Despite fresh record highs for stocks, previously exuberant Conference Board consumer confidence was unable to make new highs and instead tumbled by the most in 4 months, missing expectations by the most since October. This catches down to Bloomberg's less confident consumer and suggests the hopes and dreams of a nation looking for moar multiple expansion may be drifting away...
While the only fun-durr-mentals that matter appear to be global central bank liquidity injections (and thus the level of leverage entrusted to the JPY carry trade), the crowd is swayed by truthisms and "common knowledge" memes that recovery is here, that things are improving, that earnings are 'solid', that markets are still cheap, and that historical analogs are different this time. However, with monetary policy at a turning point, we also appear (fundamentally and technically) to be at "the inflection point from self-reinforcing speculation to fragile instability."
Take your pick of which "confidence" measure you choose to watch to confirm your previous "common knowledge" meme. Unsurprisingly, the government's own Conference Board indicator provides the highest level of confidence relative to recent months but today's beat by UMich (81.2 flat from last month but above 80.2 expectations) is the highest overall level among the indices. It seems not even the weather can dampen the enthusiasm of the US consumer (who is retail spending at a dismally low level?) Hardly surprising is the fact that the tumble in the current conditions index was entirely dissolved by the hope for the economic outlook which stands at 6 month highs! Short-dated inflation expectations also ticked up. Of course what really matters is keeping the dream alive that multiple-expanding confidence will cover up any and all missed expectations in macro and micro data.
The most notable event in this traditionally quiet post-payrolls week is Janet Yellen's Humphrey Hawkins testimony before Congress set for mid-week. In terms of economic data releases, the US retail sales (Exp. 0.05%) is on Thursday and consumer sentiment survey is on Friday (consensus 80.5). We also have IP numbers from Euro Area countries and the US. Most recent external account statistics are released from Japan, China, India and Turkey. It is also interesting to track CPI data in Germany, Spain and India, given the ECB and RBI currently face diverging inflation challenges and may be forced into further action. Finally, we have Q4 GDP data from the Euro Area economies (Friday).
After Friday's surge fest on weaker than expected news - perhaps expecting a tapering of the taper despite everyone screaming from the rooftops the Fed will never adjust monetary policy based on snowfall levels - overnight the carry trade drifted lower and pulled the correlated US equity markets down with it. Why? Who knows - after Friday's choreographed performance it is once again clear there is no connection between newsflow, fundamentals and what various algos decide to do. So (lack of) reasons aside, following a mainly positive close in Asia which was simply catching up to the US exuberance from Friday, European equities have followed suit and traded higher from the get-go with the consumer goods sector leading the way after being boosted by Nestle and L'Oreal shares who were seen higher after reports that Nestle is looking at ways to reduce its USD 30bln stake in L'Oreal. The tech sector is also seeing outperformance following reports that Nokia and HTC have signed a patent and technology pact; all patent litigation between companies is dismissed. Elsewhere, the utilities sector is being put under pressure after reports that UK Energy Secretary Ed Davey urged industry watchdog Ofgem to examine the profits being made by the big six energy companies through supplying gas, saying that Centrica's British Gas arm is too profitable.
BOTTOM LINE: The January employment report contained a confusing set of data, as payroll job growth significantly disappointed, but the unemployment rate declined by one-tenth, reflecting large gains in household employment. Overall we see the report as slightly weaker than expected. Nonfarm payroll employment rose a disappointing 113k in January (vs. consensus +180k). By industry, retail trade declined 13k (vs. +63k in December), while health and education services?normally a consistent support for headline job growth?declined for the second consecutive month (-6k). Construction employment, which declined 22k in December amid adverse weather, added 48k, suggesting little negative weather impact in the January report. Government employment fell 29k, the worst performance since October 2012, split between federal (-12k) and state and local (-17k). Payroll job growth in November and December was revised by a cumulative 34k, consistent with the general tendency for positive back-revisions in the January report. Over the past three months, payroll employment rose an average rate of 154k per month.
