In the US, retail sales are expected to continue to slow in the headline, while retail sales ex autos, building materials, and gas should turn positive in April according to Wall Street analysts. Goldman remains below consensus for Thursday's Philadelphia Fed survey, forecasting a slight improvement on the previous month. The firm also expects the flash reading for Euro area Q1 GDP to come in slightly below consensus, consistent with a shallow contraction. We forecast German GDP will turn positive in Q1 after Q4 2012's negative reading. In Japan, GS sees Q1 GDP at 2.8% qoq ann., slightly above consensus, with stronger consumer spending the main driver. Among the central bank meetings this week, Russia, Chile, and Indonesia are expected to remain on hold, in line with consensus.
The Bernanke Chicago speech became little more than a side show Friday. He did say the Fed was keeping a watchful eye on yield risk-taking given ZIRP. He’s a little late to that observation methinks.
There are a dozen significant economic indicators that are warning that the U.S. economy is heading into a recession. The Dow may have soared past the 15,000 mark, but the economic fundamentals are telling an entirely different story. If historical patterns hold up, the economy is heading for a very rocky stretch. But most average Americans are not that concerned with the performance of the stock market. They just want to be able to go to work, pay the bills and provide for their families. During the last recession, millions of Americans lost their jobs and millions of Americans lost their homes. If we have another major recession, that will happen again. Sadly, it appears that another major recession is quickly approaching. The following are 12 recession indicators that are flashing red...
In yet another example of the massive gap between the American people's perception of what is going on around them (whether by propaganda channels or simply cognitive bias) and the actual reality, Reuters reports that while gun-related homicides are down 39% from the 1993 peak, only 12% of people believe that gun crimes have fallen. Non-fatal firearm crimes declined by 69% to 467,300 in the same period but 56% of Americans believe that gun crime is higher now than it was 20 years ago, the Pew Research Center said its poll showed. The dichotomy between record food stamp usage (and non-employment) and multi-year highs in consumer sentiment comes to mind - we wonder which is more 'real'.
- Gold Bears Defy Rally as Goldman Closes Short Wager (BBG)
- Still stuck on central-bank life support (Reuters)
- Ebbing Inflation Means More Easy Money (BBG)
- So much for socialist wealth redistribution then? François Hollande to woo French business with tax cut (FT)
- Billionaires Flee Havens as Trillions Pursued Offshore (BBG)
- Companies Feel Pinch on Sales in Europe (WSJ)
- Brussels plan will ‘kill off’ money funds (FT)
- Danes as Most-Indebted in World Resist Credit (BBG)
- Syria says prime minister survives Damascus bomb attack (Reuters)
- Syria: Al-Qaeda's battle for control of Assad's chemical weapons plant (Telegraph)
- Nokia Betting on $20 Handset as It Loses Ground on IPhone (BBG)
- Rapid rise of chat apps slims texting cash cow for mobile groups (FT)
- Calgary bitcoin exchange fighting bank backlash in Canada (Calgary Herald)
Bulls are still in charge of markets despite the shallow 2 to 3% correction the previous week. The conundrum for most investors remains, where else are you to put your money despite obvious risks and deceptive conditions? The Fed is forcing people into stocks, period.
Succinctly summarizing the positive and negative news, data, and market events of the week...
Confused about the latest disconnect between reality and propaganda, this time affecting the (foreclosure-stuffed) housing "recovery" which has become the only upside that the bulls can point to when demonstrating the effectiveness of QE now that the latest attempt at economic recovery has failed miserably both in the US and globally? Gluskin Sheff's David Rosenberg is here to clear any confusion.
With stocks short-term oversold it certainly wasn’t much of a surprise that options expiration Friday could manipulate volume and performance. Da Boyz in the options pits (mostly electronic now) were hunting down strike prices to exercise existing options as they can. It’s a technical event with an outcome that surely can mislead Main Street.
