Every voice in the FOMC minutes is not a voting member. Bernanke, Yellen, Dudley are the keys and they are committed to QE. That is a descriptive claim not normative. Debt market has shown little reaction to FOMC minutes compared with the dollar and stocks. PBOC drained, but did not really tighten monetary policy. Euro zone PMI poor and gap between Germany and France grows. And what's up with Abe's trip to the US ?
First it was Walmart letting the truth finally slip last Friday when a leaked memo showed recent sales are a "total disaster." Today, as anyone who has looked at AAPL premarket quotes will surmise, it's Apple's turn, following a report in the FT that FoxConn, the world's largest contract electronics manufacturer, "has imposed a recruitment freeze across almost all of its factories in China 5th as it slows production of Apple's iPhone." It is not an internal memo, but in this particular case actions speak even louder than leaked words: 'The suspension in hiring by China's largest private sector employer, and the biggest assembler of Apple products, is the first search countrywide move since the 2009 downturn, prompted by the financial crisis. It underscores the weakening demand for some Apple products, Which has put pressure on the American company's battered share price. "Currently, none of the plants in mainland China have hiring plans," said Liu Kun, a company spokesman at Foxconn's largest manufacturing facility in the southern Chinese city of Shenzhen." So first Walmart, the world's largest private sector employer with over 2 million workers, and now FoxConn, the world's largest tech-focused employer with 1.2 million workers, is also realizing what a cashless, consumerless "recovery" means, regardless whether it is due to Apple or not. And the markets still continues to wave it off as one off events.
- Office Depot Agrees to Buy Officemax for $13.50/Shr in Stock
- Bulgarian Government Resigns Amid Protests (WSJ)
- Rome will burn, regardless of Italian election result (Reuters)
- Abe Says No Need for Foreign Bond Buys Under New BOJ Chief (BBG)
- Rhetoric Turns Harsh as Budget Cuts Loom (WSJ)
- Muddy Waters Secret China Weapon Is on SEC Website (BBG)
- Business Loans Flood the Market (WSJ)
- Staples May Be Winner in Office Depot-OfficeMax Merger (BBG)
- Fortescue Won't Pay Dividend, Profit Falls (WSJ)
- Key Euribor rate on hold after rate cut talk tempered (Reuters)
- FBI Probes Trading in Heinz Options (WSJ)
- Spain Said to Impose Yield Ceiling on Bond Sales by Regions (BBG)
- BOK’s Kim Signals No Rate Cut Needed Now as Outlook Improves (BBG)
It's no shock that the Spanish housing market is horrible but hope has been, following the government's nationalization of various banks and creation of the 'bad bank' to soak up all the toxic crap those banks had on their books, that a recovery could blossom. It appears not - not at all. Not only are bad loans rising at record rates with house prices remaining down over 40% but now Reyal Urbis has filed for insolvency making it the nation's second largest bankruptcy as dozens of smaller firms have failed. What makes this so important is the fact that the banks were unwilling to refinance the debt - seemingly comfortable with liquidation - summed up perfectly: "Many loans were refinanced one or two years ago, in the hope that things would get better, but it has not been the case and there is now more realism about the situation. Why would you extend a new loan today?" A good question, one that Tepper's Appaloosa will be pondering as its EUR450mm loan looks in trouble.
Governments have refused to accept the necessity of a period of economic re-adjustment following the credit-bubble. The bubble burst about five years ago and economic progress has been effectively suspended ever since. Reduced to its bare bones, the choice has been either to accept that unviable businesses and over-extended banks must go bust, or to ignore the problem and hope it goes away. This is a decision for markets, not governments, which brings us back to the necessity for economic re-adjustment. Governments have simply not faced up to the reality that we are in a post-credit-bubble mess: they still hope the problem will be resolved by time. We are long past the point of no return. Governments are now reduced to screwing their electorates for their own survival, which is their last refuge from reality.
