Nikkei

Can this last?

What a quarter! The Dow up 8% and enjoying a record quarter in terms of points — 994 of them to be exact and in percent terms, now just 7% off attaining a new all-time high. The S&P 500 surged 12% (and 3.1% for March; 28% from the October 2011 lows), which was the best performance since 1998. It seems so strange to draw comparisons to 1998, which was the infancy of the Internet revolution; a period of fiscal stability, 5% risk-free rates, sustained 4% real growth in the economy, strong housing markets, political stability, sub-5% unemployment, a stable and predictable central bank. And look at the composition of the rally. Apple soared 48% and accounted for nearly 20% of the appreciation in the S&P 500. But outside of Apple, what led the rally were the low-quality names that got so beat up last year, such as Bank of America bouncing 72% (it was the Dow's worst performer in 2011; financials in aggregate rose 22%). Sears Holdings have skyrocketed 108% this year even though the company doesn't expect to make money this year or next. What does that tell you? What it says is that this bull run was really more about pricing out a possible financial disaster coming out of Europe than anything that could really be described as positive on the global macroeconomic front. What is most fascinating is how the private client sector simply refuses to drink from the Fed liquidity spiked punch bowl, having been burnt by two central bank-induced bubbles separated less than a decade apart leaving David Rosenberg, of Gluskin Sheff, still rightly focused on benefiting from his long-term 3-D view of deleveraging, demographics, and deflation - as he notes US data is on notably shaky ground. This appears to have been very much a trader's rally as he reminds us that liquidity is not an antidote for fundamentals.

The main event of the past 48 hours: the Chinese "Schrodinger" PMI, which came much weaker or stronger, depending on whether one uses the HSBC or official data (which always has a seasonal jump from February into March) has been forgotten. Any bullish sentiment from a 'hard landing-refuting' PMI (which incidentally means less chance of easing), was erased following a very weak Japanese Tankan sentiment report, which saw exporters fret about a return to Yen strength. Naturally, the market response was to immediately shift hopes and dreams of more easing to the BOJ, if the PBOC is for the time being off the hook. Alas, since the BOJ's actions have traditionally had much less impact on global markets, stocks are not happy. This was followed by a bevy of Eurozone data, where unemployment rose to 10.8% from 10.7%. And while this deterioration was expected, the slide in French PMI was not, dropping from 47.6 to 46.7, on expectations of an unchanged print. The modest bounce in German PMI and especially in the UK from 51.5 to 52.7, where QE is raging, were not enough to offset fears that it is now "France's turn" and that global PMIs are once again showing that the recent $2 trillion in global liquidity equivalent injections have already peaked, in line with expectations: after all the half life of central planning interventions is getting progressively shorter.

All you need to read and more.

A bevy of economic data misses overnight, including German and UK retail sales, Japan industrial production, UK consumer confidence, and a European economy which is overheating more than expected (2.6% vs 2.5% exp, although with $10/gas this is hardly surprising), and futures are naturally green. The reason: the broken record that is the European FinMins who are now redirecting attention from the slowly fading LTRO impact to the good old standby EFSFESM, which according to a statement by de Jager has now been agreed on at €800 billion, lower than last week's preliminary expectation for €940 billion in joint firepower. That this is nothing but a headline grabber is as we have noted before, as there is much doublecounting, capital allocation to and by the PIIGS as well as funding already assigned. It will likely take stocks some time before the realization dawns that this is not new capital and liquidity entering the markets, unlike QE on either side of the Atlantic, while the amount is largely inadequate to fill the multi-trillion liquidity shortfall, let alone "solvency" of European sovereigns and banks. So for now enjoy the greenness all around.

All you need to read and more.

After two months of quiet from the old world, Europe is again on the radar, pushing futures in the red, and the EURUSD lower, following a miss in March European Economic and Consumer confidence, printing at 94.4 and -19.1, on expectations of 94.5 and -19.0, as well as an Italian 5 and 10 Year auction which seemingly was weaker than the market had expected, especially at the 10 Year side, confirming the Italian long-end will be a major difficulty as noted here before, and pushing Italian yields higher (more on the market reaction below). The primary driver of bearish European sentiment continues to be a negative Willem Buiter note on Spain, as well as S&P's Kramer saying Greece will need a new restructuring. Lastly, the OECD published its G-7 report and reminded markets that Italian and likely UK GDP will shrink in the short-term. This was offset by better than expected German unemployment data but this is largely being ignored by a prevailing risk off sentiment. In other words, absolutely nothing new, but merely a smokescreen narrative to justify stock declines, which further leads us to believe that next week's NFP will be worse than expected as discussed last night.

Bad news is once again good news. Asia sells off on Monday's weaker profit news; the Bank of Spain says that the Spanish economy is expected to see a negative print in Q1 which if confirmed will ensure a fresh recession while the budget statistics released by the Spanish government yesterday showed further deterioration in its fiscal situation, per DB. The deficit for the first two months of the year was €20.7bn and this does not include state and  regional governments’ budgets; lastly American housing slump accelerates as MBA mortgage applications drop for the 7th consecutive week with applications down 2.7%, on the back of a 4.6% decline in refi applications, the lowest since December 7. And futures are...green. Which is to be expected, since good news is good news, and bad news is, thanks to the Fed, and in this case uber-dove Rosengren, who said more stimulus is on the table, better news. It is now obvious that the Fed will not rest until the market is at fresh all time distorted, manipulated, nominal highs.

