Today's second most important event is the testimony of Bernanke before the House Financial Services Committee (yes, Maxine Waters will be there). Lawmakers will question him about the Fed's plans on avoiding inflation and the current unemployment rate. Committee members are also expected to inquiry about fiscal policy, the status of the nation's economic recovery, the impact of rising gas prices, and the debt crisis in Europe. Most importantly, Benny will be asked to testify on when more QEasing is coming as the markets need their fix. Watch it live at C-Span after the jump.
"It Is completely ironic that we would be experiencing one of the most powerful cyclical upswings in the stock market since the recession ended at a time when we are clearly coming off the poorest quarter for earnings... There is this pervasive view that the U.S. economy is in better shape because a 2.2% sliver of GDP called the housing market is showing nascent signs of recovery. What about the 70% called the consumer?...Let's keep in mind that the jump in crude prices has occurred even with the Saudis producing at its fastest clip in 30 years - underscoring how tight the backdrop is... Throw in rising gasoline prices and real incomes are in a squeeze, and there is precious little room for the personal savings rate to decline from current low levels." - David Rosenberg
Bunch of irrelevant and reflexive (stock market is up so confidence - in what? manipulated markets? - is higher, so stock market is up so confidence is higher etc) stuff today, as the world central banks prepare to pump another $600-$1000 billion into the consolidated balance sheet and send input costs into the stratosphere. Somehow this is bullish for stocks. Luckily, it will finally break the EURUSD - ES linkage.
The week ahead is fairly light on big ticket data releases, but what is released will provide more evidence of the strength of global activity. The most important of these will be the flash PMIs for China and the Euro area and the German IFO reading . There is no consensus expectation for the China print, however the Euro area indices are both expected to rise slightly, as is the German IFO. In terms of cyclical hard data, Taiwan export orders and IP for Singapore and Taiwan, Euro area industrial orders and trade data from Japan and Thailand will be notable. Admittedly the data from Asia is likely to be complicated by Chinese New Year which fell in the third week of January, and presumably this is why the consensus expects such a sharp drop in Taiwan IP, however the data are still worth watching for indications of the strength in global activity. Generally, consensus expectations for these prints are not particularly encouraging and any 'beats' would be a positive surprise. It goes without saying that ongoing negotiations towards signing off on Greece's second package will also remain on the radar screen. As we write, Reuters has posted suggestions that the debt swap will be open by March 8 and complete by March 11.
Last week, there were relatively few US data releases, but Initial Jobless Claims continued to surprise on the positive side, while U of Michigan Consumer Sentiment saw a small decline. This week, the FOMC minutes on Wednesday with guidance on the Fed's balance sheet will be the key event. Aside from the Fed, there will be many key releases in the US with IP, CPI, and the regional business surveys. The market expects an increase of 0.6%mom in IP, 0.3%mom in CPI, and small gains in the surveys. ?In Greece, negative headlines over the new austerity package on Friday caused some reversal of the rally in the first part of the week, and as a result, we were stopped out of our short $/CAD recommendation (for a small potential gain). However, the Greek cabinet agreed on the new austerity measures late on Friday, and parliament appears to be on track for a positive vote. The Eurogroup meeting scheduled this coming week will be important to watch as well, and Greek GDP will give a sense of the cyclical damage caused by austerity.
Our bullish premise rests on Greece being fixed.
In contrast with better news from macro data, the negotiations about the next Greek package intensified and this will likely remain the key focus in the upcoming week. On one hand, the present value reduction in a PSI has still not been formally agreed. On the other, the Greek Government still has to commit to more reforms in order for the Troika to agree to a new program. A key deadline for this commitment is on Monday at 11am local time in Athens. Eurogroup President Juncker has talked openly about the possibility of a default on Saturday in the German weekly Der Spiegel. Beyond the ongoing focus on Greece, the week sees a relatively heavy concentration in central bank meetings, including the RBA, ECB, BOE, Poland, Indonesia and a few others. On the data side, the focus is likely on the December IP numbers due in a number of countries, including in some key Eurozone countries (Germany, Italy, France).
Federal Reserve Board Chairman Ben Bernanke will testify at House Budget Committee (Chairman Paul Ryan, R-WI) full committee hearing on "The State of the U.S. Economy." The highlight of today's hearing will be watching Bernanke face his nemesis runner up, Paul Ryan, who will surely grill Blackhawk Ben with questions that are far more intelligent than the press corps could come up with during the last FOMC canned remark presentation. Watch the full testimony live at C-Span after the jump.
Irrelevant ADP Report Gyrates Epileptically, Misses Expectations, Sees 9,000 Financial Jobs Added In JanuarySubmitted by Tyler Durden on 02/01/2012 08:27 -0500
The highly irrelevant economic noise that is the ADP private payrolls indicator has come in form the month of January, and printed at nearly half of the December number of 325K, which was revised lower to 292K, at 170K, on expectations of 182K. We should be the last to tell readers that anything this unbearably noisy series says is beyond meaningless, but since someone follows it, it bears noting that this was the weakest number since October 2011. Furthermore, with the NFP virtually guaranteed to be a miss for a variety of reasons, this is merely the latest confirmation that economist expectations of the economic recovery ramping up, were short sighted - after all the Chairman has an agenda. Yet what makes this report a total mockery is that in the month in which banks, and the FIRE industry in general, was firing left and right, ADP saw 9K people in financial services added to private payrolls. Ironically the financial jobs "added" were almost as many as the manufacturing jobs, at +10K in January. Who says America is not a manufacturing juggernaut and only exports weapons of financial mass destruction?
Today we get the first look at where GDP closed 2011.
Brevan Howard Made Money In 2011 Betting On Market Stupidity, Sees "Substantial Dislocation" In 2012Submitted by Tyler Durden on 01/24/2012 23:53 -0500
While Paulson's star was finally setting in 2011, that of mega macro fund Brevan Howard was rising, and has been rising for years by never posting a negative return since 2003. The $34.2 billion fund, now about double the size of John Paulson's, returned 12.12% in a year marked by abysmal hedge fund performance. But how did it make money? Simple - by taking advantage of the same permabullish market myopia that marked the beginning of 2011, and that has gripped the market once again. "The Fund’s large gains during the third quarter were due predominantly to pressing the thematic view that markets were ignoring clear signs of economic slowdown and were not correctly pricing the probability of central bank accommodation, particularly the reversal of the ECB rate hikes in April and July." Not to mention the €800 billion ECB liquidity accommodation that started in July and has continued since. So yes: those betting again that the market correction is overdue, will once again be proven right Why? Because "we are about to witness an unprecedented policy move. In the US, Eurozone and UK, fiscal austerity is being prescribed as the cure following the bursting of the credit bubble and to overcome the malaise following a balance-sheet recession. Unfortunately, there is no historical example of when this approach has been successful." As for looking into the future, "we continue to believe that markets remain at risk of substantial dislocation."
Hope is soaring. But the toughest creature out there, the one no one has been able to subdue yet, has other plans.
"Not many market participants will lament the passing of 2011" is how Goldman starts a brief note today looking back at a year full of adverse shocks in order to judge the year-ahead's potential to destroy forecaster's perspectives. The 'shocks' as well as the known unknowns are summarized effectively as the experience of 2011 suggests that the global economy remains at a delicate juncture as we head into 2012. They note that by definition, shocks are unpredictable. But slowing growth (and in places outright contraction), public sector cuts, and a renegotiation of the social compact between state and society in different parts of the world is an environment ripe for political turmoil, and this may well be a source of more shocks as the year progresses.
Quick summary of the week's main bullish and bearish headlines (as to the data behind the headlines, that's another matter)