Just six weeks after the US Treasury decided enough-was-enough with this upstart non-fiat, non-controlled-by-TPTB currency (and applied money-laundering reglations), US financial regulators are now looking for supervisory control over Bitcoin. As The FT reports, CFTC's Bart Chilton notes "it's not monopoly money - real people have real risk in these instruments," and that regulating the controversial cyber-currency "is sure something [CFTC] needs to explore." Chilton's remit to regulate this "shadow currency" is predicated on it becoming a basis for derivative contracts as opposed to purely transactional (akin to the monitoring of physical oil transactions that can influence crude futures.) Since the Treasury's March decision, at least three North American companies have had their accounts seized by the banks but while this attempt to control the virtual currency follows the ECB's 'ponzi attack' last year, the 'regulators' may note that, "even if US regulations make it hard for Bitcoin businesses to operate in the US, that doesn’t mean it will make it difficult for people to use Bitcoin as a currency in the US. Bitcoin is a world currency."
On the third year anniversary of the flash crash, and in a week in which earnings season unwinds and in which there is very little macro news, the bulk of the newsflow happened overnight, starting with a drop in the Chinese Service PMI, which tumbled from 54.3 to 51.1, the lowest in two years, then we got Australian retail sales which dropped -0.1% on expectations of 0.4% gain, indicating that the Chinese slowdown is dragging down the entire Asia-Pac region further. Afterwards, we got a barrage of European non-manufacturing PMI data starting with Spain, at 44.4, down from 45.3, the lowest since December (although one wonder if Spain has finally opened a branch of the BLS, reporting that unemployment actually dipped by 46.1k, on expectations of just a 2k decline, and down from 5k the prior month: how curious the timing of the "end of austerity" and the immediate "improvement" in the economy), then Italy Service PMI printing at 47.0, up from 45.5, on expectations of a 45.8 print, the highest since August 2011, French Services PMI rising modestly from 44.1 to 44.3, Germany's up from 49.2 to 49.6, on expectations of an unchanged print, all of which leading to a combined Eurozone PMI at 47.0, up from 46.6, and beating expectations of a 46.6 print.
While everyone's attention this morning will be focused on the sheer, seasonally-adjusted noise that is the monthly NFP report (keep in mind that any number +/- 200,000 of the actual, is entirely in the seasonal adjustments and is thus entirely in the eye of the Arima X 13 beholder), which is expected to print at 140,000, resulting in an unemployment rate of 7.6%, there were some events overnight worth noting. First, the China non-manufacturing PMI printed at 54.5 in April, down from 55.6, and tied with the lowest such print in two years. The biggest red flag was that New Orders dropped below 50, with the price index also declining sharply, indicating that either the Chinese slowdown is for real, and the national bank will have no choice but to ease unleashing inflation, or that the politburo wishes to telegraph to the world that China is slowing, because what goes on in China, and what data is released out of China are never the same thing. Elsewhere, in Europe Mario Draghi's henchmen were stuck in damage control mode, and Ewald Nowotny said markets over-interpreted a signal yesterday that the ECB would consider a deposit rate below zero. Policy makers have “no plan in this direction,” Nowotny said in an interview with CNBC today. This helped boost the EUR from its languishing levels in the mid 1.30s higher by some 50 pips following his statement.
Another POMO, another dip bought, another all-time high in the S&P 500 but we are sure there is some disappointment that the '1600' caps have to go back in the closet for one more day. The S&P's best day in over a week was greeted with an almost perfect 'unchanged' for Treasuries and while stocks went out near their highs, Treasuries closed at the low yields of the day (2-3bps lower than the highs). Of course, the 'most shorted' names were smashed higher (at the open and at 1515ET) providing today's ammo. The USD started weak but Draghi's -ve rates comment sparked a USD surge (up 0.3% on the week) but stocks didn't care. WTI jumped back above $94 with its best day in six months (though little talk from the 'heads' of the removal of the implicit tax?). Gold and Silver also jumped (as did Copper) all ending the day up around 0.75%. Homebuilders banged over 2% higher on the day (as Lumber was limit down at 5 month lows) and while the Dow and S&P closed the previous all-time high, the Trannies remain -1.4% from Tuesday's close.
