Chinese Stocks Bounce On Short-Squeeze Over Funding Hopes

Rumors of a new "preferred shares" program which could implicitly mean easier access to desperately needed liquidity for Chinese banks and real estate developers prompted what one analyst called "a short-covering-led recovery after shares had fallen a lot." The banks of the Shanghai Stock Exchanged rallied notably as chatter was they would be be first to be blessed with the ability to issue new stock and this boosting their capital. The 2.7% rally in the composite was the best day in 4 months (even as China CDS surged by their most in 9 months) but, as one trader noted, "we may see one or two more days of upside but China's fundamentals are still weak. We weren't falling for nothing."


What History Says About Fed Rate Hikes

Each time the Fed has lowered the overnight lending rate, the next set of increases have never exceeded the previous peak.  This is due to the fact, that over the last 35 years, economic growth has been on a continued decline. Increases in interest rates are not kind to the markets either.  Each time the Fed has started increasing the overnight lending rates.  Each time has seen either market stagnation, declines, or crashes.  Furthermore, it is currently implied that the Fed funds rate will increase to 3% in the future, yet the current downtrend suggests that an increase to 2% is likely all that can be withstood. According to Jim Cramer last night, he said the idea of rising interest rates shocked the markets, however, in the long-term it's a positive sign. Rates rise as the economy does better. The assumption he makes is that as the economy "catches fire" and corporate profits increase, then it is natural for interest rates to rise also.  If a growing economy is a function of expanding profitability, then what is wrong with the chart below...

Financials Lead Stocks To Recover Yellen Losses (Bonds & Bullion Unchanged)

Treasuries ended the day practically unchanged. Gold, despite some early weakness, ended the day unchanged. The USD ended higher on the day - extending post-Yellen gains but was essentially flatlining aside from concerted buying pressure from 3ET to 7ET. Copper kept falling (as did silver) and oil prices slipped lower. VIX pressed lower as stocks rallied out of the gate but VIX diverged notably after Europe's close to 15% with a few minutes to go. So, given all of that, where do you think stocks closed? Thanks to a pre-CCAR ramp in US financial stocks (which notably diverged from financial credit spreads), and an idiotic 0.5 vol smackdown in VIX, US equities managed to clamber their way back up to pre-FOMC levels before giving some back inthe late-day (with a mini-melt-up into the close). AUDJPY ruled the 'fundamental'-driven US equity markets from open to close.

To Eliminate Flight 370 Theories, Start With A Ruler, Pencil And Map

No conventional scenario accounts for the methodical disabling of the communications systems, the bizarre altitude changes and professional navigation to way points, or the presumed turn south and a flight path that extended to at least 8:11 a.m. Every plausible theory about what happened to Flight 370 has to not only fit the most reliable facts (radar tracks and satellite data) but basic geography.

Existing Home Sales Lowest In 19 Months, Cheapest Home Sales Tumble 18%; Weather, Student Loans Blamed

Another month, another confirmation that the so-called housing recovery is sputtering on its last breath and is being held up entirely by the higher end segment, which however is also coming to an end now that wealthy Chinese have started liquidating their ultra luxury housing. In February, according to the NAR, some 4.6 million annualized existing homes were record, in line with expectations, and a 0.4% decline from the 4.62 million print in January. This was the 19th monthly drop in a row, and the lowest since July 2012, and a 7.1% drop year over year. But the worst news is that housing is increasingly unaffordable to the poorer Americans, with houses costing in the $0-$100 bucket down 18% from a year ago. Since nobody is applying for a mortgage any more this is hardly surprising. Finally, in addition to the usual weather excuse for weak housing sales, a new scapegoat has appeared: soaring student loans: "20 percent of buyers under the age of 33, the prime group of first-time buyers, delayed their purchase because of outstanding debt. 56 percent of younger buyers who took longer to save for a downpayment identified student debt as the biggest obstacle." Oops.

Caterpillar Global Retail Sales Continue Sliding, Drop For 15th Month In A Row; LatAm Tumbles

Any minute now...

Just like with the fabled Abenomics recovery which is said to be just around the corner, so Caterpillar, whose stock has discounted a Phoenix-like rise from the ashes, continues to disappoint month after month, with no actual pick up in sales, and as was just released moments ago, in February the heavy industrial equipment maker posted the 15th consecutive decline in global retail sales, which declined 8% from February of 2013, which in turn was a 13% decline from 2012.

