Remember China's 6% crash last week? It is now a distant memory made even more remote thanks to the latest batch of ugly data out of China, coupled with hints of even more liquidity injections, which led to the latest surge in the Shcomp, an index that has put most pennystocks to shame. In Europe, the big story remains Greece, and as everyone expected, the doomed country and its creditors failed to make a deal on Sunday. This is after Greek Officials were said to have prepared a draft agreement, which was expected to be announced on Sunday. Not helping things, Greek PM Tsipras came out in fully defiant mode and accused bailout monitors of making “absurd” demands and seeking to impose “harsh punishment” on Athens. A bunch of final PMI number showed a modest improvement in the periphery at the expense of Germany whose deterioration is starting to be a concern.
It seems comical, yet ill-omened, how Barack Obama is herding the already decimated middle class along a path sure to reach economic oblivion, while maintaining support from much of the old guard of school-government-trade unionists which has kept the Democratic Party afloat during the last five decades in a conservative sea dominated by currents of old-time religion and misguided patriotism. ISIS’ literal style of decapitation is repugnant and shocking. US’ self-imposed economic decapitation may not appear at first as shocking, but the end result will be as gruesome to America’s working class: not the proletariat of old, but most everyone holding both blue and white collar jobs.
Despite the government's 'advice' to young debt-laden students, the tragedy of the American farmer continues with worryingly pessimistic views on the future of the industry. With farmland prices falling for the first time in almost 30 years, credit conditions are weakening dramatically and the Kansas City Fed warns that persistently low crop prices and high input costs reduced profit margins and increased concerns about future loan repayment capacity, and JPMorgan concludes, the industry is currently in dire straits with the potential for a liquidity crunch for farmers into 2016.
- Fed’s Yellen: Stock Valuations ‘Generally Are Quite High’ (WSJ)
- Britain's dead-heat election 'down to the wire' on polling day (Reuters)
- European Markets Roiled by U.S. Fed Chief Janet Yellen’s Comments (WSJ)
- Stocks Drop With German Bonds to Extend $2 Trillion Global Loss (BBG)
- Oil heads toward 2015 highs despite ample supply (Reuters)
- Wary of bond 'cliff,' Fed plans cautious cuts to portfolio (Reuters)
- Saudi Arabia mulling land operations on Yemen border (Reuters)
Holidays in Europe and Asia left things quiet overnight after some traders used the last day of April to frontrun the old "sell in May and go away" market adage. Market closures also kept the Chinese day trading hordes from using a tiny beat on the official manufacturing PMI print as an excuse to pile more money into the country's equity mania, while Japanese shares ended mostly unchanged as investors fret over when the BoJ will deliver the next shot of monetary heroin. In the US we'll get a look at ISM manufacturing and the latest read on consumer confidence as we head into the weekend.
The myth of the resurgent US consumer, who was somehow supposed to benefit massively from the "unambiguously good" plunge in oil and gas prices, has been gutted and eviscerated, with the latest confirmation coming from the Personal Income and Spending data, in which we find that not only did personal income not grow in March, with wage growth the lowest in 2015 (with manufacturing workers' incomes coming flat and Trade and Transportation wages actually down), but because spending rose by a weaker than expected 0.4% in March, the 4th miss in the past 5 months, US personal savings have resumed declining and all those "gas savings" are finally being spent: just not where they should be spent, and not in the amounts hoped.
The biggest overnight story was neither out of China, where despite the ridiculous surge in new account openings and margin debt the SHCOMP dipped 08%, or out of Japan, where the Nikkei dropped 2.7%, the biggest drop in months, after the BOJ disappointed some by not monetizing more than 100% of net issuance and keeping QE unchanged, but Europe where for the second day in a row there was a furious selloff of Bunds at the open of trading, which briefly sent the yield on the 10Y to 0.38% (it was 0.6% two weeks ago), in turn sending the EURUSD soaring by almost 200 pips to a two month high of 1.1250, and weighing on US equity futures, before retracing some of the losses.
Honest price discovery is essential to capitalist prosperity since it is the miraculous mechanism by which capital is raised from savers and investors and efficiently allocated among producers, entrepreneurs and genuine market-rate borrowers. What the central banks have generated, instead, is a casino that is blindly impelled to churn the secondary capital markets and inflate the price of existing assets to higher and higher levels - until they ultimately roll-over under their own weight. The Easy Button addiction of our central bankers is thus not just another large public policy problem. It is the very economic and social scourge of our times.
For 6 months, investors have been buying the idea - pitched by any and every status-quo-sustaining talking head, politician, and central banker - that low oil prices are unequivocally good for America. This has manifested itself in retail stocks handily outperforming the S&P. However, as Bloomberg notes, the last few weeks has seen that reverse dramatically as it appears investors, losing faith in the big-takers, have realized that "consumers aren't spending as much of the money saved from lower gasoline prices."
With the USDJPY's ascent to 125, 150 and higher having seemingly stalled just under 120, with concerns that the BOJ may not monetize more than 100% of its net debt issuance suddenly surfacing, the BOJ and the Nikkei would take any help they could get. They got just that an hour ago when Fitch downgraded Japan's credit rating from A+ to A, citing lack of sufficient structural fiscal measures in FY15 budget to replace deferred consumption tax increase.
The fairy dust peddlers who moonlight as Wall Street economists were out in force yesterday after March retail sales came in with a positive m/m change for the first time since November. This purportedly confirms that we’re back on track for a big rebound in Q2. In any event, what happens next is not too hard to figure. Unless you are a Wall Street economist.
We simply don’t see any time in the future that would see Americans start spending again at a rate anywhere near what would be required for an economic recovery. However, that is by no means a generally accepted point of view in the financial press; and so these issues must be addressed time and again until people begin to understand, and quit making the wrong decisions for the wrong reasons. People have a right to know what’s truly happening to their lives, and their societies. And they’re not nearly getting enough of it through the ‘official’ press.
This long-term weakening of the economy is the direct result of financialization and the Federal Reserve's policy of propping up impaired debt with more debt and constantly bringing demand forward with zero interest rates. The U.S. economy is slowing to stall speed--the point when gravity overcomes the lift provided by central bank free money. This deceleration is evident in a number of indicators such as gross domestic product (GDP), which is now at 0% according to the Federal Reserve Bank of Atlanta's GDPNow model.
Did stocks window dressing come one day early in this volatile, bipolar, stop-hunting, HFT-infested market? Looking at futures this morning, which are down about 12 points already on yet another surge in the USD which has sent the EURUSD just above 1.07, the lowest since March 20 , and the USDJPY back under 120 now that the "strong dollar is bad for stocks after all" algo seems to be back from vacation, all those hedge funds who chased risk higher yesterday because their peers did the same, may find they are all selling on the way down. It will be oddly ironic if all of yesterday's widely touted gains evaporate comparably in the first 10 minutes of trading today, and lead to an end in the longest streak of quarterly increases in two decades.