Peripheral stock indices continued to outperform today, as market participants reacted to yet another reiteration of support for ECB’s pledge to do all necessary to defend the Eurozone. As a result, banks in Europe are trading up with decent gains, with health care sector in the red given its traditional appeal as a safe-haven investment. German DAX continues to consolidate above the key 7000 mark, being driven higher by Daimler and Deutsche Bank. Looking at other asset classes, there is visible outperformance in the short-end of the curve, with the in-focus Spanish 2s tighter by around 20bps mark. The ongoing speculation of an intervention in the bond market also weighed on the German Bund, which underperformed its US counterpart. USTs come off overnight highs to trade little changed, with the move attributed to deal related selling. In the FX market, the EUR continued to re-price risks surrounding what is inevitable an unlikely scenario of a Eurozone break up. To the upside, resistance levels are seen at the 55DMA line at 1.2395 and then at 1.2400, which is also an intraday option expiry for the session.
- 'Pussy Riot' band members found guilty (Al Jazeera)
- Merkel Says Germany Backs Draghi’s ECB Aid Conditionality (Bloomberg)
- Now, the reverse psychology: Hilsenrath: Fed 'Hawks' Weigh In Against More Action (WSJ)
- London Firings Seen Surging As Finance Firms Add NY Jobs (Bloomberg)
- Facebook Second-Worst IPO Performer After Share Lock-Up (Bloomberg)
- Kocherlakota Says FOMC Goes Too Far With 2014 Rate Pledge (Bloomberg)
- China Said to Order Action by Banks as Developer Loans Sour (Bloomberg)
- Australian Treasury Dismisses AUD Intervention Calls (Dow Jones)
- Brevan Howard Loses Third Founder As Rokos Said To Leave (Bloomberg)
- Japan eyes end to decades long deflation (Reuters)... for 30 years now
- Ex-Morgan Stanley Executive Gets Nine Months in China Case (Bloomberg)
Margin Hiker-In-Chief Awakes: White House "Dusting Off" Plans For Strategic Petroleum Reserve ReleaseSubmitted by Tyler Durden on 08/16/2012 13:34 -0500
It must be election season because moment ago Reuters just reported that the White House is "dusting off old plans on a potential SPR release as prices rise" according to a source with knowledge of the situation. This too, just like the earlier Corzine news, should not be a surprise. Obama made it expressly clear that with the election fast approaching, he would either force the CME to hike margins, which is also coming, or would proceed with the far dumber step of an SPR release, just so China can full up its own strategic release faster and at a lower cost. The spun version, of course, has to do with Iran, and the fear of "undermining" Iran sanction success. The same sanctions which the US granted key Iran client China a compliance waiver...
Between a weaker EUR and Middle-East tensions, Europe faces a very significant (and real) drag on its economic performance. Forget the 'grow our way out of it' or 'believe-me' memes, the crude reality (that we warned about last week) is that the cost of buying spot Brent Crude in Euros is very close to record highs, above 2008 highs and most worryingly, has seen the biggest rise on record in the last two months. For those wondering what the trade-off is to Mario Monti's pointless blustering and scorched-earth hostage tactics at the June 29 Summit, just look at the 'Total' line item, the next time you gas up.
The World Gold Council released its quarterly report today, Q2 2012 Gold Demand Trends Report and can be read in full on the World Gold Council website here. Accumulation of gold bullion from central banks was the bright spot in demand last quarter, as total demand fell 7% globally, which was driven by a 38% fall in consumer demand from India. Price sensitive Indians have been shunning gold and many have been opting for far cheaper poor man’s gold – silver. Jewellery and investment demand both fell. Jewellery consumption was down 72.3 tonnes at 418.3 tonnes, while investment fell 88.3 tonnes to 302 tonnes. The report shows how while record levels of demand from western markets, China and particularly India have been followed by a decline – the seismic shift that is central banks going from being bet sellers to net buyers has provided a new fundamental pillar of support for the gold market. Physical demand slowed down in western markets and especially in India in recent months but large buyers continue to accumulate - both hedge funds and central banks and this is providing fundamental support to gold above the $1500 to $1,600/oz level. 2Q total central bank gold purchases were double the level reported a year ago as emerging market sovereign nations sought to diversify away from the dollar and euro and heightened economic insecurity. Gold purchases among central banks hit its highest quarterly levels (157.5 metric tons) since the sector became a net buyer of the yellow metal in 2Q 2009.