Just under a month ago, the mainstream media and blogging coat-tail-riders all hailed the miracle that was a huge windfall rise in California's tax receipts as a sign; a glimpse of what was to come from our centrally planned utopian recovery. Surpluses, taxes up, life is good. Unfortunately, as is always the case in reality, if its too good to be true, then it is! The LA Times reports that the historic $5bn revenue bump appears to have been an accounting anomaly! Just as state accountants were starting to allocate the magical inflow of tax receipts, Governor Brown's administration says the extra money was "likely the result of major tax law changes at the federal and state level having a significant impact in the timing of revenue receipts." Taxpayers were paying a share of their bill early, getting income off their books in the hope of limiting exposure to the tax hikes that recently kicked in. The administration was expecting that money to arrive in April. Now, officials are saying it won't, and that just as January's receipts soared, they'll be offset by a spring plunge. We need another miracle, stat!
We suspect that if one combines all the most apocalyptic scenes from 'Day After Tomorrow', 'Armageddon', 'Planet of the Apes', and '2012', then President Obama's address (scheduled for 1045ET) on the impact of the sequester will come close. Of course, he could merely comment on the fact that we need to cut spending (not slow spending growth) in order to revert to sustainability but we suspect this is not 'silver linings playbook'. Young children and pets should probably be removed from the room as our leader explains just how cataclysmic things are going to get unless we all just get along... As a gentle reminder, here is the very same President threatening to veto any effort to stop spending cuts - oh well, it seems there really are no easy off-ramps.
With the honey badger market continuing to be completely dislocated from absolutely every piece of underlying data (except for German hope and confidence reported earlier this morning), moments ago the NAHB housing market index printed at 46, on expectations of an increase from January's 47 to 48. This makes it the first drop in the index in 10 months, and the first drop to expectations since April 2012, which in turn sent the ES to fresh highs (don't ask). And while we are confident the decline will be blamed on such unpredictable aberrations as snow in January and February, a meteor shower in Russia and, of course, Bush, despite last February's print posting a solid rise from 25 to 28, perhaps the more worrying indicator was that the component gauging traffic of prospective buyers slipped a whopping 4 points to 32. The drop matched the biggest sequential declines going back all the way to 2007. And now back to your pre-spun housing recovery.
European car registrations had their worst January on record - an 8.7% year-over-year decline - as consumers hit by austerity are likely to continue to limit spending on big-ticket items. The Association of European Automakers notes the 918,280 new cars ('tagging' aside) is the slowest January since 1990 and makes the 16th consecutive month of year-over-year drops, as perhaps past car-scrapping schemes may also have hampered sales by encouraging buyers to bring forward planned purchases. During the Great Recession, European auto sales only fell 12 consecutive months. The weakness is broad based with Ford (a record 26% plunge), Peugeot Citron (down 16%) and Toyota (down 16%) as it seems the hopes and dreams of a troughing in the European economy has absolutely not shown up in the car industry. As Reuters reports, citing a CS analyst, "Hopes of an earnings and cash recovery in the second half are misplaced."
Overnight Summary: German Hope Soars To Three Year High As European Car Registrations Drop To Record LowSubmitted by Tyler Durden on 02/19/2013 08:12 -0400
Europe's double dipping economy may be continuing to implode, but at least confidence abounds. And while the conifidence game was the purvey of career politicians and ex-Goldman central bankers in January, it has now shifted to Europe's equivalent of the reflexive UMichigan consumer confidence, after Germany's ZEW investor confidence soared to 48.2 vs expectations of a modest 35.0 print, leaving January's 31.5 print in the dust, and the highest since April 2010. And all of the surge was based on the hope, with none attributed to reality, or current conditions. From SocGen: "The positive mood in both the equity and bond markets since the beginning of the year has led to a strong surge in expectations (economic sentiment) in the ZEW survey, a survey completed among German investors. This surge was entirely driven by expectations while current activity remains muted. Expectations in most surveys have recently been rising more strongly than expected, but at one point we expect some moderation. We consider that Germany and the euro area are in a situation of readjusting expectations and activity from the weakness at end-2012. The recovery in expectations may already have overshoot if hard data disappoint in the coming weeks." And while Europe is starry-eyed with hope about the future, as it is in the beginning of every year, it blithely ignored the fact that new car registrations collapsed in January by 14.2% to a new record low, while construction output in the Euroarea declined for a second month in December, tumbling by 4.8% led by slumping activity in, wait for it, Germany. But this time the future will be different.
