It' quiet out there... Too quiet, as everyone is awaiting the most important earning number of the quarter - that of Apple. Everything else is secondary. Here is how the secondary data is driving the market so far in the trading session.
European stocks are trading lower as North America enters the market with participants coming to terms with the political events of the weekend. The collapse of the Dutch government has clouded the future for fiscal harmonisation in the Eurozone and the outperformance of the far-right in the French Presidential elections has highlighted the discontent of the populous with mainstream politics. As such, all European bourses are trading significantly lower, with the Bund seen trading higher by around 70 ticks. European government bond yield spreads against the German 10-yr reflect the caution, with the Dutch/German spread widening by over 10BPS and the Spanish yield holding above 6% for most of the session.
- A Forecast of What the Fed Will Do: Stand Pat (Hilsenrath) - they finally realized that they have to leak the opposite...
- Draghi's ECB Rejects Geithner-IMF Push for More Crisis-Fighting (Bloomberg)
- Wal-Mart's Mexico probe could lead to departures at the top (Reuters)
- The Sadly Unpalatable Solution for the Eurozone (FT)
- US Regulators Look to Ease Swaps Rules (FT)
- Yuan, Interest Rate Reform to be Gradual: China Central Bank Chief (Reuters)
- Run, Don't Walk (Hussman)
- Hollande Steals Poll March on Sarkozy (FT)
If last week was Europe's days of hope, even as the continent was again breaking, predicated by the utterly ridiculous such as a successful Bill auction, a weak Spanish Bond issue, somehow spun by the propaganda crew as good despite pricing at an utterly unsustainable interest rate, and various German confidence indicators which soared to multi-year highs, today is the bitter hangover. Where to start...
Continuing today's disappointing data releases, we now get the Philly Fed, Existing home sales (aka the NAR's monthly advertising update), and Eurozone confidence. Sure enough, all missed, since we are now in NEW QE prep mode.
- Philly Fed: 8.5, missed expectations of 12.0, and lower than the previous print of 12.5 (source)
- New Orders down from 3.3, to 2.7
- Prices Paid spike from 18.7 to 22.5,
- but, just to add confusion to injury following the much weaker claims data, the Employment index rose from 6.8 to 17.9
- Existing home sales, reported by the inherently conflicted NAR, missed, dropping from 4.61MM to 4.48MM, a data set which we caution readers is about 0.0% accurate and valid.
- Total housing inventory at the end of February rose 4.3 percent to 2.43 million existing homes available for sale, which represents a 6.4-month
- The national median existing-home price for all housing types was $156,600 in February, up 0.3 percent from February 2011.
- All-cash sales rose to 33 percent of transactions in February from 31 percent in January; they were 33 percent in February 2011
- Single-family home sales declined 1.0 percent to a seasonally adjusted annual rate of 4.06 million in February from 4.10 million in January
- Finally, Eurozone consumer confidence also missed sliding to -19.8, on expectation of an improvement to -19.0 from -19.1
Judging by the kneejerk reaction lower, the misses were not big enough to send the market soaring.
European markets are seen trading higher as North America comes to market, with some momentum seen following the release of the forecast-beating German ZEW Survey. An economist from the institution commented that downside risks have decreased significantly over the past month, prompting some risk-appetite in Europe during the morning. Participants were also looking towards the Spanish T-Bill auction with particular focus, but it did not confirm the nation’s worst fears as the auction passed with strong bid/covers, selling to the top of the indicative range. Yields, however, did increase over both lines. As such, the Spanish 10-yr yield has fallen below the key 6% mark and remained below that level for most of the session. Peripheral 10-yr spreads against the German Bund are seen tighter throughout the day, amid some market talk early in the session of domestic accounts buying the paper, however this remains unconfirmed.
All you need to read and some more.
The question most asked by clients is why, with all that is going on in Europe, is the currency not much lower as nearly every analysts has a target of between parity and 1.2000? It is a very good question but way back at the start of 2011 I suggested that I felt some accord had been reached by the G20 to hold the EUR stable and this I still believe. The issue is that the EU leadership and indeed all those that trade with the zone, realize that equity markets would be held up by QE and that bond yields could be kept down (wrong) using the same method but the whole house of cards could be brought down if there was a run on the currency and a general loss of confidence in the currency. It would simply be a disaster and to me it is central bank manipulation that is keeping the EUR so ridiculously strong so selling breaks to the downside has seen many karted out on a stretcher and sent to the asylum.
