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.
With equities having long ago stopped reflecting fundamentals, and certainly the Eurozone's ever more dire newsflow where any day could be Greece's last in the doomed monetary union, it was up to gold to reflect that headlines out of Athens are going from bad to worse, with Bloomberg reporting that not only are Greek banks running low on collateral, both for ELA and any other purposes, that Greece would have no choice but to leave the Euro upon a default and that, as reported previously, Greece would not have made its May 12 payment had it not been for using the IMF's own reserves as a source of funding and that the IMF now sees June 5 as Greece's ever more fluid D-day. As a result gold jumped above $1230 overnight, a level last seen in February even as the Dollar index was higher by 0.5% at last check thanks to a drop in the EUR and the JPY.
The percentage of respondents to University of Michigan's Consumer Sentiment Survey that "think they (or their spouse) will lose their job over the next 5 years" soared to its highest since March 2009.
Soaring gas prices dueled with soaring stock prices to leave University of Michigan Consumer Sentiment and it appears the former won. Printing at the weakest level since Oct 2014, UMich dropped to 88.6 (vs 95.9 expectations). This is the biggest miss on record.. and biggest MoM drop since Dec 2012. Both current conditons and expectations plunged despite surges in inflation expectations. Higher income expectations are starting to plunge - at their lowest in 7 months - and household finances are seenas the worst since July 2014. And finally, the survey's spokspersonsays that respondents showed "concern over employment."
Was that it for the "reflation" aka Bund-rout trade? One look at German bonds this morning and the sharp, panic selloffs seen in recent days are completely gone making one wonder if the ECB is done selling Bunds the CTAs who were riding the momentum train have all been squeezed out of their long positions and now the trend back to -0.20% can resume only to be followed by another abrupt 6-sigma move as the ECB once again sells inventory to buy itself more monetization runway. As a reminder, the ECB has to buy debt until September 2016 and it won't be able to if the 30-Year Bund is at -0.20% in a few months (or weeks).
Sitting in Silicon Valley, it feels like we’ve reached the peak again. Hot money is chasing deals at ridiculous valuations. Housing prices are more than incomes can cover. Optimism is high. Jobless Claims are at cyclical lows. We’ve seen this before, in 2000 and 2007.
Today’s Eurogroup meeting will be key in determining where Greece and its creditors negotiations currently stand. Over in the US today, it’s the usual post payrolls lull with just the labor market conditions data expected.
Futures Jittery As Attention Returns To Greece; China Stocks Rebound On Latest Central Bank InterventionSubmitted by Tyler Durden on 05/11/2015 06:48 -0400
With the big macro data out of the way, attention today and for the rest of the week will focus on the aftermath of the latest Chinese rate cut - its third in the past 6 months - which managed to boost the Shanghai Composite up by 3% overnight but not nearly enough to make up for losses in the past week; any resumption of the 6+ sigma volatility in the German Bund, which already has been jittery with the yield sliding to 0.52% only to spike to 0.62% shortly thereafter before retracing some of the losses; and finally Greece, which in a normal world would have concluded its negotiations during today's Eurogroup meeting and unlocked up to €7 billion in funds for the coming months. Instead, Greece may not only not make its €770 million IMF payment tomorrow but according to ever louder rumors, is contemplating a parallel currency on its way out of the Eurozone.
Futures Levitate Following Worst Chinese Mfg PMI In One Year, Brent At 2015 Highs; Bund Slide ContinuesSubmitted by Tyler Durden on 05/04/2015 06:45 -0400
The best news for stocks is twofold: volumes continue to be lethargic with both the UK (May Day bank holiday) and Japan closed until Thursday (Golden Week), while the bulk of the S&P500 has now exited the stock buyback quiet period. As such, ignore record equity outflows - all the matters is that corporate CFOs, flush with brand news bond issuance cash, will tell their favorite Wall Street trading desk to buy stocks at just the right inflection point sending the market surging just as shorts once again test the downtrend and the 50 DMA.
At a stunning pace of 608 words in just 4 minutes, The Wall Street Journal's Fed-Whisperer, Jon Hilsenrath, has proclaimed his "common knowledge" meme for today's FOMC statement. Confirming that officials "aren’t at this point alarmed about the first quarter slowdown," and in fact stating they are confident of spending picking up due to consumer sentiment (which just fell)... which leaves them signalling no shift in policy stance - i.e. rate hikes are coming whether the economy can handle it or not...
With everyone hoping that The Fed says something dovish (because after all stocks are 1% off their highs) there was some disappointment as the weakness was shrugged off as transitory:
- *FED SAYS WINTER SLOWDOWN PARTLY REFLECTS `TRANSITORY FACTORS'
- *FED SEES MODERATE GROWTH, JOB GAINS EVEN AFTER 1Q SLOWDOWN
In the end, once again, the dovish Fed provides just enough wealth-creating hope to keep stock dreams alive but knows it has to move sooner rather than later (keeping the "but we think the economy will strengthen" meme alive).
Pre-FOMC: S&P Futs 2099.50, 10Y 2.04%, EUR 1.1175, Gold $1210, Oil $58.85
It is only fitting that the next business day following a headline that "Global Futures Slide China Tumbles On Short Selling Boost" we would see China, in an apparent panic, not only cut its RRR by 100 bps to 18.5% - far more than expected and the most since 2008 - but, more importantly, hinted that the Friday regulatory decision to encourage short sales and tighter margin rules on "umbrella trusts" was in no way meant to pop that the Chinese stock bubble, ridiculous as it may be. End result: after Chinese futures crashed by up to 6% on Friday after the Shanghai close, overnight the SHCOMP was down just 1.64%, erasing the bulk of the futures loss. More importantly, US equity futures have seen a strong bid this morning in yet another attempt to defend not only the Apple Sachs Industrial Average from going red on the year but the all important 100 DMA technical levels.
Having fallen for the last two months, with stock prices back near record highs, many expected an exuberant bounce in UMich Consumer Sentiment and were not disappointed. In the face of rising gas prices, Consumers were loving it - UMich printed 95.9, beating expectations of 94.0 by the most since August, for the 2nd most exuberance since 2007. Current and futures expectations rose notably as consumers believe now is a good time buy a home, vehicle, ore major appliance more than ever.
While the world gasped last night when China's production-based, and goalseeked GDP number came in at 7.0% - the lowest in 6 years the truly scary numbers were in the details, which revealed unprecedented deterioration. Details which suggest China is now growing at a 1.6% annual pace: the lowest in modern history.
A month ago we warned "Beijing, you have a big problem," and showed 10 charts to expose the reality hiding behind a stock market rally up over 100% in the last year. Tonight we get confirmation that all is not well - China GDP fell to 7.0% (its lowest in 6 years) with QoQ GDP missing expectations at +1.3% (vs 1.4%). Then retail sales rose 10.2% YoY - the slowest pace in 9 years (missing expectations of 10.9%). Fixed Asset Investment rose 13.5% - the lowest since Dec 2000 (missing expectations). And finally Industrial Production massively disappointed, rising only 5.6% YoY (weakest since Dec 2008). Finally, as a gentle reminder to the PBOC-front-runners, a month ago Beijing said there was no such thing as China QE (and no, the weather is not to blame.. but the smog?).