“Isn’t it now time for China to abandon the concept of a growth target?”
Another morning melt up after a less than impressive session in China which saw the SHCOMP drop again reversing the furious gains in the past few days driven by hopes of more PBOC easing (despite China's repeated warning not to expect much). A flurry of market topping activity overnight once again, with Candy Crush maker King Digital pricing at $22.50 or the projected midpoint of its price range, and with FaceBook using more of its epically overvalued stock as currency to purchase yet another company, this time virtual reality firm Oculus VR for $2 billion. Perhaps an appropriate purchase considering the entire economy is pushed higher on pro-forma, "virtual" output, and the Fed's capital markets are something straight out of the matrix. Despite today's pre-open ramp, which will be the 4th in a row, one wonders if biotechs will finally break the downward tractor beam they have been latched on to as the bubble has shown signs of cracking, or will the mad momo crowd come back with a vengeance - this too will be answered shortly.
Spending just $3.33 on US-produced goods every year by every person in the USA would create 10,000 jobs. We obviously don’t have that much money to spend or we don’t care
If there was one thing that the market was demanding after last night's disappointing March HSBC manufacturing PMI, which has now fallen so low, local market participants are convinced a stimulus is imminent (despite China's own warnings not to expect this), and sent both the SHCOMP and the CNY surging, it would have been further weak data out of Europe, where the other possible, if not probable, "QE-stimulus" bank is located now that the Fed is in full taper mode. It didn't get precisely that however there was a step in the right direction when overnight the Euro area Composite Flash PMI eased marginally from 53.3 to 53.2 in March, largely as expected. The country breakdown showed a narrowing of the Germany/France Composite PMI gap owing to a notable (3.7pt) increase in the French PMI while the German PMI eased somewhat (1.4pt). On the basis of past correlations, a Euro area Composite PMI of 53.2 is consistent with GDP growth of around +0.4%qoq, slightly stronger than our Current Activity Indicator (+0.35%qoq).
Apparently China did not get the memo that the Fed's apologists are furiously scrambling to packpedal on Yellen's "6 month" guidance in virtually all media outlets. The is the only way to explain why Vice Minister of Finance Zhu Guangyao said overnight that "the U.S. Federal Reserve will begin boosting interest rates within six months after exiting “unconventional” monetary policy, and that will have a “significant impact” on the U.S. and world economy, as Market News International reported earlier. Zhu told China Development Forum this weekend “we believe a the Fed meeting this October, the exit of their quantiative easing will complete." In other words while the spin for public and algo consumption is that the Fed will continue placating those long the stock market until everyone's price target on the S&P 500 is hit and everyone can comfortably sell into an ever-present bid, China is already looking for the exits. But while the end of QE appears a given, at least until the market realizes there is no handover to an economy that is a moribund as it has ever been in the past five years, and the Fed has no choice but to untaper and return with an "even more QE" vengeance (it certainly won't be the first time - just recall the "end" of QE1, QE2, Op Twist, etc), a bigger question surrounds whether China, already sliding in credit contraction and suffering a plunging stock market with its housing sector also on the edge of a bubble bust, is about to take over from the Fed and proceed with its own stimulus program. The answer is no.
Following yesterday's abysmal employment and service data which led to an unchanged close it quite clear that the market has returned to a mode where it ignores all newsflow - at least the bad, which is due to the weather, the good news is due to the recovery - and instead is simply driven by such "fundamental drivers" as the momentum and position of the Yen carry trade. And overnight the USDJPY positively exploded following news that the Japan advisory committee has decided the nation's pension fund, the GPIF, does' t need a domestic bond focus. Implicitly this means that the GPIF will soon be able to purchase stocks like Facebook and Tesla, which is a guaranteed way of generated short-term gains and longer-term total losses for the Japanese pensioners. Of course, when the latter happens, nobody will have been able to foresee it and some scapegoat somewhere will be summarily fired. As for what this means for futures, the drift higher has made SPOOs rise once more and at last check was just below if not at new all time highs on an ongoing barrage of increasingly negative macro news.
In a wide-ranging interview with Xinhua, the Chinese finance minister Lou Jiwei started from the normal fantasy-land of central-planners by noting that the topic of a Chinese hard-landing "was not discussed at the G-20," because "no participant believes in the existence of that risk." Commenting on calls for the Chinese to launch new stimulus (to save the world's economy), Lou admonished the other nations, adding "I suggest they fulfill their own due work rather than counting mainly on others." He remained adamant that China is still growing and creating jobs but fears what everyone else fears: "The global market will sustain negative impact should the Fed fail to interact properly with other components of the market." In other words, "get to work, Mr. Bernanke, and don't remove the punchbowl," because as Lou notes, "some countries are overly optimistic on their outlooks."
