The nightly developments continue as we learn next that Tsarnaev is in serious (or critical according to Bloomberg) condition in the hospital, with a gunshot wound to the neck and leg, and that perhaps just as importantly, he will not get his Miranda warning, instead the FBI is overruling due process and using the "public safety" exception instead.
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...
Friday saw panic selling in gold as the metal broke $1,500 in a free-fall move. Is this a sign of “risk on” or something more sinister? Perhaps Cyprus is a major seller or there’s a large margin call somewhere. Some even assert some countries with debt problems are selling gold to raise capital to finance their country’s needs.
There was little in terms of overnight newsflow to spook algos, but the tone is decidedly sour this morning following a lack of either the now traditional Japan or Europen-open buying ramps. The primary reason for this may well be the ongoing decline in the USDJPY which failed to breach the 100 barrier yesterday, coming as close as 99.95 before the Mrs. Watanabe onslaught had to be called off despite some more jawboning from Kuroda whose headlines are now summarily ignored, and which appears to have set a line in the sand for Japan, whose market naturally closed lower following this strengthening in its currency. Similarly troubling was the dip in the SHCOMP which closed down -0.58%, this despite the epic M2 and credit injection reported yesterday: if new liquidity can't send the market higher, what can?
The week ahead is light on major market moving data releases. From a policy perspective and in light of the recent moves in treasuries, FOMC minutes are likely to be followed by markets. Retail sales in the US are likely to print below consensus both on the headline and on the core metrics. That said, this needs to be seen against the backdrop of first quarter retail consumer spending data surprising to the upside. Producer prices are also likely to come in on the soft side of market expectations. Finally, do not expect large surprises from the U of Michigan consumer confidence.
There are four traits that UBS identified as common trends around the breakup of a monetary union. So has Cyprus (as is tirelessly pointed out, only 0.2% of the Euro area measured by GDP) set a course for the Euro’s destruction? Indeed, with Cyprus having checked the first three items on that list, while it has not left the Euro (yet), UBS concludes, "it may well be occupying a seat very close to the exit."
Another session in which the market continues to be "cautiously optimistic" about Europe, but is confused about Cyprus which keeps sending the wrong signals: in the aftermath of the Diesel-Boom fiasco, the announcement that the preciously announced reopening of banks was also subsequently "retracted" and pushed back to at least Thursday, did little to soothe fears that anyone in Europe has any idea what they are doing. Additional confusion comes from the fact that the Chairman of the Bank of Cyprus moments ago submitted his resignation: recall that this is the bank that is supposed to survive, unlike its unluckier Laiki competitor which was made into a sacrificial lamb. This confusion has so far prevented the arrival of the traditional post-Europe open ramp, as the EURUSD is locked in a range below its 200 DMA and it is unclear what if anything can push it higher, despite the Yen increasingly becoming the funding currency of choice.
- JPMorgan Report Piles Pressure on Dimon in Too-Big Debate (BBG)
- Employers Blast Fees From New Health Law (WSJ)
- Obama unveils US energy blueprint (FT)
- Obama to Push Advanced-Vehicle Research (WSJ) - here come Solar-powered cars?
- BRICs Abandoned by Locals as Fund Outflows Reach 1996 High (BBG)
- Obama won't trip over Netanyahu's Iran "red line" (Reuters)
- Samsung puts firepower behind Galaxy (FT)
- Boeing sees 787 airborne in weeks with fortified battery (Reuters)
- Greece Counts on Gas, Gambling to Revive Asset Sales Tied to Aid (BBG)
- Goldman’s O’Neill Says S&P 500 Beyond 1,600 Needs Growth (BBG)
- China’s new president in corruption battle (FT)
- Post-Chavez Venezuela as Chilly for Companies From P&G to Coke (BBG)
The reversal begun yesterday in the FX market is continuing today. Although we are skeptical of the factors being cited as causes of the price action, we suggest it should be respected and will look for opportunities next week to get back with what we suspect is the underlying trend.
