Following December's miraculous surge in employment (to the biggest improvement in a year), ADP Employment tumbled back a more "normal" 205k in January (stilll beating expectations of 195k). Services dominated (192k vs 13k for goods). Once again manufacturing disappoints with no change in employment as large business hiring slows notably.
Systemic fragility doesn't respond to central bank jawboning or Keynesian claptrap; unlike those "policy tools," fragility is real.
"The world badly needs higher oil prices."
"The Fed should, given recent events, simply admit its error of pre-emptively raising rates before both its employment and inflation mandates had been met, and reduce the Federal Funds rate back to zero, pending further improvements in the economy. Certainly, the Federal Reserve risks its credibility by admitting an error, but that is a far better outcome than risking recession by not doing so"
There will be two key themes for investors seeking to shake off the abysmal "as goes January" blues: buybacks, which are set to return in February, and central banks, which are poised to do absolutely nothing to calm investor nerves in the next 4 weeks.
"When one of the world’s key economic inputs, oil prices, can rally 30% but still be down on the month, then investors may have a valid reason to be scared."
It didn't take much to fizzle Friday's Japan NIRP-driven euphoria, when first ugly Chinese manufacturing (and service) PMI data reminded the world just what the bull in the China shop is leading to a 1.8% Shanghai drop on the first day of February. Then it was about oil once more when Goldman itself said not to expect any crude production cuts in the near future. Finally throw in some very cautious words by the sellside what Japan's act of NIRP desperation means, and it becomes clear why stocks on both sides of the pond are down, why crude is not far behind, and why gold continues to rise.
It seems that everyone these days is exporting deflation to the US. American consumers will be delighted with everyone sending cheaper goods their way. However, what this may do to their income and employment prospects is a whole different matter.
"The intrinsic contradiction of policy response to the crisis – suspend the laws of the market in order to save it – is resolved only by understanding that suspension is temporary. Stimulus will have to be unwound. But, and here lies the problem, accommodation has been in place for a very long time and this has had a profound impact on investors behavior, market functioning and its dynamics."
Did the BOJ’s out-of-the-blue reversal on its monetary stance which was refuted just weeks prior by Mr. Kuroda himself take place because after listening to the arguments, suggestions, as well as concerns, from the participants at Davos he concluded much like what the movie “Margin Call” depicted: It was all about to unravel? And if so: is this him deciding to be “first” and considered it his only choice?
Many believed that the NOK was backed by oil, not requiring a gold reserve. However, oil is no longer a scarce resource but an abundant commodity. Switzerland, Germany, America and other first world nations have gold reserves. Norway should have one too.
China’s stock market is a small, relative matter; the more troubling imbalances lie and remain elsewhere. This change in production profitability is concerning on three fronts: China’s industry persists at only getting worse even though it has already reverted to a state not seen in a decade or more; consumer appearances may seem generally optimistic despite all that but only because industrial activity has yet to fully make adjustments through resources and labor; and financial trends are likely already at the stage of self-reinforcement within and without.
Eventually the prospect of recession that can’t be cured by the central bank printing presses will ignite sheer panic in the casino. Then the monetary fools running them will be reviled to the ends of the earth. But not before the lunatic 100X valuations of the FANGs implode like those of all the high flyers which have gone before. For the third time this century it is time to sell the bubble. Yes, do back up the trucks!
By surprising markets with a move to a negative deposit rate, the Bank of Japan gave investors temporary reprieve, providing a much needed opportunity to pare portfolio risk at better prices. Unfortunately, the improvement in financial asset prices will be short-lived; except, of course, for long-maturity Treasuries.
It is safe to say that nobody expected the BOJ stunner announced last night, when Kuroda announced that Japan would become the latest country to unleash negative interest rates, for one simple reason: Kuroda himself said Japan would not adopt negative rates just one week ago! However, a few BIS conference calls since then clearly changed the Japanese central banker's mind and as we wrote, and as those who are just waking up are shocked to learn, negative rates are now a reality in Japan. The immediate reaction was to send the USDJPY surging by nearly 200 pips, back to levels seen... well, about a month ago.