The Government – Which Has Taken Away Our Liberties and Destroyed Our Prosperity to Fight An Endless War On Terror – Has Been Arming, Funding and Otherwise Backing the Very Terrorists Who Are Carrying Out Most of the Attacks
Mission Accomplished it would seem. Initial claims printed at its lowest since January 2008 at 324k. This is well below expectations of 345k - the biggest beat since September 2011. California and New York dominated the data with over 70,000 claims between them (though both dropped from last week). Michigan added the most from last month's rolls with 'educational service indutrsy' job losses affecting MA, CT, and RI. Emergency Unemployment Claims appears to have shaken off its statistical aberration of 2013 and is down a modest 12k this week.
A month ago we highlighted the somewhat stunning reality of the real economy via the EIA's detailed energy supply and demand data. The key takeaway was that we hoped this did not represent the true state of the economy since the data was so dismal. Fast forward to today and the DOE just released a much higher than expected build in crude inventories that took the stuffed-channel of oil products to all-time highs. The 395.3 million barrels is higher than the previous record in July 1990. There appears to be a number of factors at play - none of which are positive. There is a surge in supply due to the incessant harvesting of shale oil (which could have its own problems as we noted here). Second, we suspect there is a degree of 'channel-stuffing' occurring - if we pump it, they will buy - as producers and transporters are desperate to keep active and show incremental business (despite fading railcar loadings). But perhaps most important, as EIA data has shown, there has been a collapse in end demand for crude products not seen since the 1990s. Today's surge in inventories appears to confirm demand remains subdued at best.
One of the New Normal responses to allegations, first started here in 2009 and subsequently everywhere, that all HFT does is to frontrun traditional market players (among many other evils) now that its conventional and flawed defense that it "provides liquidity" lies dead and buried, is that "everyone does it" so you must acquit because how can you possibly prosecute a technology that accounts for over 60% of all market volume and where if you throw one person in jail you would throw everyone in jail. Today we learn that this indeed may be the case, and not only at the traditional locus of HFT frontrunning such as conventional exchanges for stocks such as the NYSE or even dark pools, but at the heart of the biggest futures exchange in the US, the CME where as the WSJ's Scott Patterson explains frontrunning by HFT algos is not only a way of life, but is perfectly accepted and even smiled upon.
While it is the labor day holiday in most of the world, and as a result volumes will be more subdued than ever (meaning at least a 10 point algorithmic levitation on no volume for the S&P), let's not forget that Benny and the Inkjets are doing their best to make everyone into a professional day trader (the only "wealth effect" transmission mechanism left) so markets being open seems somewhat counterproductive. That said, futures are already up on the usual atrocious economic data out of Asia this time. First China's official manufacturing PMI slipped 0.3pt to 50.6, coming below expectations, suggesting weak momentum going into Q2. Meanwhile, Korea trade data indicated weaker momentum in exports than expected, rising 0.4% on expectations of a 2% bounce courtesy of Abenomics, and hence a lower trade surplus, while inflation defied median expectations of a rise and slowed yet further. Finally, Australia PMI was an absolute disaster printing even worse than the Chicago PMI, plunging from 44.4 to 36.7, meaning that the RBA is about to join the global "reflation effort." Given that most markets in Asia are closed today, there is no market reaction worth mentioning, aside from the fact that the yen which was logically weaker overnight then ramped up into the European open and US pre-trading as it is, after all, the primary source of "beta" for the global stock markets. Finally, while some are dreading the start of "sell in May and go away" season, what most have forgotten is that never before has May been accompanied by $160 billion per month in central bank de novo liquidity (a number which will only go up- you know, for the wealth effect). Which is why our redefinition of this infamous phrase is "buy in May and buy every day."
