Yogi Berra, one of the keenest observers of the human condition, is said to have once remarked "It is tough to make predictions, especially about the future." And so it is.
Oil prices are showing some signs of life as key indicators start pointing in a bullish direction.
"The effects on underlying inflation have so far been tepid. What is worrisome is that market participants still do not see consumer price inflation returning to the ECB’s 2% target on a sustained basis, let alone going above it, over any reasonable time horizon," Goldman says. And while the bank is ultimately confident that the Goldmanite in charge of the ECB will succeed in driving up inflation over time, the market would be wise to note that the US and Japanese experience with QE don't provide much in the way of empirical support for that contention.
Oil prices have tumbled this morning ahead of the Baker Hughes rig count data but algos bounced them after the pace of oil rig count decline slowed further. For an unprecedented 21st week in a row, the US total rig count declined this week (down 27 to 905). Oil rigs fell 24 to 679 for the fastest total collapse in rig counts in history (down over 57% in 21 weeks). This is a faster pace of decline than the previous week for total rigs but a slower pace of decline for oil rigs.
- Record month ends in pain as biotech, small-caps, Apple tumble (BBG)
- Japan inflation rises for first time in nearly a year (WSJ)
- US Navy starts to accompany ships in strait where Iran seized cargo carrier (WSJ)
- Russia may be readying for new Ukraine offensive: NATO commander (Reuters)
- Big banks use loophole to avoid ban (WSJ)
- China April official PMI shows factories struggling to grow (Reuters)
- CME suspends traders for alleged Sarao-like manipulation (BBG)
Holidays in Europe and Asia left things quiet overnight after some traders used the last day of April to frontrun the old "sell in May and go away" market adage. Market closures also kept the Chinese day trading hordes from using a tiny beat on the official manufacturing PMI print as an excuse to pile more money into the country's equity mania, while Japanese shares ended mostly unchanged as investors fret over when the BoJ will deliver the next shot of monetary heroin. In the US we'll get a look at ISM manufacturing and the latest read on consumer confidence as we head into the weekend.
“The market is dead,” one industry insider tells Bloomberg, referring to demand for tax-free physical gold in Dubai. As it turns out, the ill-effects of sliding crude prices aren't confined to Alberta's housing market, cash-strapped oil boom towns and the market for blue collar jobs in Texas. The pain is also being felt by gold vendors who are quickly discovering that when oil revenue begins to run short, fewer Saudis and Russians go on precious metals shopping sprees.
During the heyday of post-war prosperity between 1953 and 1971, real final sales - a better measure of economic growth than GDP because it filters out inventory fluctuations - grew at a 3.6% annual rate. That is exactly double the 1.8% CAGR recorded for 2000-2014. The long and short of it, therefore, is that there has been a dramatic downshift in the trend rate of economic growth during an era in which central bank intervention and stimulus has been immeasurably enlarged. How exactly is the Fed helping when the trend rate of real growth has withered dramatically?
The current equities bull run seems unstoppable. No amount of geopolitical concerns, Greek default fears, rate hikes, US dollar strength, crude oil price volatility, Russian sanctions or whatever else you can think of can put a dent on it. Perhaps we should take a step back and try to understand what is driving this strength. OK, we know that central banks continue to spike the punchbowl, but what is the actual transmission mechanism that directs all this liquidity into equities – as opposed to commodities for instance, which continue to struggle?
- Marchers protest police violence in Baltimore, New York (Reuters)
- Majority of Financial Pros Now Say Greece Is Headed for Euro Exit (BBG)
- Greece signals concessions in crunch talks with lenders (Reuters)
- Greece, Euro-Area Partners Target Deal by Sunday (BBG)
- Iglesias Says EU Risking Right-Wing Backlash With Greek Pressure (BBG)
- Student-Loan Surge Undercuts Millennials’ Place in U.S. Economy (BBG)
- Majors’ Quandary: Why Drill for Oil When They Can Buy Somebody Else’s? (WSJ)
The biggest overnight story was neither out of China, where despite the ridiculous surge in new account openings and margin debt the SHCOMP dipped 08%, or out of Japan, where the Nikkei dropped 2.7%, the biggest drop in months, after the BOJ disappointed some by not monetizing more than 100% of net issuance and keeping QE unchanged, but Europe where for the second day in a row there was a furious selloff of Bunds at the open of trading, which briefly sent the yield on the 10Y to 0.38% (it was 0.6% two weeks ago), in turn sending the EURUSD soaring by almost 200 pips to a two month high of 1.1250, and weighing on US equity futures, before retracing some of the losses.
Less than four months into his reign, Bloomberg reports that Saudi Arabia’s King Salman is consolidating power with a major reshuffle of succession lines and government officials. "The new king has proved consistent in his determination to elevate members of his close family to key positions," noted one analyst. As the world’s top oil exporter plays a more prominent role in the region’s power struggles, it apears Salman wants family close. Oil policy is unlikely to change, notes Bloomberg's Julian Lee, as this brings younger men into top government positions, paving way for transfer of power to new generation of princes.