If yesterday's selloff catalysts were largely obvious, if long overdue, in the form of the record collapse of Espirito Santo coupled with the Argentina default, German companies warning vocally about Russian exposure, the ongoing geopolitical escalations, and topped off by a labor costs rising and concerns this can accelerate a hiking cycle, overnight's latest dump, which started in Europe and has carried over into US futures is less easily explained although yet another weak European PMI print across the board probably didn't help. However, one can hardly blame largely unreliable "soft data" for what is rapidly becoming the biggest selloff in months and in reality what the market may be worried about is today's payroll number, due out in 90 minutes, which could lead to big Treasury jitters if it comes above the 230K expected: in fact, today is one of those days when horrible news would surely be great news for the momentum algos. Still, with futures down 0.6% at last check, it is worth noting that Treasurys are barely changed, as the great unrotation from stocks into bonds picks up and hence the great irony of any rate initiated sell off: should rates spike on growth/inflation concern, the concurrent equity selloff will once again push rates lower, and so on ad inf. Ain't central planning grand?
On the heels of UMich confidence tumbling to 4-month lows, the Conference Board's consumer confidence exploded higher to the highest since October 2007. This is the 3rd monthly rise in a row and the biggest beat in 13 months all led by a spike in future expectations to its highest since Feb 2011. The Conference Board proclaims this is due in part to a "brighter outlook for personal income," though reality of falling real hourly wages suggests that is simply false. The last time the conference board confidence diverged this much from UMich confidence was June 2007 and that did not end well...
History tells us that large governments almost invariably lead to waste, corruption, and overextension of power. It’s the large governments that rattle the sabers and constantly threaten warfare. It’s large governments that maintain police states, that spy on their citizens, and commandeer nearly every personal choice imaginable with regulatory agencies that tell us how to educate our children and what we can/cannot put in our own bodies. As Kohr theorized, bigness often leads to tyranny.
At some point there is going to be a sea change in bonds. The question is does the last week in July finally cause the Sea-Change in Bonds?
Reading through the media coverage one might think that anyone wanting to come to the US can do so with relative ease. After all, there is an ongoing debate on providing amnesty to illegals and the system seems to be so overloaded at the border down south that why not just take your chances? However, for skilled professionals and expats the reality is quite different. These days employment opportunities in the US need to be carefully balanced against subjecting yourself to US laws and regulations, some of which are unique in the developed world and can have serious consequences on your wealth, wellbeing and even personal freedoms.... As Churchill once said, "Americans will always do the right thing once they run out of options". I just hope us foreigners will still be around to see it.
"Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself." – From The Economist, July 16, 2009.
Mainstream economists continue to dominate their profession and wield huge influence on public policies. They merely needed to close ranks after the financial crisis and wait for people to forget that their key theories and models were wholly discredited. Meanwhile, heterodox economists who stress credit market risks and financial fragilities – the Austrians, the Minskyites – remain stuck on the fringes of the field. It doesn’t much matter that the crisis validated their thinking. Nonetheless, we’ll continue to explain why we think a shake-up is overdue...“Mythbusting” the theories of mainstream economists.
Abe's honeymoon is over. Following nearly two years of having free reign to crush the Japanese economy with his idiotic monetary and fiscal policies - but, but the Nikkei is up - the market may have finally pulled its head out of its, well, sand, and after last night's abysmal economic data from Japan which saw not only the highest (cost-push) inflation rate since 1982, in everything but wages (hence, zero demand-pull) - after wages dropped for 23 consecutive months, disposable income imploded - but a total collapse in household spending, the USDJPY appears to have finally been dislodged from its rigged resting place just around 102. As a result the 50 pip overnight drop to 101.4 was the biggest drop in over a month. And since the Nikkei is nothing but the USDJPY (same for the S&P), Japan stocks tumbled 1.4%, their biggest drop in weeks, as suddenly the days of the grand Keynesian ninja out of Tokyo appear numbered. Unless Nomura manages to stabilize USDJPY and push it higher, look for the USDJPY to slide back to double digits in the coming weeks.
The government now has another measure which under-reports inflation by accounting chicanery...
With all eyes firmly focused on the dismal Q1 GDP print and summarily dismissing it as 'noise', backward-looking, 'weather', and 'exogenous'; today's worrying spending data has sent the serial extrapolators among the sell-side economist herd scrambling to downgrade over-exuberant Q2 GDP expectations (five so far). One glance at this chart is all one needs to know about the "bounce back" in pent-up demand spending (that is not there). As Bank of Tokyo-Mitsubishi's Chris Rupkey told Bloomberg, "Don’t start betting on those 3% GDP numbers yet." This only trumped Goldman Sachs 'oh-so-embarrassed-again' Jan Hatzius who slashed his exuberant 4% Q2 GDP growth estimate to 3.5% (for now).
When "justifying" the abysmal Q1 GDP print, one after another economist has scrambled to explain that this number is irrelevant, due to a spending halt during the "harsh winter", following which the US consumer has been spending like mad in Q2, and the PCE, which in Q1 was an abysmal 1.0%, and the worst since 2009, is set for a major rebound. Well, guess what: after last month's huge miss (originally -0.1% now revised to 0.0%, on expectations of a 0.2% rise), the month of May - the second month of Q2 - just showed that US consumer still refuses to spend. In fact, while personal income came in line with expectations in the month of May, rising 0.4%, same as expected, and disposable income in current dollars rising by $56 billion to $12,877 billion, it was spending which missed for the second month in a row and the 4th miss in the past 6 months rising only 0.2%, half the expected 0.4%! This was the fourth spending miss in the past six months.
- Minorities Seen Driving U.S. Household Growth (Reuters)
- GM prepares to recall some Cruze sedans with Takata air bags (Reuters)
- PBOC Halts Repos as China Money Rate Climbs to Seven-Week High (BBG)
- Ukraine Optimism Wavers on Peace as Cease-Fire Winds Down (BBG)
- Economic Rebound Seen Undercut by Weak Pay as Vote Winner (BBG)
- Cracks Open in Dark Pool Defense With Barclays Lawsuit (BBG)
- The Survivor: How Eric Holder outlasted his (many) critics (Politico)
- IBM, Lenovo Tackle Security Worries on Server Deal (WSJ)
- Militants take Iraqi gas field town, president calls parliament session (Reuters)
- Carney Surprises Confounding Markets as BOE Manages Guidance (BBG)
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.