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.
Having fallen and missed the last two months, UMich Consumer Sentiment plunged in September's preliminary data from 91.9 to 85.7 (dramatically missing the 91.1 expectations) crashing to its lowest in a year. This is the biggest miss on record. Crucially, this is the all-important factor that The Fed's Dudley said he would be monitoring ahead of his decision on rate hikes... Hope collapsed as "expectations" tumbled from 83.4 to 76.4 - the lowest in a year as 73% of respondents cited negative economic developments seeing a weaker econmomy due to a global growth slowdown.
Futures Surge Overnight As Deteriorating Economic Data Unleashes Blur Of Central Bank Interventions And QE RumorsSubmitted by Tyler Durden on 09/10/2015 06:55 -0400
It has become virtually impossible to differentiate between actual central bank intervention, hopes of central bank intervention, and how the two interplay on what was once the "market" but is now merely the place where money printers duke it out every day in some pretense of price discovery set by those who literally print money.
Chinese Stocks Surge Then Tumble At The Close, Stun Market News Algos; Futures Levitate On Back Of USDJPYSubmitted by Tyler Durden on 09/07/2015 07:50 -0400
Chinese stocks opened with a bang, and as we previously noted soared higher at the open after China's long 4-day holiday weekend, which however subsequently slowly (but very surely) fizzled, eating away at the hope that the 3-day drop in the Shanghai Composite would finally come to an end following comments from PBOC governor Zhou that the recent rout in Chinese stocks is almost over, and result in a relief rally in Europe and the US. Alas, all that was promptly swept away at the end of trading in China when the Shanghai Composite tumbled at close of trading to confirm just how unpleasant a "death cross" is coupled with loss of central bank control, and to push the Shanghai Composite down 2.5% for the day and 3.4% for the year.
Moments ago, US equity futures tumbled to their lowest level in the overnight session, down 22 points or 1.1% to 1924, following both Europe (Eurostoxx 600 -1.8%, giving up more than half of yesterday's gains, led by the banking sector) and Japan (Nikkei -2.2%), and pretty much across the board as DM bonds are bid, EM assets are all weaker, oil and commodities are lower in what is shaping up to be another EM driven "risk off" day. Only this time one can't blame the usual scapegoat China whose market is shut for the long weekend.
The discussion of why "this time is not like the last time" is largely irrelevant. Whatever gains that investors have garnered during the recent bull market advance will be wiped away in a swift and brutal downdraft. However, this is the sad history of individual investors in the financial markets as they are always "told to buy" but never "when to sell."
It's a busy week for the market, and not to mention the Dow Jones-dependent Fed, which will have to parse through reports on Chicago PMI, Construction Spending, ISM (Mfg and Services), ADP, Productivity and Labor Costs, Factory Orders, Trade Balance, and the weekly highlight: Friday's Jobs reports.
Businesses get “crunched” in the Oil Patch, consumers lose it, indexes hit Financial Crisis levels.
After July's disappointing drop in UMich Consumer Confidence, August did not help. Printing 91.9, below expectations of 93.0, UMich is hovering at the 2015 lows. Both current and future sub-indices dropped with hope falling to its lowest since 2014 (biggest 7mo decline in 2 years). Income growth expectations dropped and business expectations dropped to lowest since Sept 2014. This follows the highest conference board confidence in 2015 and lowest Gallup confidence in a year. Bill Dudley will be disappointed after proclaiming this a key driver of The Fed's rate hike call (more important than jobs).