The weakness in economic data (not to be confused with the centrally-planned anachronism known as the "markets") started overnight when despite a surge in Japanese consumer spending (up 5.2% on expectations of 1.6%, the most in nine years) by those with access to the stock market and mostly of the "richer" variety, did not quite jive with a miss in retail sales, which actually missed estimates of dropping "only" -0.8%, instead declining -1.4%. As the FT reported what we said five months ago, "Four-fifths of Japanese households have never held any securities, and 88 per cent have never invested in a mutual fund, according to a survey last year by the Japan Securities Dealers Association." In other words any transient strength will be on the back of the Japanese "1%" - those where the "wealth effect" has had an impact and whose stock gains have offset the impact of non-core inflation. In other words, once the Yen's impact on the Nikkei225 tapers off (which means the USDJPY stops soaring), that will be it for even the transitory effects of Abenomics. Confirming this was Japanese Industrial production which also missed, rising by only 0.2%, on expectations of a 0.4% increase. But the biggest news of the night was European inflation data: the April Eurozone CPI reading at 1.2% on expectations of a 1.6% number, and down from 1.7%, which has now pretty much convinced all the analysts that a 25 bps cut in the ECB refi rate, if not deposit, is now merely a formality and will be announced following a unanimous decision.
With China and Japan markets closed overnight, activity has been just above zero especially in the critical USDJPY carry, so it was up to Europe to provide this morning's opening salvo. Which naturally meant to ignore the traditionally ugly European economic news such as the April Eurozone Economic Confidence which tumbled from a revised 90.1 to 88.6, missing expectations of 89.3, coupled with a miss in the Business Climate Indicator (-0.93, vs Exp. -0.91), Industrial Confidence (-13.8, Exp. -13.5), and Services Confidence (-11.1, Exp. -7.1), or that the Euroarea household savings rates dropped to a record low 12.2%, as Europeans and Americans race who can be completely savings free first, and focus on what has already been largely priced in such as the new pseudo-technocrat coalition government led by Letta. The result of the latter was a €6 billion 5 and 10 year bond auction in Italy, pricing at 2.84% and 3.94% respectively, both coming in the lowest since October 2010. More frightening is that the Italian 10 year is now just 60 bps away from its all time lows as the ongoing central bank liquidity tsunami lifts all yielding pieces of paper, and the global carry trade goes more ballistic than ever.
Overview of the price action in foreign exchange and outlook for the week ahead.
For the fifth week in a row, US Macro data deteriorated markedly (not helped at all by today's GDP miss). The Q1 earnings picture is dismal, with beats far less than average and revenues hugely disappointing. But, in light of all that reality, where-ever you look, screens are green. Despite some softness today (oil, S&P, and Nasdaq down) the week showed impressive gains for equities amid the lowest volume week in three months (mostly driven by the epic short squeeze on Tuesday), modest gains for Treasuries (yields lower by 2-4bps), significant outperformance by precious metals (up over 3-4% on the week - having given some back in a post-Europe smackdown today), and WTI crude up over 5% on the week. Perhaps the most notable fact about the week (apart from equity's inexorable bid in the face of nothing positive at all) was the surge in JPY. In an Abenomics-shattering print, last night's deflation data helped USDJPY rally its most in 11 months for the week. While all asunder will be celebrating another green week, it is perhaps worth noting that while the Russell gained 1.3% from Monday's close, the 'most-shorted' names of that index more than tripled that performance - gaining 4.4% on the week... squeeeeze.
Some call it the “holy rail.” In Alberta Canada, an estimated 120,000 barrels of oil per day are shipped out by train to the U.S. east coast and Gulf coast region. By the end of the year - when several terminals are completed - that number could reach 200,000 barrels a day. Despite rail costs doubling pipeline tariffs, the logistics have often been worth the time for producers - those that have been able to get a better price railing it past the mid-continent refineries all the way to the US East Coast and Gulf Coast. But just as Canadian rail use is set to soar again, say analysts - rail may no longer be economic. In fact, rail could be a victim of its own success.
The tension to "liberate" Syria is palpable. It took just 24 hours for the US to do an about face on its position on Syria, where yesterday, as Bloomberg reported, "U.S. officials said they haven’t seen conclusive evidence supporting an assertion by Israel’s top military intelligence analyst that Syrian government forces have used chemical weapons against rebels. Secretary of State John Kerry and spokesmen from the White House and the Pentagon said investigations haven’t produced hard proof that Bashar al-Assad’s regime has used toxic chemicals -- a step that President Barack Obama has said would cross a “red line." Fast forward to today, and we get pretty much the opposite opposite: "The United States believes with varying degrees of confidence that Syria's regime has used chemical weapons on a small scale, the White House said on Thursday."