Following yesterday's S&P surge on the worst hard economic data (not some fluffy survey conducted by a conflicted firm whose parent just IPOed and is thus in desperate need to perpetuate the market euphoria) in five years, there is little one can comment on how "markets" react to news. Good news, bad news... whatever - as long as it is flashing red, the HFT algos will send momentum higher. The only hope of some normalization is that following the latest revelation of just how rigged the market is due to various HFT firms, something will finally change. Alas, as we have said since the flash crash, there won't be any real attempts at fixing the broken market structure until the next, and far more vicious flash crash - one from which not even the NY Fed-Citadel PPT JV will be able to recover. For now, keep an eye on the USDJPY - as has been the case lately, the overnight USDJPY trading team has taken it lower ahead of the traditional US day session rebound which also pushes the S&P higher with it. For now the surge is missing but it won't be for longer - expect the traditional USDJPY ramp just before or as US stocks open for trading.
This week brings PMIs (US and Euro area ‘flash’) and inflation (US PCE, CPI in Germany, Spain, and Japan). Among other releases, next week in DMs includes [on Monday] PMIs in US (June P), Euro Area Composite (expect 52.8, a touch below previous) and Japan; [on Tuesday] US home prices (FHFA and S&P/Case Shiller) and Consumer Confidence (expect 83.5, same as consensus), Germany IFO; [on Wednesday] US Durable Goods Orders (expect -0.50%, at touch below consensus) and real GDP 1Q anniversary. 3rd (expect -2.0%) and Personal Consumption 1Q (expect 2.0%), and confidence indicators in Germany, France and Italy; [on Thursday] US PCE price index (expect 0.20%), Personal Income and Spending, and GS Analyst Index; and [on Friday] Reuters/U. Michigan Confidence (expect slight improvement to 82, same as consensus), GDP 1Q in France and UK (expect 0.8% and 0.9% yoy, respectively), and CPI in Germany, Italy, Spain and Japan.
Simple overview of the week ahead.
What Q2 GDP Surge? After March Spending Spree, Tapped Out Consumers Had Biggest Spending Drop Since 2009Submitted by Tyler Durden on 05/30/2014 09:04 -0400
Last month, when we noted the massive surge in Personal Spending which was funded entirely by the depletion of personal savings, we said that "since spending was so much higher than income for one more month, at least according to the bean counters, the savings rate tumbled and at 3.8% (down from 4.2% in February), was the second lowest since before the Lehman failure with the only exception of January 2013 after the withholding tax rule changeover. So for all those sellside economists who are praying that the March spending spree, funded mostly from savings, will continue into Q2 (because remember March is in Q1, which as we already know had an abysmal 0.1% GDP growth rate), we have one question: where will the money come from to pay for this ongoing spending spree?" Turns out the answer was... nowhere.
- Ukraine Rebels Outfox Army to Dent Poroshenko Troop Goal (BBG)
- Russia Withdraws Most of Forces From Ukraine Border: U.S. (BBG)
- Super-Size Me! China’s ’Mini’ Stimulus Starts Expanding (BBG)
- Option B: The blueprint for Thailand's coup (Reuters)
- Big investors replace banks in $4.2tn repo market (FT)
- Draghi Shields Catalan Independence Bid From Market (BBG)
- U.S. companies seek cyber experts for top jobs, board seats (Reuters)
- Parsley CEO Emerges as One of Youngest U.S. Billionaires (BBG)
Equity Blow Off Top Takes Brief Overnight Rest, Prepares For Another Session Of Low Volume LevitationSubmitted by Tyler Durden on 05/30/2014 07:03 -0400
Last night's docket of atrocious Japanese economic data inexplicably managed to push the Nikkei lower, not because the data was ugly but because the scorching inflation - the highest since 1991 - mostly driven by import costs, food and energy as a result of a weak yen, and certainly not in wages, has pushed back most banks' estimates of additional QE to late 2014 if not 2015 which is as we predicted would happen over a year ago. As a result the market, addicted to central bank liquidity, has had to make a modest reassessment of just how much disconnected from reality it is willing to push equities relative to expectations of central bank balance sheet growth. However, now that the night crew trading the USDJPY is replaced with the US session algo shift which does a great job of re-levitating the pair, and with it bringing the S&P 500 higher, we expect this brief flicker of red futures currently observable on trading terminals to be promptly replaced with the friendly, well-known and "confidence-boosting" green. The same goes for Treasurys which lately have been tracking every directional move in stocks not in yield but in price.
The melt up is accelerating and with the momentum tailwind back, newsflow is once again irrelevant: any news that are even remotely good are trumpeted, and any bad news - such as Europe's right storm rising in the northern states, and left storm surge in the states that demand more handouts from the northern states or China sinking a Vietnamese boat, the most serious bilateral incident since 2007 - are once again (and as usual) nothing more than a catalyst for even more liquidity injections. End result: the S&P futures this morning are 5 points above Goldman's year end target of 1900 and 45 points away from its June 30, 2015 target. Can this breakneck scramble on zero volume continue until Grantham's bubble peak level of 2,200 is hit? Well of course: after all anything goes in the centrally-planned new normal. To be sure, this is an equity only phenomenon: moments ago the Bund future hit its highest level since May 19, while the 10 Year remains unchanged at 2.53% as it continues to price in the new "deflationary" (and Japanese) normal. And as has been the case during all such divergences of late, either bonds or equities are making a horrible mistake: the question remains: who? Since all equities are doing is tracking FX pairs to the pip and have completely forgotten all about fundamentals, we have a pretty good idea what the answer is.
