- Summers Faces Key 'No' Votes if Picked for Fed (WSJ)
- NYT Editorial Board Says Summers Would Be Wrong Fed Choice (NYT)
- Russia says it's compiled 100-page report blaming Syrian rebels for a chemical weapons attack (McClatchy)
- China says Syria crisis can't be resolved with military strike (Reuters)
- G-20 Faces Growth Threats as Syria Adds to QE Exit Risks (Bloomberg)
- Apple Supplier Fire Spurs Biggest Chip Price Rise in 3 Years (BBG)
- U.S. Decided Not to Horse-Trade With Russia on Assad (WSJ)
- Financial Crisis: For Corporations and Investors, Debt Makes a Comeback (WSJ)
- Gorman Says Chance of Another Financial Crisis ‘Close to Zero’ (BBG) and in other news, "no risk of a Us downgrade" - Tim Geithner
- A Biotech King, Dethroned (NYT)
The highlight of today's economic releases will be the 8:30 am non-farm payroll data, expected to print at 180K jobs, up from July's 162K, and result in an unchanged 7.4% unemployment rate. The "most important jobs number ever " is neither, because even if it comes as a wild outlier to the good or bad side, the Fed is unlikely to change its tapering intentions this late in the game. Still, it will provide fireworks in a very jittery market and if the number is far stronger than expected, expect the 10 Year to finally blow out from below the 3% range which it breached briefly overnight, and never look back, at least not until there is an August 2011 wholesale risk revulsion episode and stocks tumble. Speaking of jittery, overnight the WSJ reports that if picked as Bernanke's replscament, Larry Summers' faces an uphill battle to get the votes of three key democrats on the Senate Banking Committee (Jeff Merkley, Sherrod Brown and Elizabeth Warren). It would be only fitting that the dysfunctional Democratic dominated senate now lashes out against the president, and in the process scuttles the market's only hope of maintaining its Fed-derived gains over the past five years... And there is, of course, Syria which is becoming increasingly problematic for Obama whose support in Congress is looking ever shakier. Will he go it alone in the case of a no vote?
We are sure this is just a 'transitory' storm-in-a-teacup, but for those who 'use' energy, the price of the most important raw material in the world has never been higher on this day of the year than it is today... must be all this growth?
Just when the market thought it had priced in a new equilibrium without (or with - it is not quite clear) a Syria war, here comes Thursday with a data dump that will make one's head spin. Central bankers are once again on parade starting overnight, when the BOJ announced no change to its QE program and retaining its monetary base target of JPY270 trillion. The parade continues with both the BOE and ECB, the latter of which is expected to address the recent pick up in Eonia rates and take praise for the recent very much unsustainable "recovery" in the periphery even as Germany continues to slide lower (this morning's factory orders plunged 2.7% on exp. -1.0%), which in turn lead the Bund to pass above 2.0% for the first time since March 2011. Speaking of bonds blowing out, the US 10Y is now just 6 bps away from 3.00%, the widest since July 2011, and likely to breach the support level, taking out a boatload of stops and leading to the next big step spike in rates as the second selling scramble ensues. And just to keep every algo on its binary toes, today we also get a NFP preview with the ADP private payrolls at 8:15 am (Exp. 180K, down from 200K), Initial Claims (Exp. 330K), Nonfarm Productivity and Unit Labor Costs (Exp. 1.60% and 0.9%), Factory Orders (Exp. -3.4%), Non-mfg ISM (Exp. 55), Final Durable Goods, EIA Nat Gas and DOE Crude Inventories, oh and the G-20 meeting in St. Petersburg where Putin and Obama are not expected to share much pleasantries, and where John Kerry's swiftboat may not be allowed to dock.
US equities were drifting quietly lower after a modest rise overnight fadsed through Asian anxiety and European political issues in Italy but all that changed once McCain said "no" and proposed a broader-scope, deficit-growing Syrian plan. Stocks instantly rushed higher to Russia "catastrophic consequences" levels from last week with Trannies and the NASDARK having their best day in a month. Commodity markets - most notably silver, copper, gold, and crude oil - were all sliding lower before McCain, and oddly accelerated lower in his news. Treasures also rallied into the morning and then sold off significantly after McCain's comments with 10Y now up 11bps on the week at high yields with 10Y closing at its highest yield in 25 months. The USD slipped lower as AUD smashed to its best 3-days in 21 months and EUR slid but that left the USD unchanged on the week (compared with S&P's +1.6%). Stocks gave up some gains into the close but ended with Healthcare and Discretionary almost unchanged from Kerry's 8/26 speech.
With Syrian strikes looking to be a 90-day minimum 'surgical strike' and being supported by the US Congress, it is hardly surprising in this bad-is-good-news 'opposite' world, that both precious metals and crude oil prices are getting slammed lower this morning...
When last week the revised Q2 GDP print was announced, which beat expectations solidly driven entirely by a surge in net exports, we said that "with China on the rocks and tightening, the Emerging Markets in free fall, and Europe still a net exporter (so not benefiting the US), anyone hoping this trade led-recovery will be sustainable, will be disappointed." Sure enough, the first trade data update for the third quarter as of July, confirmed just this, as the trade deficit widenedfrom a revised $34.5 billion deficit, to a substantially larger monthly deficit, amounting to $39.1 billion. This was $500MM more than consensus expected, or $38.6 billion, and it means that as we predicted, the downward revisions to Q3 tracking estimates are about to start rolling in, trimming ~0.1%-0.2% from US GDP for this current quarter. Specifically, imports for the month rose from $225.1 billion to $228.6 billion while exports fell from $190.5 billion to $189.5 billion. But perhaps most notable is that in July, the US trade deficit with China and the EU rose to a record of $30.1 billion (from $26.6bn last month) and $13.9 billion (from $7.1bn) respectively.