Back in 2010, Goldman's Jan Hatzius, fresh on the heels of QE2, committed rookie Economist mistake 101, and mistook a centrally-planned market response to what then was a record liquidity infusion, for an improvement in the economy (a move we appropriately mocked at the time, as it was quite clear that the Fed's intervention meant the economy was getting worse not better). It took him about 4 months to realize the folly of his ways and realize no recovery for the US or anyone else was on the horizon. He then wised up for a couple of years until some time in December he did the very same mistake again, and once again jumped the shark, forecasting an improvement to the US economy in 2013, albeit in the second half (after all nobody want to predict an improvement in the immediate future: they will be proven wrong very soon) based on consumer strength when in reality the only "reaction function" was that of the market to the Fed's QE4 (or is it 5, and does it even matter any more?). Four months later we get this...
The last decade has seen significant changes in media and communication. In a world where there is an ever louder cacophony of news sources competing for our attention, any one particular story has to be communicated at a particularly high volume if it is to attract notice. UBS' Paul Donovan warns that this perhaps gives a tendency to sensationalism. For financial markets, Donovan notes, there is a risk that these changes in the world of media will impinge on the calm and reflective world of economics. Economists rely on sentiment data as a leading indicator for future economic trends. If individuals are overreacting to events relative to the past, however, sentiment may not be as useful as a barometer of future economic activity. In the US a certain economic hysteria seems to be developing, amongst consumers in particular (especially compared to Europe) and Donovan suggests investors would be wise to treat US sentiment data (particularly consumer sentiment data) with some caution as American investors appear to react more strongly to the underlying economic events.
While China's trifecta miss of GDP, Retail Sales and Industrial Production all coming lower than expected was likely a factor in the overnight rout of gold, the initial burst of selling started well before the Chinese data hit the tape, or as soon as Japan opened for trading with forced financial institution selling to prefund cash for any and all future JGB VaR-driven margin calls. It was all downhill from there, literally, with overnight selling of gold punctured by brief burst of targeted stop hunting, sending the metal down $116 per ounce, as spot touches $1385 after trading nearly at $1500 yesterday and down $200 in 4 days. End result, whether due to a re-collapsing global economy, margin calls, fears forced Cyprus gold selling will be imposed on all other insolvent European countries, coordinated central bank slams, hedge fund positioning, long unwinds, liquidations, fears about future demand, or whatever the usual selling suspects are, is that gold tumbles an unprecedented 7.8% on 230,000 contracts in one day, and well over 10% in two days, pushing the yellow metal 14 day RSI band to 18, meaning it is now most oversold since 1999. In brief, it is an all out panic, with Goldman still telling clients to sell, i.e., buying every shiny ounce all the way down (not to mention India, where accordingto UBS Friday demand was double the average).
Friday saw panic selling in gold as the metal broke $1,500 in a free-fall move. Is this a sign of “risk on” or something more sinister? Perhaps Cyprus is a major seller or there’s a large margin call somewhere. Some even assert some countries with debt problems are selling gold to raise capital to finance their country’s needs.
The week ahead is light on major market moving data releases. From a policy perspective and in light of the recent moves in treasuries, FOMC minutes are likely to be followed by markets. Retail sales in the US are likely to print below consensus both on the headline and on the core metrics. That said, this needs to be seen against the backdrop of first quarter retail consumer spending data surprising to the upside. Producer prices are also likely to come in on the soft side of market expectations. Finally, do not expect large surprises from the U of Michigan consumer confidence.
With every modestly positive datapoint being desperately clung to, now that even Goldman's Hatzius has once more thrown in the economic towel after proclaiming an economic renaissance in late 2012 just like he did in late 2010 only to issue a mea culpa a few months later (and just as we predicted - post coming up shortly), the key prerogative is to ignore the elephant in the room. That, of course, is that the JPY 1 quadrillion bond market had to be halted for the second day in a row as the Japanese capital markets are fast becoming a very big and sad joke. The resulting flight to safety from Japanese investors, who sense that their own bond market is on the verge of breaking down completely, has managed to send French and Belgian bonds to record lows, the Spanish 2 Year to sub 2%, the German 6 month bill negative in the primary market, the US 10/30 year constantly bid and so on. The immediate result is that the bond-equity disconnect continues to diverge until one day we may get negative 10 Year rates coupled with an all time high stock market. Gotta love the fake New Normal market, in which the Japanese penny stock market was up another 2.8% to well over 13,000 even as the Shanghai Composite plumbs ever redder territory for 2013 on fears the birdflu contagion will hurt the already struggling economy even more.