Industrial Production Rises Most Since November After Significant Downward Revisions

Thanks to some considerable negative downward revisions, Industrial Production In July rose 0.6% (double expectations of a 0.3% rise) - the biggest MoM rise since November. However, year-over-year IP growth is flat at 1.3% - hovering at its weakest since the last recession. We previously noted the surge in auto inventories-to-sales (Motor Vehicle IP rose 10.6% MoM), which likely spurred this false dawn in IP, however, it is the rise in oil drilling - the first time since September - that raises an eyebrow as entirely unsustainable amid collapsing prices.

European GDP Unexpectedly Disappoints As All "Big Three" Economies Miss Expectations

Define irony: in a quarter in which Greece was supposed to have been near death (at least according to the worst PMI print in history and of course, judging by the bank lines in front of the capital controlled institutions), yesterday we learned that Greek GDP surged relative to expectations rising by 0.8%, which was what analysts had expected but with a minus sign in front of it. Then overnight, we got the rest of European GDP, including the big three: Germany, France and Italy. The results were nothing short of a big disappointment. At the Euroarea level, the result was also a big negative surprise with Q3 GDP rising 0.3%, down from 0.4%, and below expectations. This was the worst GDP print since Q3 2014.

What Happens Next?

The last three times Asian currencies collapsed against the US Dollar at this rate, the global financial system was shaken to the core. With China piling on this time, we wonder - what happens next, as a tsunami of deflation is exported towards the shores of the "we'll hike no matter what" Fed's American shores...

3 Things: Freight, Deflation, No Hike

The Fed is rapidly coming to realize they are caught in a "liquidity trap." The problem is they have been betting on a "one trick pony" that by increasing the "wealth effect" it will ultimately lead to a return of consumer confidence and a fostering of economic growth? Currently, there is little real evidence of success.

Business Inventories Surge Most In 29 Months, Sales Ratio Signals Recession Imminent

Total business inventories for June rose 0.8% MoM - the biggest rise since Jan 2013. Great news for Q2 GDP as we stacked 'em high, but as sales lagged dramatically, the inventory-to-sales ratio hit a new post-crisis high at 1.37, flashing a very recessionary level going forward (dampening hype hope for Q3 GDP). Once again it was autos that saw the biggest relative jump in inventories (+1.4% MoM) relative to sales (-1.5%).

Retail Sales Meets Expectations, Leaves Door Open For September Rate Hike

Having missed expectations for 6 of the last 7 months, July retail sales printed a 0.6% rise, exactly in line with expectations of a 0.6% rise. The control group missed expectations, printing a 0.3% rise against expectations of a 0.5% rise. Year-over-year, retail sales growth hovers at weak levels strongly suggesting a recessionary environment, but the more watched MoM data leaves the door open for a September rate hike (i.e. not bad enough to warrant a delay) as it appears everyone is eating out with the biggest MoM and YoY rises seen in Food/beverage store sales.

Greeks Ditch Euro For Alternative Currencies As Parliament Votes On Bailout

The Greek parliament is expected to meet on Thursday for a final vote on the country's new €86 billion aid package. PM Alexis Tsipras, with the help of opposition lawmakers, will likely succeed in passing the draft, which includes some 40 new laws. Meanwhile, Greeks are increasingly staging Grexits of their own by eschewing the euro in favor of alternative payments systems.

Frontrunning: August 13

  • China central bank tries to soothe global markets, says no reason for yuan to fall further (Reuters)
  • Huge blasts at Chinese port kill 44, with hundreds injured (Reuters)
  • China efforts to slow yuan fall hoist Europe shares, bond yields (Reuters)
  • Greek Economy Unexpectedly Surged Before Capital Controls (BBG)
  • Joe Biden Is Sounding Out Allies About a 2016 Bid (WSJ)
  • U.K. Tries to Kick-Start Shale Gas With Planning Speedup (BBG)

Albert Edwards: "Prepare For Sub-1% Treasury Yields And Another Financial Crisis"

In some ways the question is not whether the renminbi is competitive or uncompetitive. The problem is that the renminbi is unambiguously less competitive than it was. This comes at a time when the Chinese economy is struggling and the stock market bubble is bursting. To all but the most PollyAnna’ish of observers that means this is the start of a major renminbi devaluation forcing the US to import even more of the world’s unwanted deflation.... Prepare for sub-1% 10y Treasury yields and another financial crisis as policy impotence is soon revealed to all.

Asset-Price Inflation Enters Its Dangerous Late Phase

Asset price inflation, a disease whose source always lies in monetary disorder, is not a new affliction. It was virtually inevitable that the present wild experimentation by the Federal Reserve - joined by the Bank of Japan and ECB - would produce a severe outbreak. And indications from the markets are that the disease is in a late phase, though still short of the final deadly stage characterized by pervasive falls in asset markets, sometimes financial panic, and the onset of recession.