European equities opened higher, risk appetite boosted following overnight comments from Chinese Premier Wen that easing inflation in China left more room for monetary stimulus. However, summer thin volumes saw these gains pared, with particular underperformance in the FTSE 100, which currently trades in negative territory, despite stronger than expected UK retail sales for July. European CPI data for July was in line with market expectations, with no reaction seen across the asset classes following the release. Elsewhere, reports that Spain is to accelerate the bank bailout and is about to receive an emergency disbursement from the EUR 100bln bailout failed to support domestic bond market; the Spanish 2-year spread with respect to the German equivalent trading 6bps wider, though the Spanish 10-year spread is tighter on the day by 3.2bps and the 10-year yield is lower on the day, currently at 6.852%. The Spanish IBEX is outperforming on the back of this news, led by Bankia and Banco Santander.
Expect much higher volumes on Thursday, Aug. 16, with some key levels tested in some pivotal markets.
Paint is drying, so what is the best way to break the monotony? Why with renewed Iran war speculation of course. Sure enough, here comes Saudi Arabia to the rescue. From Reuters: "Saudi Arabia has ordered its citizens to leave Lebanon “immediately”, the state news agency reported in an SMS alert on Wednesday. “The Saudi Arabian embassy in Lebanon calls all Saudi citizens to leave Lebanon immediately,” the alert said, without elaborating." Making an imminent Iran attack far less likely, however, is an article in Bloomberg titled "Israel Plans Iran Strike; Citizens Say Government Serious." Of course anyone expecting Israel to launch a strike with every paper in the world blasting the above title as a headline may as well buy some Las Vegas 10,000 square foot haciendas because housing has "bottomed." For now however Brent is leaning on the side of caution, and is back to all time highs in EUR terms.
And The Downtrend Returns: Inflation Disappoints As Empire Manufacturing Posts First Sub-Zero Print Since October 2011Submitted by Tyler Durden on 08/15/2012 07:44 -0500
The X-12/13-ARIMA seasonal adjustments on today's data were not quite up to snuff as both the CPI, printing at 0.0% (or 1.4% Y/Y) on expectations of 0.2%, the biggest CPI miss since January and the Empire Manufacturing index, at -5.85 on expectations of a +7.00 print, posting the biggest miss in 14 months. Notably, the number of employees declined in August from 18.52 to 16.47, while margins got crushed as Priced Paid soared from 7.41 to 16.47 as Prices Received slide from 3.70 to 2.35. And so baffle with bullshit returns, as following several weeks of better than expected, if largely seasonally adjusted, the speculation that NEW QE may be coming back is here again. In other words, yesterdays scorching retail data was good, but today's horrible NY manufacturing miss is better. At least to the complete idiocy that the market, and its "discounting mechanism" have become. Sure enough both EURUSD and gold spike on the weak news as the ghost of Bernanke's printing press is back in the room. Finally, how CPI could be unchanged when crude alone posted a 20% increase in July, and gas prices are back to doing their vertical thing, will always remain a mystery.
The European morning session has been fairly quiet, with European equities opening lower following over night reports from China that the People's Bank of China might buy back government debt in the secondary market making the much speculated reserve ratio requirement cut it less likely. With several market closures across the Euro-area thanks to the Assumption of Mary holiday, volumes have been particularly light, and with a distinct lack of European data, market focus was on the release of the Bank of England's minutes for the August rate decision. As expected, the MPC voted unanimously to keep the APF unchanged at GBP 375bln and the benchmark rate unchanged at 0.50%, though some MPC members noted there was a good case for further expansion of QE. The better than expected UK jobs report also helped strength GBP.
