Compared to last week's macro-event juggernaut, this week will be an absolute bore, although with a bevy of Fed speakers on deck - both good and bad cops - there will be more than enough catalysts to preserve the "upward channel" scramble in the S&P and the zero volume levitation to new all time daily highs despite the lack of daily bad news. Speaking of Fed speakers, we have Fisher today, Evans’ tomorrow followed by both Plosser and Pianalto on Wednesday. The key overnight data point was the continuation of July PMIs out of Europe, this time focusing on the service industry. As Goldman summarizes, the Final Euro area Composite PMI for July came in at 50.5, marginally above the Flash reading and consensus expectations (50.4). Relative to the June final reading, this was a sold 1.8pt increase, and building on consecutive increases in the past three months, the July Euro area PMI stands 4.0pts above the March print. Solid increases were observed across all of the EMU4 in July, most notably Italy. The July reading is the highest Euro area PMI level observed since July 2011.
A discussion of this week's key events and data within the context of the investment climate characterized by shifting Fed tapering expectations, evidence still pointing to a soft landing of the Chinese economy, a cyclical recovery in Europe and renewed capital outflows from Japan, while foreign investors slow their purchases of Japanese equities.
Over two years after Zero Hedge first accused Goldman and JPMorgan of becoming monopolists in the commodity warehousing business (see "Goldman, JP Morgan Have Now Become A Commodity Cartel"), and two weeks after the NYT's reminder the world of just this leading to the latest Kangaroo Court congressional hearing on the matter, which may or may not have resulted in JPMorgan announcing it would exit the physical commodities business, the long overdue legal fight began this Friday when lead plaintiff Superior Extrusion sued Goldman and London Metal Exchange owner HKEx for engaging in "anticompetitive and monopolistic behaviour in the warehousing market in connection with aluminium prices" and accusing the firms of violating the Sherman anti-trust act. Precisely what Zero Hedge said, some 26 months ago.
With manufacturing flatlining, I was surprised to find that Industrials were actually the only outperforming equity in the entire bunch.
It started moments after the release of the Federal Reserve’s latest decision on interest rates. Even though officially they announced maintaining the same policies of low rates and Quantitative Easing, it was a single word change in the official text of their press release from the prior month that sent shockwaves around the world and changed everything forever...
Despite rising gas prices, rising mortgage rates, slowing income growth and the rise of 'low-quality' part-time jobs, 'con'sumer 'con'fidence 'con'tinues to rise to post-recession highs. However, as Citi's FX Technicals group notes, for the 3rd time in the last 17 year period we may be looking at a 4-year-4-month rise in consumer confidence before a turn lower again; and in spite of the Fed's rosy forecasts (and the market's expectations), we should be careful being too quick to believe that the sluggish economic dynamic that has 'dogged us' for the last 6 years is yet fully behind us.
There are very few segments of the U.S. economy that are more heavily affected by interest rates than the real estate market is. When mortgage rates reached all-time low levels late last year, it fueled a little "mini-bubble" in housing which was greatly celebrated by the mainstream media. Unfortunately, the tide is now turning.
Since the March 2009 lows, US GDP has increased by $2.3 trillion.
Since the March 2009 lows, the capitalization of the US stock market has increased by $12.3 trillion.
Delta between the two: 436% in favor of stocks.
In the aftermath of the global financial crisis, world leaders repeated a soothing mantra. There could be no repeat of the Great Depression, not only because monetary policy was much better (it was), but also because international cooperation was better institutionalized. And yet one man, the American former intelligence contractor Edward Snowden, has shown how far removed from reality that claim remains. Prolonged periods of strain tend to weaken the fabric of institutional cooperation. The two institutions that seemed most dynamic and effective in 2008-2009 were the International Monetary Fund and the G-20; the credibility of both has been steadily eroded over the long course of the crisis. The Snowden affair has blown up any illusion about trust between leaders – and also about leaders’ competence.
