Despite record low yields on sovereign bonds, record high stock prices, and a political elite proclaiming it's all shits and giggles from here... it seems record unemployment, record suicide rates, record bad loans, and record low credit creation were finally enough to trump the 'wealth effect' exuberance that European consumer confidence has envisaged in recent months. This is the biggest drop in confidence in 18 months and the biggest miss since Aug 2011. This is a 3 sigma miss from expectations and below all 25 "economist" guesses. How's the weather in Europe?
So Venezuela is collapsing, Thailand is crumbling, and Ukraine is for all intent and purpose under martial law, US macro data is dreadful (and no, it's not all the frigging weather), and German consumer confidence dumped again; and US stocks soar (8th day in a row for Nasdaq for first time since July) on the back of a BoJ move that was fully expected (and entirely under-utlized) but sprung USDJPY back above 102. S&P futures volume was 35% below average as the day-session range was extremely small. The Russell 2000 almost reached unchanged for 2014. The un-taper, QE balls-to-the-wall trade continues it would appear - Gold (and even more so silver - longest win-streak in 46 years) continue to surge; Treasury yields continue to slide; the USD slips lower (led by EUR strength); and of course, high-beta equities jump higher (as stodgy big caps underperform). Unfortunately, the EM crisis is far from over - as EM FX tumbled today. VIX also rose notably, disconnecting from stocks; and credit markets are wider today than Friday's close.
Take your pick of which "confidence" measure you choose to watch to confirm your previous "common knowledge" meme. Unsurprisingly, the government's own Conference Board indicator provides the highest level of confidence relative to recent months but today's beat by UMich (81.2 flat from last month but above 80.2 expectations) is the highest overall level among the indices. It seems not even the weather can dampen the enthusiasm of the US consumer (who is retail spending at a dismally low level?) Hardly surprising is the fact that the tumble in the current conditions index was entirely dissolved by the hope for the economic outlook which stands at 6 month highs! Short-dated inflation expectations also ticked up. Of course what really matters is keeping the dream alive that multiple-expanding confidence will cover up any and all missed expectations in macro and micro data.
Despite the yeah-meh-bleh nature of consumer confidence measures, Gallup's more broadly surveyed, and seemingly consistent with the reality of the American workforce, index of economic confidence remains lackluster at best and dismal at worst. However, there is one bright shining beacon of light across the "United" States of America... one state stands proud as the lone state that is economically confident... that state is... drum roll please... D.C.
The most notable event in this traditionally quiet post-payrolls week is Janet Yellen's Humphrey Hawkins testimony before Congress set for mid-week. In terms of economic data releases, the US retail sales (Exp. 0.05%) is on Thursday and consumer sentiment survey is on Friday (consensus 80.5). We also have IP numbers from Euro Area countries and the US. Most recent external account statistics are released from Japan, China, India and Turkey. It is also interesting to track CPI data in Germany, Spain and India, given the ECB and RBI currently face diverging inflation challenges and may be forced into further action. Finally, we have Q4 GDP data from the Euro Area economies (Friday).
It is remarkable that, Marc Faber begins, despite the growth the US has enjoyed since the 1960s, the poverty rate has barely changed. Faber believes there are far more “poor” people today as a percentage of the population than there were in the 1960s, because lower middle-class and middle-class people have moved into the ranks of the poor. In his opinion, the increase in poverty rests on four pillars: cultural and social factors, educational issues, excessive debt, and government handouts, which encourage people not to work. Other factors include: international competition, which keeps wages down; and monetary policies, which create bubbles and impoverish the majority... “It’s pretty hard to tell what does bring happiness; poverty and wealth have both failed.”
Previous month's epic miss and hurriedly revised expectations from UMich confidence was 'baffled with schizophrenic bullshit' when the Conference Board printed at near record post-crisis highs earlier in the week. It is perhaps not unexpected that despite a drop MoM, following the huge miss last month that UMich confidence would very modestly beat expectations. As in the last 2 cycles, we saw an echo surge in confidence and that has now (just as in the last two cycles of confidence) begun to fade. Both current conditions and economic outlook fell MoM.
The wild volatility continues, with markets set to open well in the negative wiping out all of yesterday's gains and then some, only this time the catalyst is not emerging market crashing and burning (at least not yet even though moments ago the ZAR weakened to a new 5 year low against the USD and the USDTRY is reaching back for the 2.30 level) but European inflation, where the CPI printed at 0.70%, dropping once again from 0.8%, remaining under 1% for the fourth straight month and missing estimates of a pick up to 0.9%. Perhaps only economists are surprised at this reading considering last night Japan reported its highest (energy and food-driven) inflation print in years: so to explain it once again for the cheap seats - Japan is exporting its "deflation monster", Europe is importing it. It also means Mario Draghi is again in a corner and this time will probably have to come up with some emergency tool to boost European inflation or otherwise the ECB will promptly start to lose credibility - is the long awaited unsterilized QE from the ECB finally imminent?
