"We think the BOJ is most likely to ease mainly via the qualitative measure, with increasing ETF purchasing the central pillar, with a view to improving business confidence. We think the market is already factoring in an increase in annual purchasing from ¥3.3 tn to ¥5-6 tn, and we thus think the BOJ may look to slightly more than double its current figure to around ¥7 tn." - Goldman
Having surged to its highest since 2008 in February, Core CPI's YoY gain inched back from 2.3% to 2.2% YoY in March hovering at post-crisis highs. The food index declined in March, as did the cost of 'shelter' and medical care, but used cars and truck prices declined, as we noted previously.
While the market is still enjoying the post-NFP weekly data lull, economic data starts to pick up again in the coming days, alongside the start of the reporting season. Below are this week's key events.
Despite risk assets enjoying a few weeks in the sun our failsafe recession indicator has stopped flashing amber and turned to red. Newly released US whole economy profits data show a gut wrenching slump. Whole economy profits never normally fall this deeply without a recession unfolding. Historically all recessions are effectively caused by slumps in business investment driven by a profits downturn.
The longer the Fed perpetuates today’s massive 24X bubble with soporific open mouth interventions like Yellen’s pathetic speech last week, the more violent and traumatic the risk asset implosion will ultimately be. You would think our monetary politburo might at least notice that after trading in no man’s land between 1870 and 2130 on the S&P 500 for the past 700 days, the casino is positioned exactly where it stood in 2007 and 2000. Simple Janet has attained a new milestone as a public menace with her speech to the Economic Club of New York. It amounted to yelling “stay” in a burning theater!
While the February personal consumption expenditures (aka personal spending) - that all important data about the well-being of the US consumer - was in line with expectations rising 0.1%, it was the January revision that was striking. From a 0.5% increase reported a month ago, it was now revised to a paltry 0.1%. In nominal dollar terms, this means that instead of US consumer spending a whopping $67.5 billion more in January, the increase was a paltry $14.7 billion, a delta of $52.8 billion!
Simple Janet should have the decency to resign. The Fed’s craven decision last week to punt on interest rate normalization is not merely a reminder that she is clueless and gutless; we already knew that much. Given the overwhelming facts on the ground - 4.9% unemployment, 2.3% core CPI and a 23.7X PE multiple on the S&P 500 - her decision to “pause” after 87 months of ZIRP actually proves she is a blindfolded monetary arsonist - armed, dangerous and lost.
The FOMC used to say that a hike would be “good news” because it represented great confidence that economic conditions were so good. Now the Fed wants us to believe that their dovish stance is good news as well, because it means greater levels of accommodations. It is a stretch to believe that both can be true. Financial intermediation between savers and investors has hints of trouble due to negative rates. A news story yesterday said that Munich Re is experimenting with storing cash and gold. The time has come to end NIRP and ZIRP, and other forms of aggressive central bank experimentation and the dangerous consequences that come with them. It time they take a giant collective BURP, I mean BIRP (Basic Interest Rate Policy).
Following last month's inflation 'jolt' to the marketplace, Core CPI increased 2.3% YoY in Feb - the biggest jump since October 2008 (led by the biggest monthly surge in apparel prices since 2009). Bond & Stock markets are dropping in the news as it corners The Fed further into a hawkish stance, despite the recessionary warning signals screaming from the manufacturing (and increasingly Services) sector.
Coming at the same time as an inflationary report which showed Core CPI rising at 2.30%, or the highest rate since October 2008, and one which will put further pressure on the Fed to hike rates as shelter inflation is now simply too big to sweep under the rug, we also got February's housing starts and permits, which while painting a mixed picture of the US housing market suggested further strength in the US housing sector in the past month.
As noted yesterday morning, "Goldman does it again" when just hours after Goldman said the "bearish cash for iron ore was intact," the commodity recorded its biggest surge in history crushing anyone short, and soaring 20% across the globe. That however has not dented Goldman's conviction that the commodity rally is overdone (we actually agree with Goldman for once) and just hours ago the head of commodities at Goldman Jeffrey Currie doubled down on Goldman's bearish commodities call saying "market views on reflation, realignment and re-levering have driven a premature surge in commodity prices that we believe is not sustainable.
For those wondering whether we’ll be riding the short squeeze euphoria wave higher, Goldman’s answer is definitively “no.” In a note out this morning, the bank says short covering and positioning have fueled the bounce and that a sustained rebound is exceptionally unlikely until either valuations get significantly more attractive or inflation expectations stabilize.