UMichigan Confidence Drops For The First Time Since August 2011, Below Expectations - Drop Not Big EnoughSubmitted by Tyler Durden on 04/13/2012 10:05 -0400
As predicted earlier, UMich had no choice but to miss, because in centrally planned Bizarro markets only weak economic data leads to a rise in risk. Sure enough, with expectations of 76.2, the same as the March print, Consumer Confidence posted only its first decline since August, while missing expectations, printing at 75.7. And while a miss on its own would have led to a surge in stocks as NEW QE WOULD BE IMMINENT ANY SECOND NOW, the miss was less than the whisper number of 73.2 predicted, and as such this was merely one month of coincident data propaganda flushed down the drain. Also not helping things is that the Expectations index printed at 72.5, up from 69.8 and the highest since September 2009. With hope still so high it is hardly likely that the Fed will go ahead and appease everyone. Hope first has to be brutalized before Bernanke comes in to save the day and make the Fed appear like the 401(k)night in shining armor.
In an attempt to not steal too much thunder from Gary Shilling's thought-provoking interview with Bloomberg TV, his view of the S&P 500 hitting 800, as operating earnings compress to $80 per share, is founded in more than just a perma-bear's perspective of the real state of the US economy. As he points out "The analysts have been cranking their numbers down. They started off north of 110 then 105. They are now 102. They are moving in my direction." The combination of a hard landing in China, a recession in Europe, and a stronger USD will weigh on earnings and inevitably the US consumer (who's recent spending spree has considerably outpaced income growth) with the end result a moderate recession in the US. The story is "there is nothing else except consumers that can really hype the U.S. economy" and that is supported by employment but last week's employment report throws cold water in that. "Consumers have a lot of reasons to save as opposed to spend. They need to rebuild their assets, save for retirement. A lot of reasons suggest that they should be saving to work down debt as opposed to going the other way, which they have done in recent months. So if consumers retrench, there is not really anything else in the U.S. economy that can hold things up." While the argument that the US is the best of a bad lot was summarily dismissed as Shilling prefers the 'best horse in the glue factory' analogy and does not believe investors will flock to US equities - instead preferring US Treasuries noting that "everyone has said, rates cannot go lower, they will go up, they will go up. They have been saying that for 30 years."
US Households haven't shaken their 'junk bond' credit rating, given their poor income statement and balance sheet. Reversing Mitt Romney's famous quote "corporations are people", Bank Of America remains skeptical of this self-sustaining recovery - expecting second half growth to slow significantly as businesses and households react to the risk of a major fiscal shock (and in the short-term, momentum looks unsustainable). From an income statement perspective, 'a paycheck just ain't what it used to be' with food and energy prices rising and payroll growth (typically a good proxy for income growth) is disappointingly timid leaving real disposable income diverging weakly from a supposed job recovery. The balance sheet perspective has been helped by the rise of the equity market but the recovery in net worth in the last three years has barely outstripped income growth, leaving the ratio deeply depressed. The upshot is that the recent pick-up in consumption is not being fueled by income or wealth gains, but mainly by drawing down savings. Many households remain deeply distressed and react to higher costs of living by drawing down savings further. In sum, a true virtuous cycle still seems a long way off. As weather effects fade and gas pain builds the data should soften. BofA expects businesses to recognize the risks of the fiscal cliff first and pull back on hiring. Then with weaker job growth and with the growing awareness of the cliff, consumers will likely start delaying some discretionary spending.
- Greek PM does not rule out new bailout package (Reuters)
- Euro zone agrees temporary boost to rescue capacity (Reuters)
- Madrid Commits to Reforms Despite Strike (FT)
- China PBOC: To Keep Reasonable Social Financing, Prudent Monetary Policy In 2012 (WSJ)
- Germany Launches Strategy to Counter ECB Largesse (Telegraph)
- Iran Sanctions Fuel 'Junk for Oil' Barter With China, India (Bloomberg)
- BRICS Nations Threaten IMF Funding (FT)
- Bernanke Optimistic on Long-Term Economic Growth (AP)
A bevy of economic data misses overnight, including German and UK retail sales, Japan industrial production, UK consumer confidence, and a European economy which is overheating more than expected (2.6% vs 2.5% exp, although with $10/gas this is hardly surprising), and futures are naturally green. The reason: the broken record that is the European FinMins who are now redirecting attention from the slowly fading LTRO impact to the good old standby EFSFESM, which according to a statement by de Jager has now been agreed on at €800 billion, lower than last week's preliminary expectation for €940 billion in joint firepower. That this is nothing but a headline grabber is as we have noted before, as there is much doublecounting, capital allocation to and by the PIIGS as well as funding already assigned. It will likely take stocks some time before the realization dawns that this is not new capital and liquidity entering the markets, unlike QE on either side of the Atlantic, while the amount is largely inadequate to fill the multi-trillion liquidity shortfall, let alone "solvency" of European sovereigns and banks. So for now enjoy the greenness all around.