All you need to read and some more.

Any and all negative overnight news are now completely ignored as the scramble for risk hits the usual fever pitch following Bernanke's latest attempt to transfer cash from safe point A to ponzi point B, aka stocks. First, China's industrial firms suffered a rare annual drop in profits in the first two months of 2012 mainly in petrochemicals, metals and auto firms, the latest signs of weakness in the world's No. 2 economy and reinforcing the case for policy easing, according to Reuters. This was the first Jan-Feb profits downturn since Jan-Aug 2009. Profits fell 5.2 percent so far in 2012, according to the industrial profitability indicator, published by the National Bureau of Statistics (NBS) every month. The last period that China reported nationwide industrial profit fall was in the first eight months of 2009. Then there was the German GfK Consumer Confidence which unlike yesterday's IFO, missed: nobody cares. Also on the negative side was an earlier auction of Spanish Bills which sold EUR 2.58 billion, just barely off the low end of a target issuance of EUR 2.5-3 billion. As noted however, neither this, nor the series of US disappointments which looks set to end March with 15 of 17 estimate misses is relevant. To wit: French consumer confidence soared to 87 on expectations of 82, as the easiest and lowest common denominator to boost risk assets is now abused everywhere, by UMich, by Germany and now by France. And why would people not be confident - stocks everywhere are higher despite fundamentals. After all if something fails, there is a central planner to fix it. Never forget - the taxpayer credit card has no limits. Net result - green across the board. 

It is a fact that when it comes to the oddly resilient Japanese hyperlevered economic model, the bodies of those screaming for the end of the JGB bubble litter the sides of central planning's tungsten brick road. Yet in the aftermath of last month's stunning surge in the country's trade deficit, this, and much more may soon be finally ending. Because as Caixin's Andy Xie writes "The day of reckoning for the yen is not distant. Japanese companies are struggling with profitability. It only gets worse from here. When a major company goes bankrupt, this may change the prevailing psychology. A weak yen consensus will emerge then." As for the bubble pop, it will be a sudden pop, not the 30 year deflationary whimper Mrs. Watanabe has gotten so used to: "Yen devaluation is likely to unfold quickly. A financial bubble doesn't burst slowly. When it occurs, it just pops. The odds are that yen devaluation will occur over days. Only a large and sudden devaluation can keep the JGB yield low. Otherwise, the devaluation expectation will trigger a sharp rise in the JGB yield. The resulting worries over the government's solvency could lead to a collapse of the JGB market." It gets worse: "Of course, the government will collapse with the JGB market." And once Japan falls, the rest of the world follows, says Xie, which is why he is now actively encouraging China, and all other Japanese trade partners of the world's rapidly declining 3rd largest economy to take precautions for when this day comes... soon.

Remember all those European PMIs which imploded over the past month, destroying any hopes of a rapid rebound from Europe's technical recession? You can forget them now because the one indicator which tracks the level of the manipulated stock market more than anything else, German IFO business survey, just came better than expected, at a whopping 109.8 compared to expectations of 109.6 print, same as the previous one. And that is all it takes for futures, and the EURUSD to ramp, which in turn plants the seeds for another confidence ramp next month and so on. Here is Goldman's take: "The assessment of current conditions remained unchanged at 117.4, while expectations increase to a level of 102.7 after 102.4. Looking at the different sectors it shows that confidence in the manufacturing sector was broadly stable on a high level (14.0 after 14.3), while construction saw a small decline after a surge over the last couple of months (2.3 after 3.3; confidence stood at -13.2 in October). Confidence in the retail sector also recorded a strong gain (106.6 after 3.7), while wholesale saw a decline (12.8 after 15.0). This is a strong report with business conditions remaining significantly above their long-term average of 101.1. The rebound in business conditions after a soft spot during October to January is indicative for a rebound in the underlying momentum in the economy." Well, no, if anything it is indactive that Germans were happy to reap the benefits of a few trillion in liquidity which in turn pushed markets higher, and making Germans even more confident despite the big miss in German PMI in March. But for now a big drop in the market is unwelcome so let's focus on reflexive, Catch 22 indicators. Even Goldman is perplexed on the spin: "Only the release of the 'hard' data in the coming weeks will show which survey is giving the correct signal with respect to the underlying momentum of the German economy. But in any case, the March IFO argues against taking, at least for now, the PMIs at face value."

All you need to read and more.

All you need to read and some more.

Yesterday we discussed extensively how the narrative of US decoupling, which has so far trumped everything else, is finally fading, is coming to an abrupt end, and with no other "plotline" to take its place, as China, Europe and corporate profits are all in the dumps, the only option is for more easy money to come soon. However, with crude sticky this will be a problem in an election year. Today, this sentiment has become even more acute as new Greek 2023 bonds have for the first time trade over 20%, with weakness spreading to all the other PIIGS, and talk of yet another LTRO already picking up pace. The question of what if any assets European banks is luckily ignored for now. So as futures turned red once more, here is Bank of America summarizing the bearish market sentiment this morning.