Today's morning summary is a carbon copy of yesterday's. Some things happened, China continues to make up data to fit its current policy outlook, things in Europe continue to go bump in the night ever louder as we approach the German election despite reflexive diffusion indices - this time Service PMIs - desperately signalling a surge in confidence, Italy has just reminded everyone it is a big political basket case as Berlusconi is said to consider withdrawing his support for the Letta government and calling for elections this year, and so on, but it is still all about Syria. Last night the Senate Foreign Relations Committee has agreed on a resolution on using military force against Syria. The resolution would limit the duration of any US military action in Syria to 60 days, with a 30-day extension possible if Obama determines it is necessary to meet the goals of the resolution. In other words, a "surgical strike" lasting a minimum of 90 days, and then with indefinite additional extensions tacked on. Yet judging by the modest drop in crude and gold, the market may need more than just fighting words at this point to push to th next level of risk aversion.
Equity markets across AsiaPac are once again a sea of crimson with India and Indonesia taking front of stage... but in divergent ways for a change. After slamming lower to new record lows (not surprising given the forwards weakness all day), speculation was rife that the RBI intervened in the Rupee and Indian stocks jumped exuberantly on the news (NIFTY +1.3%). But no such luck for Indonesia where the Jakarta Comp is -2%. Conversely (for now), Indonesia's Rupiah is relatively well bid (+1.28%) and the Rupee is still -0.6%. Elsewhere, the Philippines are being hit FX down and stocks -1.9% and even the larger equity markets of China, Australia, and Japan are red. US Treasuries are leaking higher in yield (10Y +2bps at 2.88%) and US equity futures are limping higher (now +1pt). Silver is pushing lower (-0.8%) while gold and Crude are only modestly lower.
The first draft of the White House's war authorization legislation was leaked yesterday, signaling the opening round of the danse macabre, in which the bargaining and maneuvering over what Congress and the president both want -- war on Syria -- begins its public journey from conception to law. There will be fighting and sharp words along the way. Members will be coy and make impassioned speeches. It is all for show. It is important to make this clear to readers: The fight is not between whether the House and Senate will pass or reject the president's request for authorization to attack, but rather what kind of force authorization will ultimately be brought to the Floor for passage... and sure enough the headlines are starting with more drafts:
*OBAMA WANTS "TOO BROAD AUTHORITY'' IN SYRIA, TWO DEMOCRATS SAY
and Menendez/Corker propose a new US Senate resolution for authorizing use of military force in Syria setting a 60-day deadline, with one 30-day extension possible, while barring ground forces
It was overall a fairly dismal month for most assets as Deutsche's Jim Reid notes sentiment was weighed down by a) ongoing tapering fears, b) a further shakeup in EM assets and currencies, and later during the month c) the escalating tension in Syria. Clearly returns in fixed income and the broader emerging market space were tapered down further by tapering concerns but DM equities were also not immune to the softer risk backdrop. The biggest loser in August were EM bonds, followed by Wheat and the S&P 500. The biggest gainer in Auguest was Silver followed by Brent crude and Chinese stocks.
While gold, silver, and crude oil prices had already recovered their initial knee-jerk losses from the "war-off" moves Sunday night, US equities were sticking to their BTFD guns until Boehner, Pelosi, Cantor, and Levin came out behind President Obama's Syria strike plan. S&P futures slumped to Sunday night's open, vacillated, then the Dow dumped over 120 points from its pre-ISM highs to break red (followed by Trannies and the S&P). Treasuries have been slow to react; holding on to losses (30Y +12bps) until the decision was clear from stocks, and then yields fell more significantly as investors greatly rotated back to safety. The USD is not moving much but JPY strength (carry-off) is driving it modestly lower. VIX is back over 17%.
After a modestly weak start, India's FX and stock markets accelerated lower overnight in the currency's second biggest daily collapse in 17 years, and stocks second biggest daily plunge in 2 years. Rubbing further salt into an already gaping wound of capital outflows, S&P re-iterated its downgrade threat overnight following India dismal PMI print and this appears to have pushed the Indian government to Plan D. Following the failure to halt outflows of Plan A (status quo and blame it on the Fed/Speculators), Plan B (well something is up so 'capital controls' on FX and tariffs on gold), Plan C (that's not working so let's confiscate people's gold), the Indian government is trial-ballooning Plan D - ditch the USD for trade-payments (especially oil which is up 50% in INR terms in 4 months).
Whether it is growth hopes or Taper fears, good-news was bad-news for bond bulls this morning as better-than-expected ISM and construction spending data jarred bond yields from already rising levels to their biggest jump in two months. With the 30Y up 11bps and back over 3.8% and the 10Y pushing 10bps higher in yield to 2.89%, the line in the sand level of 3.00% grows ever closer. Equity markets are unsure of what to make of it but appear to have a bias to the downside on this good-news-is-bad-news data but gold, silver, and crude oil is rising.