With the mean-reverting extrapolators all calling the bottom in Europe and scandal-plagued PM Rajoy desperate for distraction repeatedly arguing that the country's depressed economy is finally emerging from a two-tear slump, the FT reports that IMF has just popped that balloon of hope. "Spain has historically never generated net employment when the economy grew less that 1.5-2%,” the IMF notes, pointing out "yet growth is not projected to reach these rates even in the medium-term." In fact, echoing recent warnings from independent economists at exuberance over the most recent data (driven by seasonally-enhanced tourism) as the start of a new trend, the IMF warns, "the weak recovery will constrain employment gains, with unemployment remaining above 25 per cent in 2018." So, for Rajoy, its back to the grift.
One of the overlooked components of today's NFP report is that in July the one industry that posted a clear decline in workers was none other than Construction, the sector which is expected to carry the recovery entirely on its shoulders once Bernanke tapers and ultimately goes away, which saw a decline of 6,000 workers: the largest job loss by industry in the past month. Perhaps there isn't quite as much demand as some would propagandize? But most notably, and disturbingly, is that the industry with the most job gains in July was also the second lowest paying one: retail, which saw an addition of 47,000 jobs: far and away the biggest winner in the past month. The worst paying industry - temp jobs - rose by 8K in July following a revised 16K increase in June. And the reason for the swing in July: the plunge in another low-quality job group: Leisure and Hospitality, which increased by only 23K in July following 57K additions in June.
A week that has been all about acronyms - GDP, PMIs, FOMC, ECB, BOE, ADP, ISM, DOL, the now daily record highs in the S&P and DJIA - is about to get its final and most important one: the NFP from the BLS, and specifically an expectation of a July 185K print, down from the 195K in the June, as well as an unemployment rate of 7.5% down from 7.6%. The number itself is irrelevant: anything 230 and above will be definitive proof Bernanke's policies are working, that the virtuous circle has begun and that one can rotate out of everything and into stocks; anything 150 or below will be definitive proof the Fed will be here to stay for a long time, that Bernanke and his successor will monetize everything in sight, and that one can rotate out of everything and into stocks, which by now are so disconnected from any underlying reality, one really only mentions the newsflow in passing as the upward record momentum in risk no longer reflects pretty much anything.
The optics of the GDP report were 'positive' at first blush, but not upon closer inspection. Growth in the second quarter was better than expected. Recovery period growth was revised up slightly. And the Great Recession, while still catastrophic, now shows a modestly smaller decline in output than it did in the pre-revised data. But underlying GDP growth is frustratingly slow. And growth rates in the very recent past were revised lower. But as Credit Suisse notes, this only deepens one of the unsolved mysteries in US data: buoyant payroll job gains of about 200K per month on average in 2013, juxtaposed against consistently tepid increases in real GDP. This is not a typical pattern. It seems our concerns over Obamacare's impact (and the delayed impact of the sequester) are being ignored by the Pollyanna policymakers for now (though they are well aware of the 'born-again jobs scam').
With rates rising amid the glorious faith that recovery is upon us, tapering is a storm in a teacup, and nothing can stop us now, we present the dreadful symmetry of the US leverage situation (Federal Debt-to-GDP) relative to rates. We suggest investors be careful what they wish for on 'rotational' fantasies as GDP growth won't save us this time and the deleveraging effect of any serious retrenchment in debt will feedback into the 'credit-is-growth' drain-circling that has been evident for the last 30 years... So, if we do indeed have perfect historic symmetry, what will be the 'event' that takes total US debt from well over 100% of GDP to less than half of that?
Trannies 3.3% gain today is the best in 20 months - which makes perfect sense given that WTI crude prices are also spiking 2.7% breaking back above $108 (and XOM biggest miss on earnings in forever). Treasuries continue to suffer with 7Y worst - up an stunning 14bps on the day (its biggest jump in a month) as 30Y breaks above 2013 high yields. Credit markets disconnected from equity markets new reality and ended the day wider (as once again credit tracked rates - which does not bode well for stock valuations since it is clearly not a move based on growth). Considerable USD strength across all the majors, gold/silver modestly lower, Oil and copper surging. All-time record highs for the S&P and Dow. BTFATH