As was seen in Iraq, it is the people who suffer most from sanctions and economic and civil war and the Syrian people are indeed facing increasing hardships. Hunger is a problem that is growing more acute by the day. As the prices of what little food is available soar, there are increasing signs of desperation among parents seeking to feed families. Prices of fuel and medicine have also soared amid shortages compounding the misery of Syrians and leading to another humanitarian crisis. Professor Nouriel Roubini and other financial experts have pointed out that “you cannot eat gold.” However, people in nations suffering from currency and economic wars can testify as to how they can use gold in order to buy food, fuel and medicine for their families in difficult times. To wit, Syrian President Bashar Al-Assad announced measures facilitating imports of gold bullion coins and bars. Gold bullion imports no longer require a special permit and travellers are allowed to bring gold bullion coins and bars with them into the country, the decree said. Gold is, as it has done throughout history, protecting them and their families from the ravages of currency devaluation and economic collapse.
European equities are trading flat to minor positive territory at the North American crossover having pared losses made following the weaker than expected Japanese Q2 preliminary GDP and reports from Chinese press that China's RRR cut might have been postponed as the People's Bank of China's reverse repo activity still satisfies liquidity needs. Elsewhere, Bank of America cut China's growth forecast from 7.7% to 8.0% for the year, commenting that the country's ability for monetary easing was constrained by house prices. Volumes have been particularly thin, however, and as there is no economic data scheduled for release from the US, it is likely to stay that way. Greek Q2 advanced GDP surprised markets, contracting at a slower pace year-over-year than Q1 and than was expected, boosting risk appetite across the board. As such, Spanish and Italian spreads are seen tighter by 12.6bps and 9.1bps respectively, with the Spanish 10-year yield holding below the key 7% and the Italian's under 6% despite the Italian government debt coming in at a record high of EUR 1972.9bln.
Two years ago, in August of 2010, Ben Bernanke pre-announced QE2 at the annual Jackson Hole economic policy symposium. What followed was a 20% spike in the stock market as the impact of another liquidity deluge was digested by the market, leading to such luminaries as Tepper to make his first ever TV appearance telling everyone he was "balls to the wall" long. The QE effect came and went, and Tepper made money, and then lost it, as QE2 was followed by Twist, and then by more easing out of Europe, including a global coordinated intervention. This year, as the US and global economies have been floundering, the Fed has so far disappointed, and despite a "mere" continuation of Twist, has so far refused to implement the same bazooka measure that it did 2 years ago, no doubt well aware that doing so would merely confirm that every successive intervention has less of an impact, and last about half as long as each previous one (as we demonstrated over the weekend). The market, however, like the honey badger, does not care: and with stocks trading just shy of 2012 highs, and with Crude having soared by 20% since July, and with Brent at 3 month highs, is very much convinced that the imminent Jackson Hole symposium of 2012 will be a repeat of 2010, and Bernanke will announce something (and if not, there is always September, and if the disappoints then there is October, and December - in a world addicted to Fed liquidity the only thing that matters is when is the next fix). So what happened in the last run up to the 2010 Jackson Hole meeting? Here is a visual and factual summary.
After declining to an overnight session low of 1.2260 following very disappointing Japanese GDP news, which saw another Q/Q drop in nominal terms and missed every economist expectation, the market leading indicator - the highly leveraged EURUSD pair which is a proxy for risk when it is rising, and ignored when dropping (because the ECB will lower rates, or so thinking goes) was boosted higher starting at 5 am eastern time. What happened then? Greek Q2 GDP was announced, and instead of declining from -6.5% to -7.0% annualized, the number declined at "only" a 6.2% annualized run rate. Apparently that was the only catalyst needed to launch today's risk on phase, sending the EURUSD 70 pips higher, and futures back to green. So to summarize: the world's 3rd largest economy grew far less than expected despite 30 years of central planning, while Europe's worst economy imploded by just that much less than the worst case expected, and this is "good enough." What's worse is that this may well be the high point of the day as there is nothing else left on the docket.
Several months ago it seemed that not a day could pass without someone, somewhere making fun of GM's biggest post-bankruptcy flaming failure to date: the Chevy Volt (gross and net of channel stuffing). Of course, since it was all in the name of ecological progress and carbon footprint reduction, most media observers let it go as merely one of the peculiar hurdles on the way to an utopian future in which America would no longer rely on crude imports from evil petroleum cartels. The time has come to redirect ridicule to that other $102,00+ MSRP object of electric aspiration, and henceforth - mockery: the Fisker Karma supercar.