Next week will be relatively light in economic reporting, and with no HFT exchange IPOs on deck, and the VVIX hardly large enough to warrant a TVIX type collapse, it may be downright boring. The one thing that will provide excitement is whether or not the US economic decline in March following modestly stronger than expected January and February courtesy of a record warm winter, will accelerate in order to set the stage for the April FOMC meeting in which Bill Gross, quite pregnant with a record amount of MBS, now believes the first QE hint will come. Naturally this can not happen unless the market drops first, but the market will only spike on every drop interpreting it for more QE hints, and so on in a senseless Catch 22 until the FRBNY is forced to crash the market with gusto to unleash the NEW qeasing (remember - the Fed is now officially losing the race to debase). For those looking for a more detailed preview of next week's events, Goldman provides a handy primer.
European cash equity markets were seen on a slight upward trend in the early hours of the session amid some rumours that the Chinese PBOC were considering a cut to their RRR. However, this failed to materialise and markets have now retreated into negative territory with flows seen moving into fixed income securities. This follows some market talk of selling in Greek PSI bonds due to the absence of CDSs. This sparked some renewed concern regarding the emergence of Greece from their recovery. Elsewhere, we saw the publication of the BoE’s financial stability review recommending that UK banks raise external capital as soon as possible. This saw risk-averse flows into the gilt, with futures now trading up around 40 ticks.
- More HFT Posturing: SEC Probes Rapid Trading (WSJ)
- Fed’s Bullard Says Monetary Policy May Be at Turning Point (Bloomberg)
- Hilsenrath: Fed Hosts Global Gathering on Easy Money (WSJ)
- Dublin ‘hopeful’ ECB will approve bond deal (FT)
- EU Proposes a Beefed-Up Permanent Bailout Fund (WSJ)
- Portugal Town Halls Face Default Amid $12 Billion Debt (Bloomberg)
- Hidden Fund Fees Means U.K. Investors Pay Double US Rates (Bloomberg)
- Europe Weighs Trade Probes Amid Beijing Threats (WSJ)
- Bank of Japan Stimulus Row Fueled by Kono’s Nomination (Bloomberg)
- BHP Billiton sees China iron ore demand flattening (Reuters)
- Australia Passes 30% Tax on Iron-Ore, Coal Mining Profits (Bloomberg)
- State Capitalism in China Will Fade: Zhang (Bloomberg)
- Venizelos quits to start election campaign (FT)
- Fed’s Dudley Says U.S. Isn’t ‘Out of the Woods’ (Bloomberg)
- China Is Leading Foreign Investor in Germany (WSJ)
- Fed undecided on more easing: Dudley (Reuters)
- Martin Wolf: What is the real rate of interest telling us? (FT)
The persistent negative investment flows at U.S. listed mutual funds specializing in domestic stocks is one of the most important long-term trends catalyzed by the Financial Crisis. AUM has dropped by $473 billion since January 2007 despite the S&P 500 Index’s essentially flat performance over this period. The news is no better since the beginning of 2012 – despite the ongoing rally in domestic equities – with $6.8 billion of further outflows year to date. In today’s note Nic Colas, of ConvergEx analyzes what will reverse this trend along two vectors: the desire and ability of individuals to invest. The rally in risk assets, along with declining actual volatility, is the best hope for a reversal in money flow trends. Offsetting that factor are continued stresses on household budgets and consumer psychology combined with problematic demographic trends. Bottom line: domestic money flows have likely become more economically sensitive than in previous cycles.
While US equity futures continue to do their thing as the DJIA 13K ceiling comes into play again (two weeks ago Dow 13K was crossed nearly 80 times), ahead of today's 2:15pm Bernanke statement which will make the case for the NEW QE even more remote, none of the traditional correlation drivers are in active mode, with the EURUSD now at LOD levels, following headlines such as the following: "Euro Pares Losses vs Dollar as Germany’s ZEW Beats Ests" and 20 minutes later "EUR Weakens After German Zew Rises for 4th Month." As can be surmised, a consumer confidence circular and reflexive indicator is the basis for this Schrodinger (alive and dead) euro, and sure enough sentiment, aka the stock market, aka the ECB's balance sheet expansion of $1.3 trillion, is "improved" despite renewed concern over Spain’s fiscal outlook after better than expected German ZEW per Bloomberg. Next, investors await U.S. retail sales, which have come in consistently weaker in the past 3 month, and unless a pick up here is noted, one can scratch Q1 GDP. None of which will have any impact on the S&P 500 policy indicator whatsoever: in an election year, not even Brian Sack can push the stock market into the red.
- Tainted Libor Guessing Games Face Replacement by Real Trades (Bloomberg) - so circular, self-reported data is "tainted" - but consumer confidence is great for pumping a stock market?