"Equity prices in the US and Europe have been hovering at multi-year highs. To the extent that this reflects powerful policy easing, equity markets may have lost some of its ability to reflect economic trends in exchange for an important role in the policy fight to support spending." This is a statement from a Bank of America report overnight in which the bailed out bank confirms what has been said here since the launch of QE1 - there is no "market", there is no economic growth discounting mechanism, there is merely a monetary policy vehicle. To those, therefore, who can "forecast" what this vehicle does based on the whims of a few good central planners, we congratulate them. Because, explicitly, there is no actual forecasting involved. The only question is how long does the "career trade", in which everyone must be herded into the same trades or else risk loss of a bonus or job, go on for before mean reversion finally strikes. One thing that is clear is that since news is market positive, irrelevant of whether it is good or bad, virtually everything that has happened overnight, or will happen today, does not matter, and all stock watchers have to look forward to is another low volume grind higher, as has been the case for the past two weeks.
The grind lower in initial jobless claims continues, which from an upwardly revised 342k (was 340K) last week, declined to 332K in the most recent week ended March 9, on expectations of an increase to 350K. This was the third consecutive beat in a row and the lowest total print since January, which in turn takes it all the way back to January 2008. Continuing claims were also better than expected, dropping from an upwardly-revised 3113K, to 3024K, on expectations of a 3090K print. According to the BLS, unlike the last time we had an abnormally low print, no states were estimated this time around.
Gasoline prices in the U.S. Midwest have pulled back from the seasonal highs reported in February. Motor group AAA reported Monday that U.S. commuters paid, on average, $3.69 for a gallon of regular unleaded gasoline, just over 1 percent less than they paid last week. For some markets, that's the first time gasoline prices have declined this year. A series of refinery issues, coupled with higher oil prices, left some motorists in February paying the highest they've ever paid seasonally for a gallon of regular unleaded gasoline. By the end of February, some drivers in the Midwest were paying nearly $4 per gallon on average, sparking congressional debate over the impact of speculation in the energy market. Given concerns over costs associated with healthcare, insurance and other issues not related directly to energy, it's curious why there aren't hearings when prices begin to fall.
The latest release of the National Federation of Independent Business Small Business Survey was a bit of dichotomy of interpretation. Is the inventory increase really a sign of optimism or is it an unwanted buildup as sales have slowed as shown by the latest wholsesale inventory report? Are capital outlays really a sign of optimism or is it simply just required maintenance and upkeep? The interpretation of the data is key to understanding the direction of the overall economy. Economic confidence still remains at levels lower than in 2011 or in 2008 during the depths of the financial crisis. Concerns for businesses remain weighted toward the consumer and the government. Weak sales, government regulations and taxes are the top 3 biggest headwinds curtailing small business currently. With the upcoming debates over the debt ceiling and the budget it is unlikely that these concerns are going to improve much anytime soon.
- Cardinals head to conclave to elect pope for troubled Church (Reuters)
- Hyperinflation 'Unthinkable' Even With Bold Easing: Abe (Nikkei)
- Ryan Plan Revives '12 Election Issues (WSJ)
- Italy 1-yr debt costs highest since Dec after downgrade (Reuters)
- Republicans to unveil $4.6tn of cuts (FT) - Obama set to dismiss Ryan plan to balance budget within decade
- CIA Ramps Up Role in Iraq (WSJ)
- Hollande Hostility Fuels Charm Offensive to Show He’s No Sarkozy (BBG)
- SEC testing customized punishments (Reuters)
- Judge Cans Soda Ban (WSJ)
- Hungary Lawmakers Rebuff EU, U.S. (WSJ)
- Even Berlusconi Can’t Slow Bulls Boosting Euro View (BBG) - luckily the consensus is never wrong
- Funding for Lending ‘put on steroids’ (FT)
- Investigators Narrow Focus in Dreamliner Probe (WSJ)
- With new group, Obama team seeks answer to Karl Rove (Reuters)
In the upcoming week the key focus on the data side will be the US February retail sales figures on Wednesday, which should provide clearer evidence on how the tax increases that took place on January 1 have affected the consumer. In Europe, industrial production and inflation data will be the releases to watch. On the policy side, the focus will be on the BoJ appointments in an otherwise relatively quiet week for G7 central banks. Italy’s newly elected lawmakers convene for the first time on Friday 15 March and the expectation remains that President Napolitano will formally invite Mr Bersani to try and form a new government. He may also opt for a technocrat government. Although clearly preferred by markets, winning political backing may prove challenging.