Consumer Confidence

All you need to know.

The past week was dominated by the Eurogroup statement over the weekend that Spain will seek financial support for its banks. According to the statement, Spain intends to make a formal request soon, with financial assistance expected to be around EUR100 bn and to come from the EFSF or ESM. Aid will be channeled through the FROB, and will increase the debt burden of the Spanish sovereign. There will be no macro or fiscal conditionality as in the bailouts of Greece, Ireland and Portugal, but only on bank sector restructuring. That said, there will be monitoring of the deficit and structural reforms as part of this bailout, though no conditionality, and the IMF is also invited to monitor progress under the program. Separately, the week also saw lots of commentary out of the Fed, including from Chairman Bernanke and Vice Chair Yellen. Looking to the week ahead, the key question for us is where to harvest excessive risk premia, bearing in mind that the Greek elections are around the corner.. In terms of policy talk and data, for the former Fed chatter ends on Tuesday when the blackout period begins ahead of the FOMC on June 19/20. For the latter, US retail sales and industrial production will be important to watch as we head into the FOMC next week.

Less than an hour ago Zero Hedge was happy to point out the glaringly obvious.

Bernanke speech will have nothing in it

— zerohedge (@zerohedge) June 7, 2012

Shortly thereafter, Bernanke confirmed it. Now it is Wall Street's turn to join in.

There was a little for everyone in the latest "baffle them with bullshit" economic data report: while the Services ISM popped modestly from the prior 53.5 to 53.7, on expectations of a slight decline to 53.4, something which in itself is bad because it is good, and makes prospects of more outright QE less of a slamdunk, the all important employment index tumbled from 54.2 to 50.8, the lowest print of the Year, and the largest two month slide in the Employment index since March of 2009. Finaly, with half of the Manufacturing ISM indices in contraction territory already, we finally got the first sub-50 print in the Services ISM as well, with the Prices component declining from 53.6 to 49.8: a/k/a contraction, and the biggest 3 month drop in prices paid since December 2008, and the lowest since July 2009.

Last September we were delighted to bring you the following great news:

DAVID BIANCO NO LONGER WORKS AT BOFA, SPOKESWOMAN SAYS

Now, we are even more delighted to bring you the following breaking news:

BLACKROCK CHIEF EQUITY STRATEGIST BOB DOLL TO RETIRE

And then there were three...

• Dublin in final push for EU treaty Yes vote (FT)
• Spain cries for help: is Berlin listening? (Reuters)
• Crisis draws squatters to Spain's empty buildings (Reuters)
• EU World Bank Chief Urges Euro Bonds (WSJ)
• but... EU: Current Plan Is Not To Let ESM Directly Recapitalize Banks (WSJ)
• Graff pulls Hong Kong IPO, latest victim of weak markets (Reuters) - was MS underwriter?
• EU Weighs Direct Aid to Banks as Antidote to Crisis (Bloomberg)
• Dewey's bankruptcy: Let the rumble begin (Dewey)
• More are cutting off Greek trade: Trade credit insurers balk at Greek risk (FT)
• Rosengren wants more Fed easing; Dudley, Fisher don't (Reuters)
• EU throws Spain two potential lifelines (Reuters)
• Fed's Bullard says more quantitative easing unlikely for now, warns on Europe (Reuters)

The avuncular Art Cashin opines on the roller-coaster of unreality that has been the equity markets for the last few days as outcomes become increasingly binary and investors increasingly herded from one direction to another. His sage advice - as if spoken by the most-interesting-person-in-the-world - "Stay nimble", my friends.

All you need to read

Just as expected, with the June FOMC coming in fast and furious, the data better start coming in bad to quite bad. Sure enough, here is consumer confidence (not from UMich, but from the Confidence Board, because we need at least two indicators for every economic data point to maintain the Schrodingerian Baffle With Bullshit illusion long and strong) setting us off on the right, er, wrong path, with a 3 sigma miss to expectations of 69.6, dropping precipitously from 69.2 to 64.9, the lowest since January, the third miss in a row, and undoing all the "gains" from the recent bipolar UMichigan consumer confidence which in turn soared for no reason whatsoever. Finally, 12 month inflation expectations drop from 5.8% to 5.6% - not good for a central bank hoping to get consumers to spend or gamble. This is either good or bad for stocks.

