With the rest of the developed world's central banks waiting for the Fed to admit defeat for one more year and delay its proposed rate hike (or launch NIRP/QE4 outright) it was all about China (the same China which a month ago we said would launch QE sooner or later) and hope that its central bank would boost asset prices, when over the weekend the PBoC governor hinted that more easing is imminent to offset the accelerating drag after he admitted that the nation’s growth rate has tumbled "a bit" too much and that policy makers have scope to respond. How much scope it really has now that its bad debt is rising exponentially is a different question. It got so bad, Shanghai Securities News leaked a false rumor earlier forcing many to believe China would announce an unexpected rate cut as soon as today, in the process sending the Shanghai Composite soaring by 2.6%.
A look ahead at the major drivers in the days ahead.
So much for the "self-sustaining", "escape-velocity" recovery. Again. After rising at an annualized pace of 4.6% and 5.0% in Q2 and Q3, the final Q4 GDP estimate (a number which will still be revised at least 3-4 times in the coming years), slid more than half to 2.2%, the same as the second estimate from a month ago, and below the consensus Wall Street estimate of 2.4%.
After a few days of dollar weakness due to concerns that the Fed's rate hike intentions have been derailed following some undisputedly ugly economic data (perhaps the Fed should just make it clear there will never be rate hikes during the winter ever again) the USD has resumed its rise, and as a result risk assets, after surging early in the overnight session driven by the Nikkei225 and the Emini, the "strong dollar is bad for risk" trade has re-emerged, with the Nikkei dropping almost 500 points off its intraday highs, with US equity futures poised to open lower once more, sliding nearly 20 points in the overnight session, and surprising the BTFDers who have not seen five consecutive days of "risk-off" in a long time.
The prospects of a rate hike by the Fed are looking increasingly shaky and downright laughable, not just because the start to 2015 for the US economy has been the worst in "negative surprises" terms since Lehman, or because the Atlanta Fed Q1 real-time GDP forecast is about to go negative (consensus originally expected this print to be 3.5% if not higher), but because the last time this happened, the Fed launched QE2. What is "this"? Bank of America explains.
There is a tremendous denial by analysts and economists currently of the deteriorating economic underpinnings.
With all deference to Dr. Richard Fisher, the surging dollar is not good for either the economy or ultimately a stronger labor market. This is particularly the case when the dollar is only stronger because the rest of the world is on the brink of recession and or deflation. The negative impact of a surging dollar in a weak economic environment will more than likely outweigh any positive inputs for the U.S. consumer. Time will tell, but the evidence is mounting that the we are likely closer to the end of the current economic cycle than the beginning.
The divergence is not just between the US and Europe/Japan, but also China.
There was much hope that when Q3 GDP soared to 5%, primarily on the back of Obamacare spending recalendarization and a massive consumption/personal saving data revision, that the US economy would finally enter lift-off mode. Those hopes were reduced by about 60% when moments ago the BEA announced that Q4 GDP was revised from the original 2.64% print to only 2.18%, which while better than expected, was the lowest economic growth rate since the "polar vortex."
If there isone thing that is virtually certain about today's trading (aside from the post Rig Count surge in oil because if there is one thing algos are, it is predictable) is that despite S&P futures being a touch red right now, everything will be forgotten in a few minutes and yet another uSDJPY momentum ignition ramp will proceed, which will push the S&P forward multiple to 18.0x on two things i) it's Friday, and an implicit rule of thumb of central planning is the market can't close in confidenece-sapping red territory ahead of spending heavy weekends and ii) the Nasdaq will finally recapture 5000 following a final push from Apple's bondholders whose recent use of stock buyback proceeds will be converted into recorder highs for the stock, and thus the Nasdaq's crossing into 5,000 territory because in the New Normal, the more expensive something is, the more people, or rather algos, want to buy it.
So, while the markets have surged to "all-time highs," the majority of Americans who have little, or no, vested interest in the financial markets have a markedly different view. Currently, mainstream analysts and economists keep hoping with each passing year that this will be the year the economy comes roaring back but each passing year has only led to disappointment. Like Humpty Dumpty, all the Fed stimulus and government support has failed to put the broken financial transmission system back together again. Eventually, the current disconnect between the economy and the markets will merge. Our bet is that such a convergence is not likely to be a pleasant one.
Greece moves off front burner. Markets can turn attention to 1) strength of deflationary forces, 2) state of cyclical recoveries, and 3) outlook for Fed policy.
The "conundrum" between lower gasoline prices and retail sales is not really one at all. Furthermore, the real story behind the weakness in retail sales also suggest that something is "amiss" within the broader economic backdrop. When combined with the deterioration in earnings, the risk of a "gotcha" moment in the market has risen markedly.
The overnight session had been mostly quiet until minutes ago, when unexpectedly WTI, which had traded down as low as the mid $46 range following the weakest Chinese manufacturing data in two years, saw another bout of algo-driven buying momentum which pushed it sharply, if briefly, above $50, and was last trading about 2.6% higher on the day. In today's highly correlated market, this was likely catalyzed by a brief period of dollar weakness as well as the jump of EURCHF above 1.05, within the rumored corridor implemented by the Swiss National Bank, which apparently has not learned its lesson and is a glutton for a second punishment, after its hard Swissy cap was so dramatically breached, it hopes to repeat the experience with a softer one around 1.05. Expect to see even more FX brokers blowing up once the EURCHF 1.05 floor fails to hold next.
Q4 Annualized GDP Misses, Tumbles To 2.6% From 5.0%; Surging Personal Consumption Pulled Forward From 2015Submitted by Tyler Durden on 01/30/2015 09:44 -0400
Following last quarter's upward revised 5.0% GDP, driven higher mostly as a result of even more mandatory Obamacare taxation, Q4 GDP had nowhere else to go but down, the only question was how much. Wall Street estimated 3.0%. Moments ago we got the first estimate for Q4 GDP and it was a miss, printing at 2.6%, and nearly 50% below the Q3 annualized number. This also means that the final 2014 GDP is 2.4%, higher than the 2.2% in 2013 as well as the 2.3% in 2012.