- Obamacare, tepid U.S. growth fuel part-time hiring (Reuters)
- Cameron was behind UK attempt to halt Snowden reports (Reuters), Britain defends detention of journalist's partner (Reuters)
- Goldman Options Error Shows Peril Persists One Year After Knight (BBG)
- China expresses 'shock' as Japan's nuclear crisis deepens (Reuters)
- Inquiry into China insurance firm rattles industry (Caixin)
- Cheaper rivals eat into Apple’s China tablet share (FT)
- Exporting fast food: Subway Targets Europe With as Many as 1,000 New Outlets in 2014 (BBG)
- Reserve Bank of India boosts liquidity to ease pressure on banks (FT)
- Justice Department Plans New Crisis-Related Cases (WSJ) - Holder doing his cutest attempt to pretend the TBTProsecute aren't
- Syrian Opposition Alleges Gas Attack, Which Government Denies (WSJ)
- Ackman Says Pershing Square Takes 9.8% Stake in Air Products (BBG) - So is APD Carl Icahn's biggest ever short yet
- Latest Hilsenplant: Summers Hedges His Doubts on Fed's Bond Buying (WSJ)
- China Stocks World’s Worst Losing $748 Billion on Slump (BBG)
- U.S. Spy Program Lifts Veil in Court (WSJ)
- Abenomics on the rock again: Japan July manufacturing PMI shows growth at 4-month low (Reuters)
- EADS to be renamed Airbus in shake-up (FT)
- Goldman's GSAM has significantly increased its exposure to European equities (FT) - there is a reason why this is Goldman's worst division
- Japanese Megabanks Post Mega Profit Gains (WSJ) - when one excludes MTM impact from rate surge of course
- Ex-workers sue Apple, seek overtime for daily bag searches (Reuters)
- Hong Kong Yuan Deposits Snap Eight-Month Increase on Cash Crunch (BBG)
- Downtown NYC Landlords Remake Offices in Shift From Banks (BBG)
Back in May, when we coined the term "Taper Tantrum" before the infamous Hilsenrath article was released bringing with it famine, pestilence and a full rerun of the 1994 blow out in rates, and when the prevailing consensus was that Bernanke wouldn't touch the rate of monthly monetization until December or even 2014, we forecast that as a result of a the declining US deficit (primarily due to a brief spike in GSE remittances to the Treasury until the closed loop of lower monetization ends any myth of a "housing recovery" and pushes US deficits much wider again) Bernanke will have no choice but to taper QE by $20 billion (or else risk destabilizing an already illiquid TSY market even more) with the announcement due at the September FOMC meeting. Just to avoid any confusion, we also showed just what such a September tapering would look like in the grand context of QE. But when, and by how, much does Wall Street see the end of tapering, and what is the sell-side consensus? The list below summarizes the current view by bank.
We need to think about lessening the economic “skin-in-the-game” for RMBS and focusing anew on enforcing US securities laws...
In every era, there are certain people and institutions that are held in the highest public regard as they embody the prevailing values of society. Not that long ago, Albert Einstein was a major public figure and was widely revered. Can you name a scientist that commands a similar presence today? Today, some of the most celebrated individuals and institutions are ensconced within the financial industry; in banks, hedge funds, and private equity firms. Which is odd because none of these firms or individuals actually make anything, which society might point to as additive to our living standards. Instead, these financial magicians harvest value from the rest of society that has to work hard to produce real things of real value. Money is power. And history has shown that power is never ceded spontaneously or willingly. But the stability of this parasitical system begins to weaken quickly when the lifeblood it depends on begins to dry up. And that's when things can begin to go south in a hurry
The only story this morning remains Bernanke's after hours speech, which solidly trumped the FOMC minutes in market impact, and which, in addition to ramping US equity futures to just about new all time highs, sent the EURUSD soaring by almost the same amount (+300 pips) as the actual QE1 announcement on March 18, 2009. Such is the power of verbal currency warfare, when Bernanke hasn't acutally done anything and merely hinted the Fed is as confused as ever about what to do. Of course, as Commerzbank notes this morning, the U.S. economy would have to lose a lot of momentum for the Fed to cancel tapering, and the central bank would only expand the purchase program if the economy collapses, but none of that matters to the "wealth effect" for the 1% where economic destruction simply means more wealth.
