Consumer Confidence

Despite rising modestly from the preliminary print, UMich Consumer Sentiment for September finalised at 87.2 - the lowest since October 2014. This is now the biggest 8-month drop since 2011. Inflation expectations fell modestly as "hope" fell to the lowest level since September. Household Income gain expectations continue to slide (now just 1%) back to 13 month lows.

“There’s a saying that helps explain our mood around here. When the sea is this turbulent, the only thing you can do is sit on the sand and watch. It’s not time to get in a boat."

The market, which clearly ignored the glaring contradictions in Yellen's speech which said that overseas events should not affect the Fed's policy path just a week after the Fed statement admitted it is "monitoring developments abroad", and also ignored Yellen explicit hint that NIRP is coming (only the size is unclear), and focused on the one thing it wanted to hear: a call to buy the all-critical USDJPY carry pair - because more dollar strength apparently is what the revenue and earnings recessioning S&P500 needs - which after trading around 120 in the past few days, had a 100 pip breakout overnight, hitting 121 just around 5am, in the process pushing US equity futures some 25 points higher at last check.

It just keeps getting worse, and worse, and worse...

European equity have been weighed on by BMW after reports in German press that the Co.'s emission tests for their X3 model could show worse results than that of the Volkswagen Passat. The Norwegian and Taiwanese central banks have both cut interest rates, taking the number of central banks to cut rates this year to 40. Today's highlights include US weekly jobs data and durable goods orders as well as comments from ECB's Praet and Fed's Yellen. Of note US data, including jobless claims, durables and home sales will be delayed today & not released to newswires 1st due to Pope's visit

A federal shutdown due to a funding lapse looks no less likely than it did two weeks ago, and Goldman Sachs believes the probability is nearly 50%. The Senate is expected to begin voting later this week on a funding extension, but the House looks unlikely to act until shortly before the September 30 deadline. The following attempts to answer the main questions surrounding the shutdown, debt limit deadlines, and ramifications...

In many ways, the overnight market has so far been a reversal of yesterday, when a stable Asia session (with China stocks rising) gave way to a European tumble which in turn dragged the US lower.

While Asian trading overnight started off on the right foot, chasing US momentum higher, things rapidly shifted once Europe opened as attention moved back to global growth fears, global central banks losing credibility, as well as miners and the ongoing Volkswagen fiasco.

In the week following the Fed's admission it is not only market-driven but now has a 4th mandate, which is to respond to China's hard landing on a day-to-day basis, US macro events mecrifully slow down to give everyone a chance to digest what the Fed just did. Here are the highlights.

US equity futures have retraced the late-day ramp from Friday with Dow down around 65pts. Asia is opening weaker (NKY -900 from Thursday highs) with EM FX appearing not to get the "but we didn't hike" message from The Fed with MYR the worst hit for now (after a few days of strength). EM outflows accelerated according to Morgan Stanley, down 6% AUM in 12 weeks. PBOC devalued the Yuan fix by 0.11% (the most in 2 weeks). While Fed uncertainty and fears about China have caused global derisking, PBOC chief Fan says "the economy is stable," and China's Beige Book suggests 'everything is awesome', as the survey summarizes, "perceptions of China may be more thoroughly divorced from facts on the ground than at any time in our nearly five years of surveying the economy." If that's the case, then why is Janet in panic mode?

Every dictator knows that a continuous state of emergency is the best means to justify tyrannical policies. The trick is to keep the fictitious emergency from breeding so much paranoia that routine activities come to a halt. Many have discovered that its best to make the threat external, intangible and ultimately, unverifiable. In Orwell's 1984 the preferred mantra was "We've always been at war with Eurasia," even though everyone knew it wasn't true. In its rate decision this week the Federal Reserve, adopted a similar approach and conjured up an external threat to maintain a policy that is becoming increasingly absurd.

As we have maintained continuously, rate hike talk from the Fed is just a bluff to disguise its inability to tighten, as even small increases could be sufficient to prick the biggest bubble it has ever inflated. When will these "experts" finally connect the real dots and discover that the monetary medicine that the Fed has doused over the economy since 2008 has only created a weak and utterly dependent economy. A rate hike is supposed to be a signal that the economy has a clean bill of health. But as the patient fails to recover, another dose of QE will be just what the doctor orders.

Meanwhile, in Frankfurt...

"Looking into 2016, we believe the three major headwinds highlighted in the medium term - excess capacity in many industries, oversupply in the housing market and high debt burdens (especially among local governments) - together with anti-corruption and policy uncertainties will continue to weigh on growth."

"The weakness in the August BAC data suggests a high risk for softness in the Census Bureau advance retail sales report given that the two measures trend closely. While we know that the retail sales figures are volatile and subject to revisions, it is hard to ignore a weak report." Why is all of the above particularly important? Because with the August Retail Spending report due on September 15, it will be the last report on the economy the Fed will read ahead of its "most important if not ever then surely in the past decade" FOMC meeting starting on September 16, and concluding with the 2pm announcement on September 17.