The inevitable shuttering of at least 3 billion square feet of retail space is a certainty. The aging demographics of the U.S. population, dire economic situation of both young and old, and sheer lunacy of the retail expansion since 2000, guarantee a future of ghost malls, decaying weed infested empty parking lots, retailer bankruptcies, real estate developer bankruptcies, massive loan losses for the banking industry, and the loss of millions of retail jobs. Since we always look for a silver lining in a black cloud, we predict a bright future for the SPACE AVAILABLE and GOING OUT OF BUSINESS sign making companies.
Has there been an economic recovery? The statistical data clearly shows that this has been the case. However, the 100 million Americans that currently depend on some sort of social assistance to "make ends meet" are likely to disagree with that view.
Regardless of which side of the low labor force participation rate argument you stand on, it is hard to argue that it is simply a function of retiring "baby boomers." While political arguments are great for debate, it is the economics that ultimately drive employment. While the Fed has inflated asset prices to the satisfaction of Wall Street, it has done little for the middle class. It is ultimately fiscal policy that will help business create employment, the problem is that businesses need less of it while government officials keep piling on more. In the meantime, stop blaming "baby boomers" for not retiring - they simply can't afford to.
There was good and bad news in today's personal spending report. First the good: US consumers saw their personal income rise by 0.5%, or $78 billion, in March to a $14.5 trillion SAAR, driven mostly by a $32 billion increase in service wages, as well as $16 billion from government transfer receipts. Now the bad (or, if one is a Keynesian, doubly good) news: personal spending more than offset the increase in income, rising by 0.9% or the most since August 2009, which rose to $12.3 trillion SAAR, driven roughly equally by an increase in spending on Goods ($53 billion) and Services ($54 billion). Curiously the increase in goods spending was the single biggest monthly increase also since August 2009. As for services, the systematic increase on spending over the past several months is unmistakable as far more money is allocated toward healthcare, that one major spending category which rescued Q1 GDP.
- Two-Thirds of Insurance Exchange Enrollees Paid Premiums (WSJ)
- Panic: Criminal Charges Against Banks Risk Sparking Crisis (BBG)
- Did the junk bubble pop: Junk Loans Pulled as Investors Say No After Fed Raises Concerns (BBG)
- CME mulls price fluctuation limits for gold, silver futures (Reuters)
- AT&T Has Approached DirecTV About Possible Acquisition (WSJ)
- NBA sets wheels turning for Clippers sale; Oprah in wings (Reuters)
- One way to fix prison overcrowding: Florida Jail Hit by Deadly Blast (WSJ)
- New Boeing jets hold key to more than half of future sales (Reuters)
- Sony slashes profit estimate by 70% (Guardian)
It is May Day, which means half the world - the half where welfare contributions to one's standard of living are off the charts - celebrate labor, or rather the lack thereof, by taking a day off. Which means virtually all of Europe is closed, as are Eurex and Euronext futures, and most European markets expect the UK. In light of the non-existent volume, futures are relatively unchanged despite the latest Chinese Mfg PMI disappointment (50.4, below the 50.5, expected but just above the prior print of 50.3), and of course yesterday's US GDP debacle which helped push the DJIA to a record high. The good news is that with volume even more miserable than usual, the few momentum ignition algos that are operating will have a field day with the now standard low-volume levitation that happens like clockwork if the news is bad, and also happens just in case if the news is bad.
The coming week will be busy in terms of data releases in the US; highlights include an improvement in consumer confidence, anemic 1Q GDP growth, and solid non-farm payrolls (consensus expects 215K). Wednesday brings advanced 1Q GDP - consensus expected a pathetic 1.1% qoq, on the back of what Goldman scapegoats as "weather distortions and an inventory investment drag", personal consumption (consensus 1.9%), and FOMC (the meeting is not associated with economic projections or a press conference). Thursday brings PCE Core (consensus 0.20%). Friday brings non-farm payrolls (consensus of 215K) and unemployment (6.6%). Other indicators for the week include pending home sales, S&P/Case Shiller home price index, Chicago PMI, ADP employment, personal income/spending, and hourly earnings.
A ‘Perfect Storm’ of demography and debt will economically and financially doom almost every country on earth. It will be TEOTWAWKI – ‘The End Of The World As We Know It’. No, it’s not the end of life or even the end of civilization. However, when it’s all over, nothing will ever be the same and that includes the disappearance of much of the middle class. The good news - The storm won’t last forever. The bad news is there will be much more pain before it ends unless you make an effort to understand what’s happening and why.