Based on the overnight market prints which are an oddly reddish shade of green, it took algos about 12 hours to realize that the reason they soared for most of October, namely hopes of an easier Fed which were launched with the terrible September jobs report and continued with increasingly worse US economic report in the past month, can not be the same reason they also soared yesterday after the announcement of a more hawkish than expected Fed statement which envisioned a stronger US economy and a removal of foreign considerations, which even more curiously took place on even worse data than the Fed's far more dovish September statement.
We would say today's main event is the culmination of the Fed's two-day meeting and the announcement slated for 2 pm this afternoon, however with the 90 economists polled by Bloomberg all expecting no rate hike, today's Fed decision also happens to be the least anticipated in years (which may be just the time for the Fed to prove it is not driven by market considerations and shock everybody, alas that will not happen). And considering how bad the economic data has gone in recent months, not to mention the recent easing, hints of easing, and outright return to currency war by other banks, the Fed is once again trapped and may not be able to hike in December or perhaps ever, now that the USD is again surging not due to its actions but due to what other central banks are doing.
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With the second half of 2015 "grim" for Chinese auto sales, US automakers - who have field-of-dreams-like built inventories to record levels - have turned domestic for growth by extending credit for decades to anyone who can fog a mirror. That was all well and good until we discover this morning that the government's consumer confidence survey shows Americans auto-buying attitude is the lowest since Jan 2013. Automakers have two options, offer buy-one-get-one-free to all new Syrian refugees or cut production dramatically in hopes of easing inventory excess. Good luck.
Despite ongoing low gas prices, a recovery in stocks, and the nationally-advertised unemployment rate remaining low, Consumer Confidence tumbled in October from eight-year highs to three-month lows. Worse still, "hope" slid to its lowest in 3 months as "jobs plentiful" slid notably with fewer jobs and decreasing income.
Two biggest move overnight came from everyone's favorite carry pair, the USDJPY, which may have finally read what we said yesterday, namely that with the Fed and ECB both doing its job, there is little need for the Bank of Japan to repeat its Halloween massacre for the second year in a row, and as a result will keep its QQE program unchanged. It promptly tumbled from its 121 tractor level, to just above 120.25, where BOJ bids were said to be found. With the FOMC October meeting starting today, the other overnight catalyst was not surprisingly the latest Hilsenrath scribe in which he removed any uncertainty about a Wednesday hike, "leaving mid-December as the central bank’s last chance to raise rates this year."
Last week it was all about central banks, when both the ECB and the PBOC unleashed a massive market rally. This week it will be about even more central banks, this time the Fed, which won't hike, and the BOJ, which may but most likely won't as the Fed and the ECB already did its work for it, sending the Yen tumbling with their actions and/or jawboning.
"The basic assertion is the following: the U.S. economy is not showing signs of entering into recession, thus stocks are not at risk of falling into a sustained bear market. Unfortunately, this conclusion is not necessarily true. For history has shown on numerous occasions that you do not need to have an economic recession looming on the horizon to see U.S. stocks fall into a bear market."
Thanks, we presume, to a resurgent stock market (because almost every macro and micro fundamental data item has been a disaster), UMich Consumer Sentiment rose from 89.0 to 92.1, bouncing after 3 straight months lower. Both current situation and futures expectations rose (the former to near cycle highs). Good news right? Be careful what you wish for however, as The Fed's Bill Dudley previously noted this consumer confidence data is a must-watch for The Fed in its rate-hike decision-making.
One year ago we reported that companies were using secured bank debt to repurchase stock: a stunning, foolhardy development. It so unbelievable we promptly forgot this bizarre tangent into "use of loan funds"... Until today when we found that it was, indeed, all a lie and that the banks themselves had become complicit in perpetuating not only the worst possible capital misallocation, but being an accessory to the US stagnation, soon to be replaced with full-blown recession.
The Federal Reserve is quickly becoming trapped by its own "data-dependent" analysis. Despite ongoing commentary of improving labor markets and economic growth, their own indicators are suggesting something very different. As we have stated previously, while the Federal Reserve may hike interest rates simply to "save face," there is indeed little real support for them doing so. Tightening monetary policy further will simply accelerate the time frame to the onset of the next recession. Of course, the Fed knows this which is why they recently floated the idea of "negative interest rates" out into the markets. In other words, they already likely realize they are screwed.
“The trend in our projected net resources has continued to be negative," warns Treasury Secretary Lew forcing the administration to move up the deadline for the end of extraordinary measures from Nov 5th to Nov 3rd.
In September, the Port of Long Beach handled a near record 197,076 outbound empty boxes. "They accounted for nearly a third of all containers that moved through the port last month. September was the eighth straight month in which empty containers leaving Long Beach outnumbered those loaded with exports."
As Rousseff fights to keep the Presidency, and has the speaker of the House battles to have her impeached, the country's economy continues to crumble. Retail sales came in below expectations for August and as Bloomberg reports, Brazil's top bankers now fear the combination of overindebted households and soaring unemployment could spell doom.
One of the primary arguments by the more "bullish" media is that the current setup is much like that of 2011 following the "debt ceiling" debate and global economic slowdown caused by the Tsunami in Japan. While there are certainly some similarities, such as the weakness being spread from China and a market selloff, there are some marked differences.