A push by the ECB for the euro zone to stand behind banks suffering from bank runs is slowly gaining traction but the bloc has yet to build backstops to prevent, or cope with, a sudden collapse of confidence in banks and mass deposit withdrawals. Last week, European leaders discussed pan European means of supporting banks, measures the ECB hopes will include a bank resolution fund to deal with the fallout from the wind up or restructuring of a failing bank. But a wave of withdrawals by depositors - either for fear that their government is too weak to stand behind its banks or that their country will exit the euro and forcibly convert their savings into a vastly devalued national currency - would represent a crisis of completely new proportions. Greece’s exit and reversion to their national currency, the drachma, could precipitate electronic bank runs in other periphery nations. The risk is that even savers who may trust their bank as being safe, come to the conclusion that there is a risk that their euro deposits may, in the event of a sovereign crisis, be forcibly converted to drachmas, pesetas, liras, punts and escudos.

Despite closed US stock markets today, FaceBook stock still managed to decline, while Europe dipped yet once again on all the same fears: Greece, Spain, bank runs, contagion, etc. Shortly Europe will reopen, this time to be followed by the US stock market as well. While in turn will direct market participants' attention to a shortened week full of economic data, which as Goldman says, will likely shape the direction of markets for the near future. US payrolls and global PMI/ISM numbers are expected to show a mixed picture with some additional weakness already fully anticipated outside the US. On the other hand, consensus does expect a moderate improvement in most US numbers in the upcoming week, including labour market data and business surveys. As a reminder, should the Fed wish to ease policy at its regular June meeting, this Friday's NFP print will be the last chance for an aggressive data-driven push for more QE. As such to Zero Hedge it is far more likely that we will see a big disappointment in this week's consensus NFP print of +150,000. Otherwise the Fed and other central banks will have to scramble with an impromptu multi-trillion coordinated intervention a la November 30, 2011 as things in Europe spiral out of control over the next several weeks. Either way, risk volatility is most likely to spike in the coming days.

All you need to read.

European stock futures saw a jump higher at the cash equity open as the Eurostoxx broke through yesterday’s high of 2160. Comments from the Italian PM from late yesterday, who said that the majority of ministers are in favour of Euro bonds was noted but the move was largely technically driven with stops tripped on the ascent. In reaction to this the European bond yield spreads in the 10yr part of the curve tightened aggressively with OAT’s outperforming once again edging back toward the psychological 100bps level. Meanwhile in the FX market the USD weakened in early trade on the renewed risk appetite which bolstered the gains in EUR/USD alongside touted option defence by a Swiss name at the 1.2500 level. Commodity linked currencies such as the AUD was the main benefactor of a moderate move higher in crude futures and precious metals but has been capped so far by offers at 0.9800. Into the North American open prices have pared, with European equities in the cash and futures both slipping into the red, excepting the DAX. A distinctly light calendar from the US with only the May final Michigan report due, coupled with an early closure in the Treasury pit today, ahead of the Memorial day holiday, means that volumes will likely decline into the latter stages of the US session today.

With US markets already checked out ahead of the holiday day weekend, and Europe acting abnormally stupid (PIIGS bond spreads plunging, then soaring right back), there is little newsflow to report overnight, except for a key report that China loan growth is plunging in what is a major risk flag proudly ignored by all algos (but not the SHCOMP which dropped 0.7%). Futures have followed the now traditional inverse pattern of selling off early in the Asian session, then ramping following the European opening on nothing but vapors of hope. All that needs to happen today is a drop early in regular trading, following by a major squeeze on the third consecutive baseless rumor for the week to be complete, and for stocks to actually post an increase even as the EUR crashes and burns. Unless of course we get a rumor that Europe will be open on Monday even as the US is not there to bail out risk assets.