Consumer Confidence

Last week was a complete dead zone for US macro, however with the peak of Q2 earnings season there was more than enough commotion for everyone. This week US macro starts to pick up again, with Durable Goods on Monday, followed by Case Shiller, Q2 GDP, the Chicago PMI, various consumer confidence indices, and of course, the July FOMC meeting on Wednesday.

It all started in China, where as we noted previously, the Shanghai Composite plunged by 8.5% in closing hour, suffering its biggest one day drop since February 2007 and the second biggest in history. The Hang Seng, while spared the worst of the drubbing, was also down 3.1%. There were numerous theories about the risk off catalyst, including fears the PPT was gradually being withdrawn, a decline in industrial profits, as well as an influx in IPOs which drained liquidity from the market. At the same time, Nikkei 225 (-0.95%) and ASX 200 (-0.16%) traded in negative territory underpinned by softness in commodity prices.

With two-thirds of companies still set to report, and as the second quarter earnings season continues and assures the first revenue and EPS recession since 2009, the question on everyone's lips is just how bad will/can it get. The answer will be determined largely by any/all of the following three "C"s which continue to define the ugly face of non-GAAP corporate earnings for the past 3 quarters which appear set to persist for the foreseeable future.

Bloomberg's Consumer Comfort index slipped lower once again this week back to six-week lows but the most notable aspect within the survey data was a sudden burst of consumer confidence among Democrats... one wonders why?

A slow week devoid of virtually any macro news - last night the biggest weekly geopolitical event concluded as expected, when Greece voted to pass the bailout bill which "the government does not believe in" just so the ECB's ELA support for Greek depositors can continue - is slowly coming to a close, as is the busiest week of the second quarter earnings season which so far has been largely disappointing despite aggressive consensus estimate cuts, especially for some of the marquee names, and unlike Q1 when a quarterly drop in EPS was avoided in the last minute, this time we won't be so lucky, and the only question is on what side of -3.5% Y/Y change in EPS will the quarter end.

Despite the absence of bad weather, good weather, port strikes, and snow, The National Retail Federation today slashed its retail sales forecast for 2015 from 4.1% growth to just 3.5%. Sales grew at a 2.9% pace in the first half of 2015 and hope remains that the next 5 months show growth of 3.7% (with same store sales growth revised lower). The excuse reason for this markdown..."spending has been hampered by lackluster growth in our economy. Much of that blame can be shifted to Washington where too much time has been spent crafting rules and regulations that almost guarantee negative consequences for consumers and American businesses alike."

Today's action is so far an exact replica of Friday's zero-volume ES overnight levitation higher (even if Europe's derivatives market, the EUREX exchange, did break at the open for good measure leading to a delayed market open just to make sure nobody sells) with the "catalyst" today being the official Greek repayment to both the ECB and the IMF which will use up €6.8 billion of the €7.2 billion bridge loan the EU just handed over Athens so it can immediately repay its creditors. In other words, Greek creditors including the ECB, just repaid themselves once again. One thing which is not "one-time" or "non-recurring" is the total collapse in commodities, which after last night's precious metals flash crash has sent the Bloomberg commodity complex to a 13 year low.

Would you rather have one “Share” of the S&P 500 at $2,124, or 41 barrels of crude oil, or 1.86 ounces of gold? Yes, they are all worth the same amount at the moment, but the price relationship between the three has shifted over the decades.

In what seems to have surprised FX trader, Bank of Canada has taken an ax to growth forecasts and rates...

*BOC CUTS CANADA 2015 GDP FORECAST TO 1.1% FROM 1.9%
*BANK OF CANADA CUTS 2Q GDP ESTIMATE TO -0.5% FROM 1.8%
*BANK OF CANADA CUTS BENCHMARK INTEREST RATE TO 0.5%

Furthermore, it warns that "consumer debt vulnerabilities are edging higher" and export weakness is "puzzling."

The Fed’s Stanley Fischer has said that the U.S. was preparing such legislation – after Tucker had indicated that such legislation was in place. The EU is also at an advanced stage in forcing countries to ratify bail-in legislation. The legislation is being devised to protect the larger banks against the interest of both depositors, taxpayers and the wider economy.

There is an argument to be made that this could indeed be a "new market" given the continued interventions by global Central Banks in a direct effort to support asset prices. However, despite the coordinated efforts of Central Banks globally to keep asset prices inflated to support consumer confidence, there is plenty of historic evidence that suggest such attempts to manipulate markets are only temporary in nature.

The Fed understands that economic cycles do not last forever, and we are closer to the next recession than not. While raising rates would likely accelerate a potential recession and a significant market correction, from the Fed's perspective it might be the 'lesser of two evils. Being caught at the "zero bound" at the onset of a recession leaves few options for the Federal Reserve to stabilize an economic decline. The problem is that they may have missed their window to get there.

More than even the unfolding "chaos theory" pandemonium in Greece, market watchers were even more focused on whether or not China and the PBOC will succeed in rescuing its market from what is now a crash that threatens social stability in the world's most populous nation. And, at the open it did. The problem is that as the trading session progressed, the initial 8% surge in stocks faded as every bout of buying was roundly sold into until every other index but the benchmark Shanghai Composite turned sharply red.

So much going on that by the time an article is prepared, everything has changed and it has to be scarpped. But, in any event, here is an attempt to summarize all that has happened in another turbulent overnight session.