While the skeleton crew of market participants are still digesting yesterday's uber-dovish, "forward guidance" conversion by the BOE and ECB, driven in response to the Fed's increasingly tight (at least relatively) monetary policy, they now have month's biggest economic and market catalyst to look forward to. In a day which promises to be rife with illiquidity as the bulk of US market participants are within 100 feet of a sandy beach, we are about to get the number that will shape the market's mood for the next month: will the Fed's tapering planes be strengthened in response to strong NFP, or not. As Deutsche accurately points out, the curveball to throw in is that June-August numbers have tended to be seasonally weak over the whole period we have data (back 70+ years) and again over the last 10 years. Today's number is therefore going to be fascinating. A number between 150-200k is unlikely to change anyone’s opinion on the Fed whereas a number below might start to build a case for a taper delay. Above 200k and the September taper momentum will build. Such a high number (especially in a weak seasonal period) is unlikely to be great for markets but the ECB/BoE might have cushioned some of the hawkish blow for now. For the record the market is expecting 165k on payrolls and 7.5% (DB same) for unemployment. A full NFP preview post is coming shortly.
When enough of us realize the extent of inflation, bond buyers will likely demand higher coupon rates; the government's cost of debt service could soar.
Since 1694 and the ensuing three centuries’ of Bank of England history, the base rate has never been this low (see chart). Draghi, emulated his fellow Goldman Sachs banker, Carney and kept rates at 0.5%. Ultra loose monetary policies involving record low base rates have been in place in the UK since March 2009, a lengthy 4½ years. In the Eurozone 0.5% record low rates have been seen since May this year.
Confused what the (non) news of today's "unprecedented" forward guidance announcement by the ECB means? Shocked that the ECB is about as dovish as it has ever been? Then SocGen is here to explain, if only for all those who are seemingly stunned that the ECB isn't planning on hiking rates, or even "tapering" any time soon.
For many European leaders, the eurozone crisis demonstrates the need for “more Europe,” the final aim being to create a full-fledged political union. Given the continent’s history of war and ideological division, and today’s challenges posed by globalization, a peaceful, prosperous, and united Europe that wields influence abroad is surely a desirable goal. But major disagreements about how to achieve that goal remain. In short, all of the measures that would implicitly support political union have turned out to be inconsistent and dangerous. They have involved huge financial risks for eurozone members. They have fueled tensions among member states. Perhaps most important, they have undermined the basis on which political union rests – namely, persuading European Union citizens to identify with the European idea. It is this sort of pretense of knowledge that the economist Friedrich von Hayek denounced as a recipe for constraining freedom and ensuring economic mediocrity.
The price of gold fell last week to the $1,200 level. The lemming sentiment in capital markets is uniformly bearish, yet every price-drop brings forth hungry buyers for physical gold from all over the world. Even hard-bitten gold bugs in the West are shaken and frightened to call a bottom, yet it is these conditions that accompany a selling climax. This article concludes there is a high possibility that gold will go sharply higher from here. There are three loose ends to consider: valuation, economic and market fundamentals.
The Portuguese government is on the rocks. The junior coalition partner the People’s Party (CDS-PP) will hold a meeting this afternoon to determine whether to support the government, if it withdraws support in parliament, elections seem inevitable, although they could be delayed for some months. Such a move would seriously hamper Portugal’s economic reform program, which is already off track. Portugal has only met its deficit targets due to one-off measures while competitiveness adjustments have slowed and contingent liabilities remain a hidden risk. With the country on the cusp of an unsustainable debt burden any delays would likely be the final straw which pushes Portugal into needing some form of further assistance. Things must be getting serious in Portugal, they just announced a short-selling ban on select banking stocks - how long before capital controls?
And just like that things are going bump in the night once more. First, as previously reported, the $100+ WTI surge continues on fears over how the Egyptian coup will unfold, now that Mursi has a few short hours left until his army-given ultimatum runs out. But it is Europe where things are crashing fast and furious, with the EURUSD tumbling to under 1.2925 overnight and stocks sliding on renewed political risk, with particular underperformance observed over in Portugal, closely followed by its Iberian neighbor Spain, amid concerns that developments in Portugal, where according to some media reports all CDS-PP ministers will resign forcing early elections, will undermine country's ability to continue implementing the agreed bailout measures. As a result, Portuguese bond yields have spiked higher and the 10y bond yield spread are wider by over a whopping 100bps as austerity's "poster child" has rapidly become Europe's forgotten "dunce." The portu-litical crisis has finally arrived.
