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.
Even Case Shiller itself appears to have given up on housing as the driver of the wealth effect: "Five years into the recovery from the recession, the economy will need to look to gains in consumer spending and business investment more than housing. Long overdue activity in residential construction would be welcome, but is certainly not assured." And looking at actual city level data, we find that just 5 cities saw price increases in February; 13 of 20 cities saw their home prices decline.
- EU regulators unveil details of bank stress tests (FT)
- Just use NSAfari: U.S., UK advise avoiding Internet Explorer until bug fixed (Reuters)
- China’s Income Inequality Surpasses U.S., Posing Risk for Xi (BBG)
- US races to refuel infrastructure fund as revenue dries up (FT)
- New Era Dawns at Nokia as Company Appoints CEO, Plans $1.4 Billion Special Dividend, Share-Repurchase Program (WSJ)
- Obama reassures allies, but doubts over 'pivot' to Asia persist (Reuters)
- Dissent at SEC over bank waivers (FT)
- U.S. Banks to Help Authorities with Tax Evasion Probe (WSJ)
- U.S., Europe Impose New Sanctions on Russia (WSJ)
- Why the U.S. Is Targeting the Business Empire of a Putin Ally (BBG)
- Euro-Area April Economic Confidence Unexpectedly Declines (BBG)
- Bitcoin traders settle class actions over failed Mt. Gox exchange (Reut
If one needed a flurry of "worse than expected" macro data to "explain" why European bourses and US futures are up, one got them: first with UK Q1 GDP printing at 0.8%, below the expected 0.9%, then German consumer prices falling 0.1% in April, and finally with Spanish unemployment actually rising from a revised 25.73% to 25.93%, above the 25.85% expected. All of this was "good enough" to allow Italy to price its latest batch of 10 Year paper at a yield of 3.22%, the lowest yield on record! Either way, something else had to catalyze what is shaping up as another 0.5% move higher in US stocks and that something is the old standby, the USDJPY, which ramped higher just before the European open and then ramped some more when European stocks opened for trading. Look for at least one or two more USDJPY momentum ignition moments at specific intervals before US stocks open for trading. But all of that is moot. Remember - the biggest catalyst of what promises to be the latest buying panic rampathon is simple: it's Tuesday (oh, and the $2-$2.5 billion POMO won't hurt).
The coming week will be busy in terms of data releases in the US; highlights include an improvement in consumer confidence, anemic 1Q GDP growth, and solid non-farm payrolls (consensus expects 215K). Wednesday brings advanced 1Q GDP - consensus expected a pathetic 1.1% qoq, on the back of what Goldman scapegoats as "weather distortions and an inventory investment drag", personal consumption (consensus 1.9%), and FOMC (the meeting is not associated with economic projections or a press conference). Thursday brings PCE Core (consensus 0.20%). Friday brings non-farm payrolls (consensus of 215K) and unemployment (6.6%). Other indicators for the week include pending home sales, S&P/Case Shiller home price index, Chicago PMI, ADP employment, personal income/spending, and hourly earnings.
The early session risk on trade, which materialized after the Pfizer confirmation it was seeking to buy AstraZeneca, and which sent the GBPUSD to its highest level since 2009, and also sent the EURUSD and EURJPY soaring in the process lifting US equity futures, has started to fizzle on the most recent news out of Ukraine, where the pro-Russian mayor of Ukraine's second largest city of Kharkiv was shot in the back in an apparent assassination attempt, which happened hours before the US is set to announce more sanctions against the Kremlin and its closest financial oligarchs. As a result, futures have pared gaisn modestly, especially since AstraZeneca made it clear with its initial reponse it has no interest in Pfizer's offer in its current format.
"Japan’s consumer confidence fell in March to the lowest level since August 2011..." This is a worst fall than the nation suffered during the Tsunami and the fastest fall since 2009. Abe has no choice now, get long Depends...
We previously noted that both beef and pork (courtesy of the affectionately named Porcine Epidemic Diarrhea virus) prices have been reaching new all time highs on an almost daily basis. It is time to update the chart. Below we show what a world in which the Fed is constantly lamenting the lack of inflation looks like for beef, pork and shrimp prices.
Moments ago the Nikkei strategically leaked a report that the Japanese cabinet office, quite expectedly, will downgrade its economic assessment in its April report. "Expected" because as we reported, discretionary spending following the sales tax hike, has gotten crushed. Also not unexpected, the USDJPY took the news in stride and posted a modestly bounce in the face of today's relentless selling of the pair. Why? Because to algos and many asset managers desperate for more training wheels from central banks (now that everyone has forgotten how to trade based soely on fundamentals), this means more QE from the BOJ right - after all horrible news for everyone is great news for the 1%.
Not so fast.
Consumer confidence slumps in the core and Ukraine fears weighed heavily on European stocks despite getting a push from the insanity in US equity markets this morning. Europe closed at their lows of the day led by Italy and Portugal stocks fading fast. It would appear that these worried investors greatly rotated into safe-havens such as Italian government bonds - which broke to their lowest yield on record today... makes sense right?
University of Michgan Consumer Confidence soared to 8 month highs, beating expectations by the most since November led by a surge in "outlook" hope. Current conditions are back at December 2013 highs but it is the outlook that is providing the juice for this exuberant headline print. Bear in mind this is the preliminary print of this data and is due for revision in the next 2 weeks or so... which as 'consumers' see the red flashing tickers on their iPhones will be slightly less exuberant.
There is a reasonably quiet start to the week before we head into the highlights of the week including the start of US reporting season tomorrow, FOMC minutes on Wednesday and IMF meetings in Washington on Friday. On the schedule for today central bank officials from the ECB including Mersch, Weidmann and Constancio will be speaking. The Fed’s Bullard speaks today, and no doubt there will be interest in his comments from last week suggesting that the Fed will hike rates in early 2015.
Goldman Sachs forecasts a 200k increase in non-farm payrolls for March - in line with consensus - and believe last month's 175k print supports the ongoing positive trend (in light of the weather effect). Key employment indicators looked mixed-to-better in March, and despite the continued cold temperatures, less extreme weather conditions overall should give an additional boost to job gains this month. Citi suggests the weather could have knocked 172k off payrolls overall from Dec to Jan and are more hopeful, expecting a 240k print. Their biggest fear, a greater than 275k print (which is the high bar that Joe Lavorgna has set) could see asset markets reacting badly (on the basis of quicker Fed tightening).
While the government's survey of consumer confidence saw new cycle highs - progressing the multiple expansion dream - the University of Michigan (private) survey has been falling for 3 months and is now at its lowest since November. Both current conditions (reality) and expectations (hope) missed expectations (overall index missed by the most in 5 months) but "hope" did rise modestly from 69.4 to 70.0. Must have been a 'winter stormy' week when UMich surveyed consumers...