- Egypt Girds for Muslim Brotherhood Protests (WSJ)
- SAC Capital's Steven Cohen Expected to Avoid Criminal Charges (WSJ)
- SAC insider-trading probe could last years (Reuters)
- RBI seen selling dollars around 60.59 levels: dealers (Reuters)
- China signals will cut off credit to rebalance economy (Reuters)
- Egypt army arrests key Muslim Brotherhood figures (BBC)
- Rise in Steel Prices Alarms Buyers (WSJ)
- Draghi-Carney Seek Independence Day Break From Bernanke (BBG)
- Samsung Warns Results Will Miss Forecasts (WSJ)
- Russia Prosecutor Seeks 6 Years in Jail for Putin Critic Navalny (BBG)
A smorgasbord of secondary Japanese data missed expectations this evening and while all appears relatively calm if you just look at USDJPY, it is anything but in the stock and bond markets which have both lost significant ground already. Nomura launched the largest IPO of the year (Nomura REIT) and it is down 4.8% out of the gate (at least they didn't pull the 'market conditions' trick so many US companies fall back on) but the broad TOPIX index is down 2.4% and unable to find any dip-buyers to encourage. Financials (-3.4%) and Consumer stocks (-2.5%) are the worst with Utilities modestly bid (+0.3%) for now. JGBs were following the 'open down, rally gently higher for the rest of the day' pattern of the last three days but soon after the BoJ announced its buying program at 9ET, the selling escalated. All-in-all, it is more of the same from the US day-session but with JPY oddly quiet for now as the JGB market remains mildly out of control...
China continues to be stuck between an external hot money flows rock and a contracting economy and unstable banking sector hard place... Thanks to the G-0 central planners, the PBOC's hands are now tied: if it injects more hot money or lowers the interest rate the inflation on the margins, which it has so far been able to mask will spill over into the streets in a repeat of 2011, and force an even more epic scramble for inflation protection than the one seen two years ago, and which led to gold rising to just shy of $2000. Naturally, at a time when the central planners have gone all in on precipitating the Great Rotation out of bonds and into stocks at all costs, a re-exodus into gold might just end the Keynesian experiment. So the China central bank has that to contend with as well.Which means one thing: in reality Chinese credit and liquidity is in far worse shape than reported. And sure enough, over the past 24 hours we got news courtesy of Bloomberg that the "China Liquidity Squeeze Risks Companies’ Debt Rollover" leading to what may be the first harbinger of a Chinese bank failure which may subsequently lead to a whole lot of dominoes falling.
The spin-doctors are hard at work talking up America’s subpar economic recovery. All eyes are on households. Thanks to falling unemployment, rising home values, and record stock prices, an emerging consensus of forecasters, market participants, and policymakers has now concluded that the American consumer is finally back. Don’t believe it. In short, the American consumer’s nightmare is far from over. Spin and frothy markets aside, the healing has only just begun.
It doesn't take an Econ Ph.D to realize that what Japan is trying to do: which is to recreate the US monetary experiment of the past four years, which has had rising stocks and bonds at the same time, the first due to the Fed's endless monetary injections (and pent up inflation expectations) and the second due to quality collateral mismatch and scarcity and shadow bank system funding via reserve currency "deposit-like" instruments such as TSYs, is a problem. After all, those who understand that the BOJ is merely taking hints from the Fed all along the way, have been warning about just that, and also warning that once the dam breaks, and if (or when) there is a massive rotation out of bonds into stocks, it is the Japanese banks - levered to the gills with trillions of JGBs - that will crack first. Apparently, this elementary finance 101 logic has finally trickled down to the BOJ, whose minutes over the weekend revealed that members are pointing out "contradictions" in the Kuroda-stated intent of doubling the monetary base in two years, unleashing inflation, sending the stock market soaring, all the while pressuring bondholders to not sell their bonds. As the FT reports, "According to the minutes of the April 26 policy meeting, released on Monday, a “few” board members said the BoJ’s original stance “might initially have been perceived by market participants as contradictory”, causing “fluctuations in financial markets”.