Beef Prices Surge Most In A Decade As Food Inflation Soars

Just a month ago we warned that food inflation was on its way. Today we got the first confirmation that problems are on their way. While headline data washes away the nuance of what eating, sleeping, energy-using human-beings are paying month-in and month-out, the fact, as WSJ reports, that beef prices surged by almost 5% in February - the biggest change since Nov 2003 - means pinching consumers and companies pocketbooks that are still grappling with a sluggish economic recovery. "Things are definitely more expensive," exclaimed on mother of three, "I can't believe how much milk is. Chicken is crazy right now, and beef - I paid $5 a pound for beef!" Just don't tell the Fed!

"The Cacophony Of Fed Confusion," David Stockman Warns Will Lead To "Economic Calamity"

"We never should have painted ourselves so deep in this QE corner in the first place," chides David Stockman, "because the whole predicate [of Fed policy] is false." The author of The Great Deformation holds nothing back in this brief 3-minute primer of everything is wrong with the American economic system (and the CNBC anchors definitely did not want to hear). "We are already at peak debt and forcing more into the economy didn't work," and won't work as is merely funds Wall Street's latest carry trade to nowhere and fiscal irresponsibility in Washington. Simply put, "the private credit channel of monetary transmission is busted," so the Fed is exploiting the only channel it has left - "the bubble channel."

Ron Paul On The "Illusion" Economy And "Why Socialism Always Fails"

"If we look only at the stock market, then we're in denial," warns Ron Paul in this brief 'uncomfortable-for-the-anchor' CNBC interview, adding that "it's an illusion." While the stock market has performed well, Paul explains that the economy-at-large continues to struggle noting that it's due to the Fed: "I don't think any one individual knows how to plan the economy by manipulating interest rates' [they] are so important that if you give this power to one small group - there will be distortion." That's why socialism fails, slams the Fed critic, "it's the invisible hand that we lack, not the wisdom of a few people. Few people can't be wise enough to dictate the market," and the Fed's history shows their track "record is pretty bad."

From Quantitative Easing To Qualitative Guidance: What To Expect From The Fed Today

The FOMC is now meeting for the first time with Janet Yellen as Chair. Goldman's US team expects the FOMC to deliver an accommodative message...alongside a continued tapering of asset purchases. However, they note, their market views here are likely to shift little in response, as much of that dovishness is arguably already priced, particularly in US rates. SocGen notes that "qualitative guidance" will probably consist of two components: the FOMC’s forecast for the fed funds rate (aka “the dots”) providing a baseline scenario, and a descriptive component signalling the elasticity of this rate path to the underlying economic outlook. SocGen also warns that this transition is worrisome for inflation in 2015. But BofA suggests this is not  problem as The Fed will indicate the US economy "lift-off" in late-2015 will save us all.

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USA: Economic Thumbs-Down

As Putin rejoices at his new-found wealth in Crimea after it was annexed (in a duff referendum where there was either ‘now’ or ‘later’ up for grabs to join the Russian Federation), the USA is wiping its tears with things that are closer to home and causing a great deal more grief than far off Ukraine. 

Steady Overnight Futures Levitation Puts New All Time High In Target On FOMC Day

In an overnight session that had little in terms of macro and news flow, the most notable event was that the Dollar-Renminbi finally crossed above 6.20 which as a reminder is the suggested "max vega" point beyond which even more max pain lies for levered accounts long the Yuan. However, in a world in which nothing is discounted and in which no news matters, the "market" broadly ignored this significant development (which as we explained further yesterday means an accelerated unwind of Chinese Commodity Funding Deals, and a potential drop in global commodity prices), and eagerly awaited today's non-event of an FOMC conference, where nothing new will be announced save for the novelty of it being Yellen's first appearance before the press as the head of the Fed. And of course the Fed will almost certainly scrap the 6.5% employment threshold, as the FOMC scrambles to make the economy appear worse than it is reported to be, in a stark reminder that the biggest optically manipulated tool meant to boost confidence in the recovery was nothing but a number meant to serve political purposes.