Abenomics Disaster: Japan Regular Wages Fall For 19 Consecutive Months; Real Wages Drop To 16 Year LowSubmitted by Tyler Durden on 02/05/2014 08:09 -0500
For the past year Abenomics has gotten the "get out of a jail free" card because while the plunging yen was crushing Japanese purchasing power, and sending nominal regular wages ever lower, at least the stock market was higher so (some of the) locals could delude themselves they are getting richer, if only on paper. However, following the most recent 10% correction in the Nikkei which may soon become an all out rout if the 101 level in the USDJPY doesn't hold (and then 100, and so on), all Japan suddenly has left, is the shock of soaring food and energy prices, and the hangover of declining wages that refuse to stop dropping. Case in point, last night the Japan labor ministry reported that monthly wages excluding overtime and bonus payments fell 0.2 percent in December from a year earlier to 241,525 yen on average per worker, a series of declines which has now stretched to 19 consecutive months.
Previous month's epic miss and hurriedly revised expectations from UMich confidence was 'baffled with schizophrenic bullshit' when the Conference Board printed at near record post-crisis highs earlier in the week. It is perhaps not unexpected that despite a drop MoM, following the huge miss last month that UMich confidence would very modestly beat expectations. As in the last 2 cycles, we saw an echo surge in confidence and that has now (just as in the last two cycles of confidence) begun to fade. Both current conditions and economic outlook fell MoM.
- Even Obama's fans has turning on him: "The Decline and Fall of 'Hope and Change'"
- European Stocks Drop, Head for Worst January Since 2009 (BBG)
- Euro-Area Inflation at 0.7% Builds Rate Pressure on ECB (BBG)
- Japan’s Inflation Accelerates as Abe Seeks Wage Gains (BBG)
- Unpossible - this is the USSA: Detroit Debt Proposal Favors Pension Funds (WSJ)
- Keystone Report Said Likely to Disappoint Pipeline Foes (BBG)
- YHOO still pretending someone cares about it: Yahoo says detected hacking attempt on email accounts (Reuters)
- How Google's Costly Motorola Maneuver May Pay Off (WSJ)
- Mexico Surpassing Japan as No. 2 Auto Exporter to U.S. (BBG)
Over a year after Shinzo Abe unveiled his devalue-the-currency three arrows plan to save his demographically-challenged and debt-riddled nation from a third lost decade... and aside from a stock market that soared as the currency collapsed - the Japanese people have little (or worse less) to show for it. As MarketWatch reports, Japan Automobile Manufacturers Association said Thursday that auto demand in Japan is expected to drop 9.8% in 2014 as the sales tax increase in April will dent consumer sentiment. The decline will be the first and sharpest drop in three years after auto demand remained nearly flat last year. It seems that 'recovery' will have to wait.
Confidence is soaring (or sliding) depending on what survey you choose to believe. The UMich confidence's collapse (the biggest miss in 8 years) has been matched by more 'baffle 'em with bullshit' as the Conference Board beats expectations by the most in 5 months and pushes back towards 2013 highs (near the highest in over 5 years). Both the Present situation and Expectations rose notably - despite 1.4 million people losing their benefits, a lackluster holiday season for retailers, and stagnant incomes - but the Present Situation index rose to the highest since April 2008.
This week, much of the market focus will remain on the policymakers' responses to the challenges emerging out of the, well, emerging markets. In particular, the response of the Turkish Central bank will be key. This week we also have eight MPC meetings, with the US FOMC on Wednesday standing out. Consensus expects the continuation of the tapering of asset purchases – by another USD10bn, split equally between Treasuries and MBS. Other than that, the announcement should be fairly uneventful. In India GS forecasts an out-of-consensus hike of the repo rate to 8.00% after the central bank published a report on suggested changes to the monetary policy framework. In New Zealand, South Africa, Israel, Mexico, Malaysia and Colombia, consensus expects no change in the monetary policy stance. Among economic data releases, the focus will be on consumer surveys, as well as business surveys (US, Germany and Italy). There are also inflation numbers from the US, Euro Area, Japan and Brazil. Advanced Q4 GDP data prints will come out for the US and the UK. US consumption and production numbers are due at the end of the week.
It’s Sri Lanka that is the next on the list for investors. The darling of Southeast Asia, the gem of the Indian Ocean is the one of the few that didn’t get dragged down by the downturn in the markets.
Following December's biggest-surge-in-4-years for UMich consumer confidence (though a miss), UMich data has fallen back to 80.4 - missing expectations by the biggest margin in 8 years. This is the 4th miss in the last 5 months as hope for moar multiple expansion begins to fade. Both current conditions and the outlook indices fell (for the first time sicne October). As UPS would says, confidence dropped because there was too much confidence...