In the US, retail sales are expected to continue to slow in the headline, while retail sales ex autos, building materials, and gas should turn positive in April according to Wall Street analysts. Goldman remains below consensus for Thursday's Philadelphia Fed survey, forecasting a slight improvement on the previous month. The firm also expects the flash reading for Euro area Q1 GDP to come in slightly below consensus, consistent with a shallow contraction. We forecast German GDP will turn positive in Q1 after Q4 2012's negative reading. In Japan, GS sees Q1 GDP at 2.8% qoq ann., slightly above consensus, with stronger consumer spending the main driver. Among the central bank meetings this week, Russia, Chile, and Indonesia are expected to remain on hold, in line with consensus.
- Microsoft prepares U-turn on Windows 8 (FT), Microsoft admits failure on Windows 8 (MW), After Bumpy Start, Microsoft Rethinks Windows 8 (NYT)
- China reports four more bird flu deaths, toll rises to 31 (Reuters)
- Republicans shift stance on US budget (FT)
- NYC Tallest Condo Corridor Gets New Entrant With Steinway (BBG)
- U.S. Says China's Government, Military Used Cyberespionage (WSJ)
- China rejects Pentagon charges of military espionage (Reuters)
- Bank of China Cuts Off North Korean Bank (WSJ)
- Libya defense minister quits over siege of ministries by gunmen (Reuters)
- London Recruiter Says City Job Vacancies Rose 19% (BBG)
- Colleges Cut Prices by Providing More Financial Aid (WSJ) or, said otherwise, loans
- Jeweler agrees to plead guilty in KPMG insider-trading case (LA Times)
Surprising German Factory Orders Bounce Offset ECB Jawboning Euro Lower; Australia Cuts Rate To Record LowSubmitted by Tyler Durden on 05/07/2013 06:57 -0400
The euro continues to not get the memo. After days and days of attempted jawboning by Draghi and his marry FX trading men, doing all they can to push the euro down, cutting interest rates and even threatening to use the nuclear option and push the deposit rate into the red, someone continues to buy EURs (coughjapancough) or, worse, generate major short squeezes such as during today's event deficient trading session, when after France reported a miss in both its manufacturing and industrial production numbers (-1.0% and -0.9%, on expectations of -0.5% and -0.3%, from priors of 0.8% and 0.7%) did absolutely nothing for the EUR pairs, it was up to Germany to put an end to the party, and announce March factory orders which beat expectations of a -0.5% solidly, and remained unchanged at 2.2%, the same as in February. And since the current regime is one in which Germany is happy and beggaring its neighbors's exports (France) with a stronger EUR, Merkel will be delighted with the outcome while all other European exporters will once again come back to Draghi and demand more jawboning, which they will certainly get. Expect more headlines out of the ECB cautioning that the EUR is still too high.
The second half of 2012 saw a significant shift in US monetary policy from calendar-based guidance to outcome-based guidance and the adoption of a 6.5% unemployment rate as a threshold for 'tapering'. With Friday's better-than-expected payrolls data and another tick lower in the critical-to-liquidity unemployment rate, it seems Goldman Sachs (and others) are waking up to the facts that we have been vociferous about: the shift of jobless individuals from unemployment into inactivity (the participation rate dilemma) is making the unemployment rate a less appropriate measure of broad labor market conditions. This has important implications for Fed policy because it implies that the committee might still be quite far from reaching the jobs side of its mandate even once the unemployment rate is back at 6%. After all, the Federal Reserve Act calls for 'maximum employment', not 'minimum unemployment'.
“Labor market conditions are affected by a variety of factors outside a central bank’s control,” admitted the Fed's Jeffrey Lacker after the employment report bounced around the world.
The overnight macroeconomic news started early with China where the second, HSBC Manufacturing PMI declined from 51.6 to 50.4, below estimates of 50.5, yet another signal of a slowdown in the country (where one can argue the collapse in copper prices is having a far greater impact), and where the Composite closed down 0.17% after its Mayday holiday. China wasn't the only one: India dropped to 51.0 from 52.0 in March, and Taiwan dipped to 50.7 from 51.2, offset however by the bounce in South Korean PMI from 52.0 to 52.6, the best in two years (a number set to tumble as Abenomics steal SK's export thunder). The focus then shifted to Europe, where virtually everyone was once again in contraction mode, as German Mfg PMI declined from 49.0 to 48.1, the lowest since December, if a slight beat to expectations (while VDMA industry body said March Machine orders dropped 15% Y/Y so little optimism on the horizon), France rose modestly to 44.4 from already depressed levels of 44.0, Spain PMI also rose from 44.2 to 44.7, Italy PMI at 45.5 from 44.5, Poland at 46.9 from 48.0, a 45-month low. At least Greece seems to be doing "better" with the Mfg PMI "rising" to 45.0 from 42.1. Across the reports, the biggest decline was in input prices following the recent clobbering in commodities, which in turn is translating into price deflation.
Over a year ago, we first explained what one of the key terminal problems affecting the modern financial system is: namely the increasing scarcity and disappearance of money-good assets ("safe" or otherwise) which due to the way "modern" finance is structured, where a set universe of assets forms what is known as "high-quality collateral" backstopping trillions of rehypothecated shadow liabilities all of which have negligible margin requirements (and thus provide virtually unlimited leverage) until times turn rough and there is a scramble for collateral, has become perhaps the most critical, and missing, lynchpin of financial stability. Not surprisingly, recent attempts to replenish assets (read collateral) backing shadow money, most recently via attempted Basel III regulations, failed miserably as it became clear it would be impossible to procure the just $1-$2.5 trillion in collateral needed according to regulatory requirements. The reason why this is a big problem is that as the Matt Zames-headed Treasury Borrowing Advisory Committee (TBAC) showed today as part of the appendix to the quarterly refunding presentation, total demand for "High Qualty Collateral" (HQC) would and could be as high as $11.2 trillion under stressed market conditions.
