After last week's relatively quiet, on macro data if not central bank news, week the newsflow picks up with the usual global PMI survey to start, and end the week with the US January payrolls report.
We may not yet have final confirmation that a recession is imminent, but so far nothing suggests that the danger has receded.
"There is hope of more stimulus in March and potential for even more stimulus in Japan and China, so if we get concrete positive economic news the rebound could last into next week,” said John Plassard, senior equity- sales trader at Mirabaud Securities. “I told my clients to fasten their seatbelts and wait for better news, and this is finally happening."... "The turnaround in sentiment came amid signs central banks may be prepared to act after $7.8 trillion was erased from the value of global equities this year on China’s slowdown and oil’s crash."
Philly Fed improved from a dismal -10.2 to a just terrible -3.5 for the 5th consecutive month of contraction with the number of employees and average workweek both tumbling. Shipments increased but new orders remain in contraction as inventories dropped. The more troubling news is the total collapse in "hope" as the six-month-forward outlook collapsed to Nov 2012 lows...
Things are looking increasingly shaky for central planners around the globe.
Well, it’s been a rotten month.
With the US closed today for Martin Luther King Holiday, global risk tone has once again been set entirely by oil, which opened sharply lower at fresh 12 year lows on fears of an Iran oil glut, but has steadily rebounded on the latest OPEC comments, and at last check both WTI and Brent were unchanged trading in the low $29's on muted volume. With Asian markets mixed, European shares swung between gains and losses, while the yen weakened as China stepped up efforts to curb foreign speculation against its currency. Crude oil rose from a 12-year low after the Organization of Petroleum Exporting Countries forecast a decline in supplies from rival producers.
"The new rounds of rate cutting and Quantitative Easing that the Fed will have to unleash will echo the military "surge" in Iraq in 2007. Those fresh troops were needed to roll back the chaos that the Administration had ignored for so long. But just as that surge only bought us a few years of relative calm, look for the gains brought about by our next monetary surge to be even more transitory. That is a development for which virtually no one on Wall Street is preparing."
Futures Slide As Quad-Witching Has A Violently Volatile Start After Massive BOJ FX Headfake; Oil TumblesSubmitted by Tyler Durden on 12/18/2015 06:49 -0500
Following the latest BOJ statement, the market found itself wrongfooted assuming the BOJ was actually launching another episode of easing, sending the USDJPY soaring, until suddenly the realization swept the market that not only was the incremental action not really material, but even Kuroda spoke shortly after the announcement, confirming that "today's decision wasn't additional easing." The result was one of the biggest FX headfakes in recent days, perhaps on par with that from December 4 when EUR shorts were crushed, as the biggest carry pair first soared then tumbled and since the Yen correlation drives so many risk assets, also pulled down not only Japanese stocks but US equity futures.
Following last month's bounce, driven by a surge in 'hope', The Philly Fed collapsed to -5.9 (dramaticlaly missing expectations of +1.0) and hitting its lowest levels since Feb 2013. With 'hope' plunging back to its lowest levels since Dec 2012, there was little to support the dream as Prices Paid and Received plunged, and New Orders cratered to 3 year lows. Future CapEx expectations crashed as did workweek and employment outlooks.
Heading into the Fed's first "dovish" rate hike in nearly a decade, the consensus was two-fold: as a result of relentless telegraphing of the Fed's intentions, the hike is priced in, and it will be a "dovish" hike, with the Fed lowering its forecast for the number of hikes over the next year. Consensus was once again wrong on both accounts: first the rate hike was far more hawkish than most had expected (see previous post), and - judging by the surge in Asian, European stocks and US equity futures - the "market" simply is enamored with such hawkish hikes which will soon soak up trillions in liquidity from the financial system.
While this may well be the most important week for capital markets in the past 9 years, when the Fed is widely expected to hike rates on Wednesday, precisely 7 years to the day since it cut rates to zero, here are the other key events to watch out for.
Futures are modestly higher in early trading having tracked the USDJPY once again almost tick for tick, with the carry trade of choice rising to 123 shortly after Mario Draghi's latest speech pushed the dollar strong initially only to see most gains promptly evaporate against both the Yen and the Euro. European shares are likewise little changed, after gaining earlier, while Asian stocks rise; oil also advanced in early trading only to drop to its lowest overnight level moments ago, a few dimes over $40, with aluminum and copper both posting modest increases.
After 2 months of notably unusual negative prints, November's Philly Fed rose from -4.5 to +1.9 (the best MoM rise since June). Sadly, the survey's headline gains were driven by a big surge in 'hope' as the outlook surged from 36.7 to 43.4, as under the covers of the current business environment was a collapse in prices paid, further deterioration in new orders and shipments, and a plunge in average workweek.