- Japan Sets up $12 Billion Program for Dollar Loans, Increases Growth Fund (Bloomberg)
- China Hints at Halt to Renminbi Rise (FT)
- Spain Pressed to Cut More From Its Budget (FT)
- Bailout can make Greek debt sustainable, but risks remain: EU/IMF (Reuters)
- Banks to Face Tough Reviews, Details of Mortgage Deal Show (NYT)
- U.S. and Europe Move on China Minerals (WSJ)
- Use of Homeless as Internet Hot Spots Backfires on Marketer (NYT)
- Obama administration seeks to pressure China on exports with new trade case (AP)
"We, the people," are in deep trouble.
Markets appear to be tentatively recovering some of yesterday’s heavy losses, recording modest gains so far this morning. Comments made overnight by the German finance minister as well as senior officials from the Greek finance ministry may have mercifully given market participants some hope as they are confident the Greek PSI deal will be completed by the deadline tomorrow evening. The DAX index has underperformed the other European equity indices in recent trade following the release of some disappointing factory orders data for January, with markets expecting an expansion of 0.6%, however the reading came in at -2.7%, moving DAX stock futures into negative territory. WTI crude and Brent have also retraced some of their losses made earlier in the week following a drawdown in US gasoline inventories reported last night as well as a generally weak USD index in the FX markets today. Markets are awaiting US ADP employment change later in the session, as well as the weekly DOE oil inventories casting further light on the US energy stocks.
Last Thursday, following the second in one day GDP forecast tweak lower by Goldman on disappointing Consumer and ISM data, we said "And this, ladies and gents, is ultra high frequency economics, where HFT machines push the market up and down without reason, and where this has an immediate impact on economic indicators, all changed around in real time." Sure enough, today, following the better than expected Services ISM print, Goldman has now revised its GDP tracking number, this time higher, from 1.9% to 2.0%! At this rate GDP will soon become a coincident indicator of nothing more than consumer confidence that record high gas prices are a bullish indicator for consumption. That it is already a coincident indicator to real-time economic data, and merely shows the prevalent confusion within the strategist community, is a given.
When it comes to reporting the news, Reuters ability to get the scoop first may only be rivaled by its ability to "spin" analysis in a way that will make a normal thinking person's head spin. Such as the following piece of unrivaled headscrathing titled "The good news behind oil prices" whose conclusion, as some may have already guessed, is that "the surge in crude oil is looking more like a harbinger of better days." Let's go through the arguments.
Yesterday, when we reported about Goldman not one, but two GDP Q1 forecast cuts in one day, we said to "watch for the Wall Street lemming brigade to quickly follow in Goldman's footsteps." Sure enough, here is Bank of America, rushing first into the bandwagon, trimming its Q1 forecast from 2.2% to 1.8%. This is perfectly expected: recall that from day 1 of 2012, most banks had been pushing for QE3, ignorant of the massive liquidity tsunami that was going on behind the scenes. Well, the impact of that has now come and gone, with no more easing from the ECB on the horizon for a long time. Which means that the focus can again shift to how "bad" the US economy is in preparation for the inevitable Bernanke gambit. Needless to say this will make the pre-election economy appear like a total farce in the months before the re-election: soaring employment and plunging everything else. Good luck explaining that away. Incidentally explains why the EURUSD has resumed its slide: the market is now pushing Bernanke to halt the appreciation of the USD against the EUR, and thus the implicit benefit of German's economy over that of the US, which can only happen with further promises of easing. That said, we can't wait for the statement as the vaudeville Trio of Bianco, Chadha and of course LaVorgna to follow suit and slash their now comically hyperbolic expectations.
- Brazil declares new ‘currency war’ (FT)
- Postal Cuts Are Dead Letter in Congress (WSJ)
- China state banks to boost selected property loans (Reuters)
- ECB Says Overnight Deposits Surge to Record (Bloomberg)
- Van Rompuy confirmed for 2nd term as EU Council president (Reuters) - you mean dictator
- BOJ Shirakawa: Japan consumer prices to gradually rise (Reuters)
- IMF Says Threat of Sharp Global Slowdown Eased (Reuters)
- Eurozone delays half of Greece’s funds (FT)
- BOJ Openings Can Shape Monetary Policy (Bloomberg)
Earlier we noted how Goldman cut their tracking forecast for Q1 GDP from 2.3% to 2.0% on weaker consumer spending data (which somehow resulted in a surge in consumer confidence: oh well, the US branch of the Chinese Department of Truth has to justify its budget somehow). Not even a full two hours later, the firm has just whacked its forecast for Q1 GDP again, this time on the major ISM miss. And this, ladies and gents, is ultra high frequency economics, where HFT machines push the market up and down without reason, and where this has an immediate impact on economic indicators, all changed around in real time.