There are two narratives, according to WSJ's Fed whisperer Jon Hilsenrath, that need to be considered when judging the Fed's next steps. First is, the economy stumbled in Q1 but everything will be awesome going forward (so we should hike rates); and a second newer narrative is the turmoil overseas which could be exaggerated by Fed actions. Hilsenrath hints today that despite the miss in jobs data, it remains above 200,000 and "suggests the U.S. economy finished the first half of the year with a solid foundation to weather turbulence from overseas," giving The Fed room to hike.
The Greek D-(efault) day has arrived, and with it so has quarter-end window dressing for many underwater hedge funds (recall the S&P is now red for the 2015) which means the rumor mill today will be off the charts. And sure enough, less than an hour ago, futures exploded higher as did the EURUSD, following another "report/rumor" of a last minute detente between Greece and the Troika when Greek Ekahtimerini said that "Tsipras is reconsidering the last-ditch offer made by European Commission President Jean-Claude Juncker, sources have told Kathimerini."
After a quiet Asian session, where not even the latest Chinese CPI miss was enough to push the SHCOMP to new multi-year highs, all eyes were on Europe where a few hours ago the European Commission announced it had received not one but two new proposals from Greece with the Greek government adding that it considers proposals submitted last week as remain basis for political negotiations. However, barely had Europe received the Greek addenda when it nein'ed all over them, with BBG citing an international official directly involved in talks saying that the "Greek government's revised proposal to unlock bailout funds is vague rehash of earlier plans, not considered credible."
Our current money system began in 1971. It survived consumer price inflation of almost 14% a year in 1980. But Paul Volcker was already on the job, raising interest rates to bring inflation under control. And it survived the “credit crunch” of 2008-09. Ben Bernanke dropped the price of credit to almost zero, by slashing short-term interest rates and buying trillions of dollars of government bonds. But the next crisis could be very different…
Why has the dollar jumped in recent weeks? Global conspriacy and lies? Are thousands of investors and participants being deluded?
- Obama signs bill reforming surveillance program (Reuters)
- Tsipras to meet Juncker in Brussels for talks on agreement (AFP)
- Spot the irony: OECD cuts global growth forecast, says recovery taking hold (Reuters)
- The Secret Money Behind Vladimir Putin's War Machine (BBG)
- Companies' Borrowing Spree Darkens Stock Market Future (BBG)
- How OPEC Hurt Big Oil (WSJ)
- What's OPEC Going to Do With Iran's Million Barrels a Day? (BBG)
- Draghi’s Europe Looks Healthiest for Years Despite Greece (BBG)
- Bund yields inch higher, euro holds ahead of ECB (Reuters)
As it turns out it is not just a US "thing" to blame the weather. Enter the Bank of India, which overnight cut its benchmark rate from 7.5% to 7.25%, as had been largely expected, taking India's interest rate to the lowest since September 2013. The punchline, however, was when RBI's governor Raghuram Rajan gave his outlook for the possibility of future rate cuts, saying he would have to wait to assess monsoon rains before acting again.
Once again it's all about Greece, with the latest iteration of a "Greek deal is imminent" rumor making the rounds and, just like yesterday, sending futures in the green, just a little over an hour after the increasingly more illiquid E-mini future has slid 0.7%. The EUR, where the bulk of Virtu headline kneejerk reacting algos are to be found, has surged over 100 pips overnight on more hope and optimism.
June is off with a bang, and a very busy week in the macro economic calendar, both globally and in the US, which culminates with the latest "most important ever" payrolls report, one which will surely be closely watched by a Fed which may hike as soon as a few weeks from now (but probably won't).
What do we really know?
The Man in the Moon studies the pathology of Earth’s global economy and markets from a distance where there’s no gravitational pull towards empiricism or consensus. His findings: 1) the global economy is over-leveraged, fragile, stagnating, and increasingly centrally managed; 2) capital markets and asset performance have been captured by the perception of the ongoing value of money, and so; 3) unconventional investment analysis is prudent.
China launches international gold fund with over 60 countries as members. The large fund, which expects to raise 100 billion yuan or $16 billion, will develop gold mining projects across the economic region known as the New Silk Road.
The market appears to have chosen the hotter-than-expected Core CPI print (as opposed to weakest headline CPI YoY print since Oct 2009 of -0.2%) as key. Core CPI rose 0.3% MoM in April - the most since March 2006; and 1.8% YoY - the most since Jan 2013. The biggest driver of the surge in consumer prices is medical care costs - which rose 0.7% - the biggest increase since January 2007 (thanks Obamacare).
A robust economy would allow central banks to raise rates and still allow debts to be paid down. But that is not what is happening. And it won’t happen. Junkies rarely go out and get a job... and gradually “taper off” their habit. No. They have to crash... hit bottom... and sink into such misery that they have no choice but to go cold turkey. Now, major central banks are committed to QE and ZIRP forever. They have created an economy that is addicted to EZ money. It will have to be smashed to smithereens before the feds change their policies.
There's little interest, forcing retirees to spend down their principal. It's no accident, as Keynes called for the “euthanasia of the rentier.” Fed Chair Yellen is a New Keynesian.