, as we realise that the current macro policies are like pushing on a string because there is no true price discovery in the market anymore. We have all been reduced to a bunch of central bank watchers, only ever looking for the next liquidity fix, like some kind of horde of heroin addicts. We have a pro forma capitalism with de facto market totalitarianism. Can we have our free markets back please?
At a time in the year when the market should be at a standstill, and when all trading should be over, the tension in the S&P is unprecedented, driven by two main factors: the ongoing Fiscall Cliff confrontation, which now appears set to not be resolved by Christmas, and very likely to persist into the new year, and what happens with hotel AAPLfornia, as suddenly it has become a liability to show LPs any holdings of the fruit in the year end statement. The two events combined will likely see furious market volatility persist well through the year end, and since volumes will further die down, we may well see massive stock moves on odd lots. And while AAPL is trading under $500 for the first time since February following last night's Citi downgrade, the confusion over the Fiscal Cliff persists, with The Hill first reporting that Boehner is willing to cave on the debt ceiling extension, even as Boehner himself subsequently tweeted that "Any increase in the debt limit will require a greater amount in spending cuts and reforms." So back to square one, with a red herring proposal that Boehner can say we offered to the president and the president turned down. Japan continues to attract a lot of attention with the ADHD market desperate to hope that the coming of Abe 2.0 will be much better than that of 1.0, when in one year he achieved nothing and then resigned due to diarrhea. Judging by the action in the USDJPY, we may be a few short hours away from closing the gap that sent the pair to 84.30 first thing, and proceeding to unwind the near record JPY commitment of traders short position as the JPY realizes this time will not be different. Quiet calendar in the US, with the Empire State Manufacturing Index expected to print at -0.5 at 8:30 am Eastern, TIC data to show China's ongoing TSY boycott at 9 am, and a hawkish Jeff "Mutiny on the Eccles" Lacker speech at 1 pm.
In a session that has been largely quiet there was one notable macro update, and this was the German ZEW Economic Sentiment survey, which after months in negative territory, surprised to the upside in December, printing at 6.9, on expectations of a -11.5 number, and up from -15.7. This was the first positive print since May, and in stark contrast with the dramatic cut of German GDP prospects by the Bundesbank from last Friday, which saw 2013 GDP slashed by 75% from 1.6 to 0.4%. In fact, moments after the ZEW report, which is mostly driven by market-sentiment, in which regard a soaring DAX has been quite helpful, the German RWI Institute cut German 2012 and 2013 GDP forecasts from 0.8% to 0.7% and from 1% to 0.3%. In other words, any "confidence" will have to keep coming on the back of the market, and not the economy, which is set to slow down even further in the coming year. But for a market which will goalseek any and all data to suit the narrative (recall the huge miss in US Michigan consumer confidence which lead to a market rise), this datapoint will undoubtedly serve as merely another reinforecement that all is well, when nothing could be further from reality. Also, since we live in interesting "Baffle with BS" times, expect the far more important IFO index to diverge once again with its leading ZEW indicator (as it did in November) - after all everyone must be constantly confused and live headline to positive headline.
Your comprehensive yet concise, one-stop summary of all the bullish and bearish events of the past week.