Angela Merkel Should Talk To Me If She's Truly Enraged By The Anglo Irish Revelation, For That's Just The Beginning!Submitted by Reggie Middleton on 07/02/2013 07:24 -0400
Tell Angela Merkel that the guy that warned of Bear Stearns, Lehman Brothers AND Anglo Irish of which she laments, is also warning of Anglo Irish Bank among other Irish institutions - all funded by Germans through Irish austerity!
Yesterday it was the Egyptian military giving president Morsi a two day ultimatum before things "deteriorate", now it is the Eurozone giving Greece a three day ultimatum to "deliver on the conditions attached to its international bailout in order to receive the next tranche of aid" or else. This links back to the FT report from June 20 that the IMF told Greece it has until the end of July to plug its budget holes, or else. In other words, simple escalation. Of course, maybe it should have been made apparent to Greece back in May 2010 at the time of the first (of many) bailouts that all those tens of billions in sunk costs are actually supposed to lead to economic reforms instead of perpetuating a broken and corrupt political system in which all in efficiencies and failures are blamed on evil (f)austerity.
The volatility of recent weeks is but a mere small taste of the volatility in store for all markets in the coming months and years. The global debt crisis is likely to continue for the rest of the decade as politicians and central bankers have merely delayed the day of reckoning. They have ensured that when the day of reckoning comes it will be even more painful and costly then it would have been previously.
In this manner, all citizens anywhere could be under surveillance by any government, including their own, beyond any kind of effective control and oversight.
Following the Friday plunge in the ISM-advance reading Chicago PMI, it was a night of more global manufacturing data, which started off modestly better than expected with Japanese Tankan data, offset by a continuing decline in Chinese PMIs (which in a good old tradition expanded and contracted at the same time depending on whom one asked). Then off to Europe where we got the final print of the June PMI which continued the trend recent from both the flash and recent historical readings of improvement in the periphery, and deterioration in the core. At the individual level, Italy PMI rose to 49.1, on expectations of 47.8, up from 47.3; while Spain hit 50 for the first time in years, up from 48.1, with both highest since July and April 2011 respectively. In the core French PMI rose to a 16-month high of 48.4 from 48.3, however German PMI continued to disappoint slowing from 48.7, where it was expected to print, to 48.6. To the market all of the above spelled one thing: Risk On... at least until some Fed governor opens their mouth, or some US data comes in better than expected, thus making the taper probability higher.
A system that suppresses dissent is fault-intolerant, ignorant and fragile. Any event that does not respond to centralized, rationalized policy creates unintended consequences that throws the centralized mechanism into disarray. Lacking dissent and redundancy, the system piles on one haphazard, politically expedient "fix" after another, further destabilizing the system. The event that triggers crisis and collapse isn't important; the system, rendered unstable and fragile by centralization, is primed for crisis and collapse. The dry underbrush is piled high, and if the first lightning strike doesn't start the fire, the second one will. With dissent and the inefficiencies of redundancy and decentralized pathways of response gone, there is nothing left to stop a conflagration that consumes the entire forest.
Overnight newsflow (which nowadays has zero impact on markets which only care what Ben Bernanke had for dinner) started in Japan where factory orders were reported to have risen the most since December 2011, retail sales climbed, the unemployment rate rose modestly, consumer prices stayed flat compared to a year ago, however real spending plunged -1.6% significantly below the market consensus forecast for +1.3% yoy, marking the first yoy decline in five months. This suggests that households are cutting utility costs more so than the level of increase in prices. By contrast, real spending on clothing and footwear grew sharply by 6.9% yoy (+0.6% in April) marking positive growth for a fourth consecutive month. Simply said, the Japanese reflation continues to be limited by the lack of wage growth even as utility and energy prices are exploding and limiting the potential for core inflation across the board.