- ‘Cov-lite’ loans soar in dash for yield (FT)
- Cambodian police clash with thousands of garment workers, 23 hurt (Reuters)
- Obama Accepting Sequestration as Deficit Shrinks (BBG)
- Having done nothing to restore confidence in a fragmented market, the SEC turns back to main street fraud (WSJ)
- Europe's austerity-to-growth shift largely semantic (Reuters)
- Germany thwarts EU in China solar fight (FT)
- In EU-China dispute, Beijing warns of trade (FT)
- U.S. Oil Boom Divides OPEC (WSJ)
- Record Cash Sent to Balanced Funds (BBG)
- Hilsenrath: Fed Wrestles With Market Expectations About Pace of QE (WSJ)
- Worse-Than-Cyprus Debt Load Means Caribbean Defaults to Moody’s (BBG)
- States Raise College Budgets After Years of Deep Cuts (WSJ)
- U.K. Banks Cut 189,000 With Employment at Nine-Year Low (BBG)
With US markets taking a day off today for Memorial Day, liquidity will be even more sporadic than usual, and any sharp moves will be that much more accentuated, although such a likelihood is minimal with all US traders still in the Hamptons. In an otherwise very quiet overnight session, perhaps the most notable move was that of the USDJPY, which continues to be "strangely attracted" to the 101 line although selling pressure is certainly to the downside, with a downside breakout quite possible, however that would lead to an early and very unpleasant end to Abe's latest 'experiment' (to quote Weidmann). The Nikkei225 already closed down 470 points, or 3.22%, as Mrs. Watanabe's faith in the market, seems to be fading with every passing day.
The surge in Japanese long-term interest rates is likely causing some lost sleep among bond market participants and policymakers (despite their ignorance of the moves in the BoJ minutes) as Nomura's Richard Koo notes, if this trend continues (now added to by the collapse in stock prices) it could well mark the “beginning of the end” for the Japanese economy. Although the stock market has (until now) welcomed the yen’s continued slide against the dollar, Koo warns that this trend needs to be carefully monitored, as simultaneous declines in JGBs and the yen can be interpreted as a loss of faith in the Japanese government and the Bank of Japan. The biggest concerns are that the extreme volatility in Japanese stocks and bonds is occurring at a time when the BOJ was buying large quantities of government bonds. It is now clear that even large-scale BOJ purchases of JGBs cannot stop yields from rising. Simply put, Koo notes, the BoJ needs to rein itself in and state it will not stand for overshooting inflation expectations or the 'bad' rise in rates could crush both the nascent recovery and the nation's banking system.
- Once a beacon, Obama under fire over civil liberties (Reuters)
- Eurozone in longest recession since birth of currency bloc (FT)
- EU Oil Manipulation Probe Shines Light on Platts Pricing Window (BBG)
- BMWs Cheaper Than Hyundais in Korea as Tariffs Crumble (BBG)
- Stock Boom Isn't a Bubble, Says BOJ's Kuroda (WSJ)
- Struggling France strives to shake off economic gloom (FT)
- JPMorgan investors take heat off Dimon (FT)
- Private-Equity Firms Build Instead of Buy (WSJ)
- Bloomberg Saga Highlights Clash Between Two Worlds (WSJ)
- Bank documents portray Cyprus as Russia's favorite haven (Reuters)
- HSBC Signals 14,000 Jobs Cuts in $3 Billion Savings Plan (BBG)
- Argentines Hold More Than $50 Billion in U.S. Currency (BBG)