It took a precisely 0.1 beat in the Chinese Manufacturing PMI over the weekend (50.8 vs Exp. 50.7) for the USDJPY and the Nikkei to forget all about last week's abysmal Japanese economic data and to send the Nikkei soaring by 2.1% to its highest print in 5 months. Subsequent overnight weakness from Europe, where the Eurozone Final May Manufacturing PMI dropped again from 52.5 to 52.2, below the 52.5 expected, served simply to push bunds higher back over 147.00, if not do much to US equities which as usual continue their low volume "the music is still playing" melt-up completely dislocated from all newsflow and fundamentals (because just like over the past 5 years, "there is hope").
Dispassionae look at the several events in the week ahead.
The interesting part is how the Econ Data and Central Bank events for the next three weeks all directly affect the next event, and how the market digests all these events as a whole.
As the U.S. Greater Depression progresses, depicted most vividly in the collapse in the “civilian participation rate” (the number of people working in the economy) and the “velocity of money” (the heartbeat of the economy) - indicating an economy which is not merely in decline, but rather is being sucked downward in a terminal (and accelerating) death-spiral. There is another even more concerning statistic: U.S. “gasoline consumption” – as measured by the U.S. EIA itself – has plummeted by nearly 75%, from its all-time peak in July of 1998. A near-75% collapse in U.S. gasoline consumption has occurred in little more than 15 years... "recovery"
Equity Blow Off Top Takes Brief Overnight Rest, Prepares For Another Session Of Low Volume LevitationSubmitted by Tyler Durden on 05/30/2014 07:03 -0400
Last night's docket of atrocious Japanese economic data inexplicably managed to push the Nikkei lower, not because the data was ugly but because the scorching inflation - the highest since 1991 - mostly driven by import costs, food and energy as a result of a weak yen, and certainly not in wages, has pushed back most banks' estimates of additional QE to late 2014 if not 2015 which is as we predicted would happen over a year ago. As a result the market, addicted to central bank liquidity, has had to make a modest reassessment of just how much disconnected from reality it is willing to push equities relative to expectations of central bank balance sheet growth. However, now that the night crew trading the USDJPY is replaced with the US session algo shift which does a great job of re-levitating the pair, and with it bringing the S&P 500 higher, we expect this brief flicker of red futures currently observable on trading terminals to be promptly replaced with the friendly, well-known and "confidence-boosting" green. The same goes for Treasurys which lately have been tracking every directional move in stocks not in yield but in price.
Following last night's record plunge in Japanese retail sales, tonight was another slew of crushingly bad data for Abe and his motley crew of money printers to reflect on. First Household Spending cratered 4.6% YoY - its biggest drop since the Tsunami (and markedly worse than expectations which were bad enough due to the tax hike repurcussions). Then, Industrial Production tumbled 2.5% MoM - its biggest drop since the Tsunami (considerably worse than the 2.0% drop expected and the slowest YoY growth in 8 months). While this would typically be the kind of bad news that is great news for QQE-hopers, it was disastrously capped by a surge in Japanese CPI (well above BoJ target 2% levels) crushing moar-easing hopes as Barclays see no further easing in 2014 (and even Goldman pushes any hope off til October at the earliest).
With much hotter CPI & PPI reports the last two months, we anticipate the May reports before Fed's June meeting to be on the high side, and that the Fed will probably have to address these new inflation pressures....
The melt up is accelerating and with the momentum tailwind back, newsflow is once again irrelevant: any news that are even remotely good are trumpeted, and any bad news - such as Europe's right storm rising in the northern states, and left storm surge in the states that demand more handouts from the northern states or China sinking a Vietnamese boat, the most serious bilateral incident since 2007 - are once again (and as usual) nothing more than a catalyst for even more liquidity injections. End result: the S&P futures this morning are 5 points above Goldman's year end target of 1900 and 45 points away from its June 30, 2015 target. Can this breakneck scramble on zero volume continue until Grantham's bubble peak level of 2,200 is hit? Well of course: after all anything goes in the centrally-planned new normal. To be sure, this is an equity only phenomenon: moments ago the Bund future hit its highest level since May 19, while the 10 Year remains unchanged at 2.53% as it continues to price in the new "deflationary" (and Japanese) normal. And as has been the case during all such divergences of late, either bonds or equities are making a horrible mistake: the question remains: who? Since all equities are doing is tracking FX pairs to the pip and have completely forgotten all about fundamentals, we have a pretty good idea what the answer is.
soaring food prices are not only already here but are set to surge even more, especially for those who rather eat real meat than mystery meat dispensed with largesse at your favorite $0.99 fast food. So what are food processors to do facing soaring meat input costs and unwilling to suffer bottom line hits? Why, return to that old staple of unknown origin of course.
Here comes Pink Slime... again.
A dispassionate look at the week ahead.
The near-term outlook for the US dollar appears to be improving. Here is why.
So long as inflation stays under four percent, it's a bullish factor. In such environments, the S&P 500 (since 1948, according to S&P's Capital IQ) increases on average 70 basis points per month.
If you believe that the U.S. economy is heading in the right direction, you really need to read this article. As we look toward the second half of 2014, there are economic red flags all over the place.
Equity markets are not happy about the Fed's Charles Plosser's economic exuberance ("3% growth no matter the weather" which is 20% above consensus of 2.5%) and his 'good-news-bad-news' monetary policy hawkishness ("may need to raise rates sooner rather than later"). But perhaps the most crucial part of his speech this morning was what the headlines notably left out. Plosser admonished his global central bank brethren: "if central banks do not limit their interventionist strategies and focus on returning to more normal policymaking aimed at promoting price stability and long-term growth, then they will simply encourage the financial markets to ignore fundamentals and to focus instead on the next actions of the central bank." Simply put, he warned, "central bankers have become too sensitive and desirous of managing prices in the financial world.."
Not much going on tonight, except for the non-coupy martial law announcement in Thailand where the government is said to still be in charge of everything except for martial law decisions taken by the army of course, which in turn is in charge of everything else apparently including the central bank which intervened so extensively in the market, the Baht was barely changed at one point. There was also news of explosions and clashes in Benghazi but as everyone knows, what difference does Libya make at this, or any other, point. Additionally overnight there were reports that the cities of Slavyansk and Kramatorsk in east Ukraine were being shelled by the Ukraine army but that too barely registered as bullish for the USDJPY (which in now traditional fashion ramped during the US day session then sold off during Asia hours).