- MSM always "ahead" of the curve: Fed’s Messages Raise Volatility in Threat to Profits (BBG)
- Bernanke Plays Down Link Between Jobless Rate, Fed Moves (WSJ)
- Draghi to Carney Face Test Backing Guidance on Rates (BBG)
- House Republicans Vote to Delay Obamcare Mandates (Reuters)
- China media accuses Japan PM of dangerous politics (Reuters)
- China will replace America as the leading superpower, global attitudes survey finds (SCMP)
- Nonqualified mortgages make up as much as $1.5 trillion of the $10 trillion home-loan market (BBG)
- Dell $24.4 Billion Buyout Plan Is a Nail-Biter as Vote Looms (BBG)
- Republicans could see more bruising Senate primaries (Reuters)
- GM delays Chevy Cruze debut by a year (Reuters)
- Peltz needs support for PepsiCo restructuring dealsa (FT)
- Sweaty Wall Streeters Skip Booze for Spin-Class Meetings (BBG)
Risk assets are not quite (yet) back to the ‘melt-up' of May but equity markets are trading in a confident mood after Bernanke caused sentiment to flip from glass ‘half empty' to ‘half full'. China Q2 GDP data did not derail price action as equity futures anticipate a positive start of the week. The semi-annual testimony of the Fed Chairman is typically a seminal event on the market calendar but do we dare say that the one coming up this week is a non-event following last week's message on policy accommodation? The VIX index dropped 7 points over the last three weeks of which 2 points alone came last Thursday and Friday as stocks roared to new highs and shrugged off the candid observation on the Chinese economy by finance minister Lou Jiwei. If a 6.5% growth rate is tolerable in the future, there is little doubt that commodities and the AUD have further to fall. Chinese GDP slowed from 7.7% to 7.5% according to data released overnight and prospects for the second half don't look much brighter after evidence of slowing credit growth. Data on Friday showed declines of narrow money from 11.3% yoy to 9.1% in May, with broad money growth slowing to 14% yoy. Non-bank credit and new foreign currency bank lending also weakened.
When it comes to economic data, in China whatever the Politburo's Goalseek.xls model says is what goes, and credibility - especially in the context of a historic CNY1 trillion deleveraging - is irrelevant. But one reason why today's GDP print is even more irrelevant than ever, is becuase as Xia Bin, an economist with the State Council's Development Research Center and government advisor, said "Arguments about whether China will grow at 7% or 7.5% are "pointless" because the economy is already in a financial crisis which may only worsen if the government doesn't address the country's crippling debt problem."
When Bloomberg blasts headlines like this: S&P FUTURES UP 1PT, AT SESSION HIGH, ERASE EARLIER 3.4PT DROP, you know Bernanke hasn't spoken in over 24 hours if a 4 point swing is headline worthy. That said, the exhausted S&P ramp is now going for the 6th consecutive session as all the losses since the June FOMC meeting have now been erased, the S&P is making constant all time highs, and seemingly the Fed's message on tapering and communication has been clarified. The message being that the Fed is tapering its monthly purchases but short-term rates aren't being lifted. Sadly, the market's first reaction was the right one but the herd of cats has once again been herded by the trading desk at Liberty 33.
- Obama-Romney: Breaking the Tie (BBG)
- Fiscal cliff looms over campaign climax (FT)
- Tough Calls on Deficit Await the Winner (WSJ)
- Election Likely to Leave Housing Unmoved (WSJ)
- Regulator Investigating Rochdale Trading (WSJ)
- Greeks Plan Strikes On Eve of Votes (WSJ)
- China Communists consider internal democratic reform (Reuters)
- Wen urges Asia-Europe co-op to promote world economy (China Daily)
- Italy Said to Reject Bad Bank That May Boost Ties to Sovereign (BBG)
- IMF warning adds to French economy fears (FT)
- Europe, Central Bank Spar Over Athens Aid (WSJ)
- Unlimited Lending May Help Weaken the Yen, BOJ Official Says (BBG)
- PBOC Official Says U.S. Election Won’t Impact Yuan Level (BBG) - Just the USD level to which it is pegged
In case one is wondering what lit a fire under the EURUSD and the ES' ass in the past 30 minutes, why it is the trusty old fall back - China, to which all algos respond every single time like stung donkeys as if on command. Because just as the EURUSD was about to retrace the lows as the realization that the EOD rumor was nothing but an infrared herring, something else had to step in an continue to rumor-based levitation. Sure enough, that something was the Chinese central bank.
- CHINA PBOC'S ZHOU SAYS HE'S CONFIDENT EU WILL SOLVE CRISIS: MNI
- CHINA PBOC'S ZHOU SAYS HE SUPPORTS EU, ECB MEASURES: MNI
- PBOC'S ZHOU: CHINA WILL PARTICIPATE IN RESOLVING EU DEBT CRISIS
- CHINA PBOC GOVERNOR ZHOU SAYS HE HAS CONFIDENCE IN EURO: MNI
And that's all it took to life the ES by over 10 points in minutes.