And so following yet another Fed taper, coupled with another disappointing manufacturing data point out of China, emerging markets did their thing first thing this morning and all the most unstable EM currency pairs - the TRY, the RUB, the ZAR and the HUF - all plunged promptly in the process pushing down the USDJPY which as become a natural carry offset to EM troubles, only to rebound promptly. Specifically, USDTRY blew out 400 pips to 2.3010 highs after which it bounced, and has now stabilized around 2.27, well above the Turkish central bank intervention level, USDZAR is back down to 11.2120 after hitting five-year highs of 11.3850, the Ruble also plunged after which it jumped on speculation of Russian central bank intervention, while futures are tracking even the tiniest moves by USDJPY and pushing the Emini which is trading in a liquidity vaccum by a quarter point for ever 2 or pips. And with all news overnight shifting from bad to worse (keep an eye on declining German inflation now) it goes without saying, that EM central banks around the world now are desperately trying to keep their currencies under control: which is why the market's jitteryness is only set to increase from here on out.
The Fed tightens by a little (sorry, tapering - flow - is and always will be tightening): markets soar; Turkey tightens by a lot: markets soar. If only it was that easy everyone would tighten. Only it never is. Which is why as we just reported, the initial euphoria in Turkey is long gone and the Turkish Lira is basically at pre-announcement levels, only now the government has a furious, and loan-challenged population to deal with, not to mention an economy which has just ground to a halt. Anyway, good luck - other EMs already faded, including the ZAR which many are speculating could be the next Turkey, and certainly the USDJPY which sent futures soaring last night, only to fade all gains as well and bring equities down with it.
President Obama will proclaim that all is well but more is to be done tonight (we suspect) and lay out his agenda for fixing it all now (which we are sure will be different from the fixes of the last 5 years). However, as The WSJ reports, he faces a nation increasingly worried about his abilities, dissatisfied with the economy and fearful of the economy's future. Since the rise of modern polling in the 1930s, only George W. Bush has begun his sixth year in the White House on rockier ground than Mr. Obama. 59% are uncertain, worried, or pessimistic about the rest of Obama's term; 63% believe the US in on the wrong track; and, despite record high stock prices and 'wealth', 71% expressed some level of dissatisfaction with the broader economy.
"In general, this morning’s confidence data bode well for current quarter consumption and likely reflect the ongoing massive improvement in household balance sheets that we have been highlighting for some time now as a key catalyst for growth in the coming quarters." - Joe LaVorgna
Confidence is soaring (or sliding) depending on what survey you choose to believe. The UMich confidence's collapse (the biggest miss in 8 years) has been matched by more 'baffle 'em with bullshit' as the Conference Board beats expectations by the most in 5 months and pushes back towards 2013 highs (near the highest in over 5 years). Both the Present situation and Expectations rose notably - despite 1.4 million people losing their benefits, a lackluster holiday season for retailers, and stagnant incomes - but the Present Situation index rose to the highest since April 2008.
- Emerging markets pray for Wall Street tumble (Reuters)
- Yellen Faces Test Bernanke Failed: Ease Bubbles (BBG)
- Samsung sets new smartphone sales record in fourth quarter, widens lead over Apple (Reuters)
- China’s Foreign-Reserves Investment Chief Said to Depart Agency (BBG)
- China’s Rescue of Troubled Trust May Stoke Risk-Taking (BBG)
- Ukraine PM Azarov offers to resign 'to help end conflict' (Reuters) ... And Russia says may reconsider aid if this happens
- But... but... it was all gold's fault: India Unexpectedly Raises Rate as Rupee Risks Inflation Goal (BBG)
- Former Belgian king 'boycotting' public events after complaining £760,000 is not enough to live on (Telegraph)
- Greek disposable income tumbles 8% in Q3 (Kathimerini)
The depressed tone overnight following AAPL's disappointing earnings mysteriously evaporated just ahead of the European open, when around 2 am Eastern the all important USDJPY began an dramatic ramp, (with ES following just behind) which saw it rise from the Monday closing level of 102.600 all the way to 103.250, in what appears to have been a new frame-setting stop hunt ahead of a variety of news including the start of the January - Bernanke's last - FOMC meeting. One of the potential triggers for the move may have been the RBI's unexpected hike in the repurchase rate to 8.00% with an unchanged 7.75% consensus, which was its second consecutive INR-boosting "surprise." Among the amusing comments by RBI's Rajan, justifying the ongoing (loising) fight with inflation, was that India's consumer numbers are weak because of inflation. But... isn't that the Keynesian cargo cult's wet dream?