Goldman Sachs saw no major surprises in the May FOMC statement, which, as we noted in the redline, was very little changed from the March statement. The most notable change, however, introduced additional flexibility around purchases, noting that "the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes." The slightly more aggressive nod towards fiscal policy "restraining" growth as opposed to "becoming restrictive" is perhaps yet another plea for some help from Washington - for, as we noted earlier, "the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested - and will not prove to be successful."
- Gold Bears Defy Rally as Goldman Closes Short Wager (BBG)
- Still stuck on central-bank life support (Reuters)
- Ebbing Inflation Means More Easy Money (BBG)
- So much for socialist wealth redistribution then? François Hollande to woo French business with tax cut (FT)
- Billionaires Flee Havens as Trillions Pursued Offshore (BBG)
- Companies Feel Pinch on Sales in Europe (WSJ)
- Brussels plan will ‘kill off’ money funds (FT)
- Danes as Most-Indebted in World Resist Credit (BBG)
- Syria says prime minister survives Damascus bomb attack (Reuters)
- Syria: Al-Qaeda's battle for control of Assad's chemical weapons plant (Telegraph)
- Nokia Betting on $20 Handset as It Loses Ground on IPhone (BBG)
- Rapid rise of chat apps slims texting cash cow for mobile groups (FT)
- Calgary bitcoin exchange fighting bank backlash in Canada (Calgary Herald)
The recent slide in the gold price has generated substantial demand for bullion that will likely bring forward a financial and systemic disaster for both central and bullion banks that has been brewing for a long time. To understand why, we must examine their role and motivations in precious metals markets and assess current ownership of physical gold, while putting investor emotion into its proper context. The time when central banks will be unable to continue to manage bullion markets by intervention has probably been brought closer. They will face having to rescue the bullion banks from the crisis of rising gold and silver prices by other means, if only to maintain confidence in paper currencies. This will likely develop into another financial crisis at the worst possible moment, when central banks are already being forced to flood markets with paper currency to keep interest rates down, banks solvent, and to finance governments’ day-to-day spending. History might judge April 2013 as the month when through precipitate action in bullion markets Western central banks and the banking community finally began to lose control over all financial markets.
- UK economy shows 0.3% growth (FT)
- Texas University Fund Sold $375 Million in Gold Bars (BBG)
- Spain Jobless Rate Breaches 27% on Recession Woes (BBG)
- Letta calls for easing of austerity policies (FT)
- Italy Led by Letta Brings Berlusconi Back as Winner (BBG)
- Fed Debate Moves From Tapering to Extending Bond Buying (BBG)
- South Korea wants talks with North on shuttered industrial zone (Reuters)
- Republicans advance bill to prepare for debt ceiling fight (Reuters)
- Republicans claim White House failed to warn on severity of cuts (FT)
- Xi meets former US heavyweights (China Daily)
- Next BoE chief Carney says clear framework key to policy success (Reuters)
- Chinese roll out red carpet for Hollande (FT)
“This isn’t the end of the world,” says Rick Rule. “This is a normal – and ultimately healthy – cyclical decline in a longer term bull market. This is a sale.” None of the macroeconomic, geopolitical, or global demographic conditions pointing to a long term increase in gold and commodity prices are any different today than before the metal’s price began a multi-day slide last week.
Two days in Washington D.C. kept caterers busy but produced a 2,126 word communique long on slogans and short on anything actionable. The G-20 statement (below) can be boiled down simply, as we tweeted,
G-20 statement: "if we all lie, same as nobody lying"
— zerohedge (@zerohedge) April 19, 2013
And just to add one more embarrassing detail for them, while section 4 discusses "Japan's recent policy actions," not only does Canada's finance minister James Flaherty believe they "didn't discuss the Japanese Yen," but Japan's Kuroda believes, comments on 'misalignments', "were not meant for the BoJ."
Hardly anyone will be surprised to learn that moments ago we just got the latest disappointing economic indicator for an economy that is clearly accelerating in its deterioration. As expected, the April Philly Fed was the latest economic indicator miss, printing at 1.3, down from last month's 2.0, and below expectations of am increase to 3.0. And while the key New Orders reverted back into negative territory after one brief month positive, it was the other components of the Index that a far more pronounced deterioration, namely the Number of Employees which dumped from 2.7 to -6.8, the biggest drop since May 2012, boding ill for the upcoming April NFP number, as well as the Inventories which plunged from 0.0 to -22.2, which means downward Q1 GDP revisions will be forthcoming from every side momentarily as the Wall Street lemmings are forced to resume trimming their exuberance once more just like in 2012... and 2011... and 2010.
Back in 2010, Goldman's Jan Hatzius, fresh on the heels of QE2, committed rookie Economist mistake 101, and mistook a centrally-planned market response to what then was a record liquidity infusion, for an improvement in the economy (a move we appropriately mocked at the time, as it was quite clear that the Fed's intervention meant the economy was getting worse not better). It took him about 4 months to realize the folly of his ways and realize no recovery for the US or anyone else was on the horizon. He then wised up for a couple of years until some time in December he did the very same mistake again, and once again jumped the shark, forecasting an improvement to the US economy in 2013, albeit in the second half (after all nobody want to predict an improvement in the immediate future: they will be proven wrong very soon) based on consumer strength when in reality the only "reaction function" was that of the market to the Fed's QE4 (or is it 5, and does it even matter any more?). Four months later we get this...