M3

The week ahead, as if it mattered.

What’s the true risk for the global economy? Its pronounced: /d??fl?SH(?)n/

A prelude for the monetary madness...

Inflation, defined as an expansion of the supply of unbacked money, is an elementary evil, always and everywhere that it occurs. It is the ignored and core cause of numerous problems in the economy and in society...

Dispassionate overview of the week ahead, with thoughts about September.

Recall what we said earlier today: the proxy war Ukraine conflict, just like that in Syria preceding it, "is all about energy." Recall also the following chart showing Ukraine's shale gas deposits, keeping in mind that the Dnieper-Donets basin accounts for approximately 90 per cent of Ukrainian production. Finally, recall our story from May that Joe Biden's son, Hunter, just joined the board of the largest Ukraine gas producer Burisma Holdings. Now put it all together and you will like figure out what will happen next.

Following yesterday's disappointing results by Visa, which is the largest DJIA component accounting for 8% of the index and which dropped nearly 3%, while AMZN's 10% tumble has weighed heavily on NASDAQ futures, it has been up to the USDJPY to push US equity futures from dropping further, which it has done admirably so far with the tried and true levitation pump taking place just as Europe opened. One thing to keep in mind: yesterday the CME quietly hiked ES and NQ margins by 6% and 11% respectively. A modest warning shot across the bow of what may be coming down the line?

here is the punchline, and proof that anything the ECB can and will try to do, will be a complete disaster: Loans to households fell by €42.8bn (its largest decline on record), having risen by €5.1bn in April. This was mainly related to lending for house purchases (which do not count towards banks' allotment in the TLTRO) and took place almost entirely in France.

The holiday shortened, and very busy, week includes the following highlights: [on Monday] US Chicago PMI; [on Tuesday] US ISM Manufacturing, Construction Spending, and Vehicle Sales, in addition to a host of PMI Manufacturing in various countries; [on Wednesday] US ADP Employment, Factory Orders; [on Thursday] US Non-farm Payrolls and Unemployment, MP Decisions by ECB and Riksbank, in addition to various Services and Composite PMIs; [on Friday] US holiday, Germany Factory Orders and Sweden IP.

A thumbnail sketch of the main events of during the week ahead.

The much anticipated additional measures have been revealed:

• DRAGHI UNVEILS PACKAGE OF TARGETED LTROS, WORK TO PREPARE QE
• DRAGHI SAYS INITIAL SIZE OF TARGETED LTRO PLAN IS 400BLN EUROS
• ECB EXTENDS FIXED RATE FULL ALLOTMENT, SUSPENDS SMP STERILIZING
• DRAGHI SAYS PACKAGE INCLUDES PREPARATIONS FOR ABS PURCHASES

In other words, even more actions along what was expected: keep in mind the last time the ECB did €1 trillion in LTROs it did exactly nothing to boost inflation or the "real economy." Furthermore, the ABS purchases aren't activated: just being "prepared." However, what was not revealed was the biggest wildcard: European QE, which as we said repeatedly, won't happen until Europe's deflation is far worse, if ever.

It has gotten beyond ridiculous: a few short hours ago the yield on the 10 Year bond tumbled to a fresh low of 2.49% (and currently just off the lows at 2.50%), wiping out all of yesterday's "jump" on better than expected Durables and leading to renewed concerns about the terminal rate, deflation and how slow the US economy will truly grow. Amusingly, this happened just as US equity futures printed overnight highs. Doubly amusing: this also happened roughly at the same time as Spanish 10 Year yields dropped to a record low of 2.827%, or about 30 bps wider than the US (moments after Spain announced that loan creation in the country has once again resumed its downward trajectory and a tumble in retail deposits to levels not seen since 2008). Triply amusing: this also happened just about when Germany had yet another technically uncovered 30 Year Bund issuance, aka failed auction. So yes: nothing makes sense anymore which is precisely what one would expect in broken, rigged and centrally-planned markets (incidentally those scrambling to explain with events in bond world where one appears to buy bonds to hedge long equity exposure, are directed to the minute of the Japanese GPIF pension fund which announced it would buy junk-rated bonds to boost returns - good luck to Japanese pensioners).

 Presented with no comment: "Burisma Holdings, Ukraine’s largest private gas producer, has expanded its Board of Directors by bringing on Mr. R Hunter Biden as a new director."