With the end of Asia's lunar new year celebration and the return of the US and Canadian markets after yesterday's holiday, there is full liquidity in the global capital markets for the first time in over a week. The currencies are mixed, with the yen, sterling and the Australian dollar posting modest gains, while the euro, Swiss franc and Canadian dollar have heavier tones.
The Chinese yuan has weakened for the second day after returning from the extended holiday and is near 2-month lows. After reversing lower yesterday, the Shanghai Composite led the regional bourses lower with a 1.9% decline. The Composite is approaching its 20-day moving average (~2365) which it has not traded below since early December. European equity markets are higher and the Dow Jones Stoxx 600 is up a little more than 0.5% led by consumer goods and basic materials. Of the main industrial sectors, only telecom is lower. European bond markets, core as well as periphery are lower.
Broadly speaking, we identify five factors that will shape foreign exchange rates in coming days.
2012 Q4 GDP has been weak in G3 and indeed Europe more broadly, (however it has generally surprised to the upside in Asia), consequently, the momentum of business sentiment will be key to watch. The Euro area flash PMI, German Ifo and the Philadelphia Fed survey are released this week (the China flash PMI will be released on Feb 25). The consensus expects a further small rise in the Euro area services and manufacturing readings. The week also brings a batch of central bank commentary, where the focus will be on references to currency strength; these include the RBA minutes followed by testimony, a speech by RBNZ governor Wheeler, Bank of Thailand policy decision and Bank of England minutes. The Federal Reserve will release the minutes from the last meeting and they may contain important clues on the bias of the Committee with respect to how long it expects the current QE program to last. Additionally, the Committee may have discussed the potential merits of outcome-based guidance for balance sheet policy, which may be reflected in the minutes.
- G-20 Signals Support for Japan Easing Without Yen Talk (BBG) - but how will Mrs Watanabe know to sell the JPY without nightly proddings?
- Obama Faces Risks in Pipeline Decision (NYT)
- White House Immigration Plan Leaked (WSJ)
- Reader’s Digest Is Bankrupt as Iconic Magazine Falters (BBG)
- Venezuela's Chavez in surprise return from Cuba (Reuters)
- German Recovery Hinges on Euro Zone (WSJ)
- Hong Kong’s Bankruptcy Requests Climb to Almost Two-Year High (BBG)
- China New Year Retail Sales Growth Slows on Frugal Drive (BBG)
- Debt Bubble Born of Easy Cash Prompts Swedish Rule Review (BBG)
- In Europe's tax race, it's the base, not the rate, that counts (Reuters)
- Ugliest Danish Banks Find No Buyers in Toxic Asset Trap (Bloomberg)
- Italian Undecided Voters Targeted in Campaign’s Last Week (BBG)
Jobs! President Obama has set a record. In his speech to Congress on Tuesday, he uttered the word "jobs" more than in any of his previous four State of the Union addresses. His 45 mentions were more than double the references to any of the other policy ambitions encapsulated in his speech by such words as health, education, immigration, guns, deficit, debt, energy, climate, economy, Afghanistan, wage, spend or tax (the runner-up). If only the president's record on unemployment were as good. After four years America remains in a jobs depression as great as the Great Depression.
This recent release of the manufacturing and industrial production data added further support to our view that the much touted economic recovery has yet to manifest itself. The latest data showed that manufacturing in January fell back but after strong gains in December and November. However, it is important to remember that the gains at the end of 2012 were driven by the effects of Hurricane Sandy and the "Fiscal Cliff." That ramp up in November and December is likely to leave a void in demand in the coming months - so January's weakness is likely a return to a more normalized trend. What is clear, however, is that the economic data is not markedly improving. While monthly data points will remain volatile it is the trend of the data that is most telling about macroeconomic future. Currently, that outlook remains one of a "struggle through" environment at best. The belief, currently, is that the economy in the U.S. can decouple from the rest of the globe and act as an island of economic prosperity. With 40% of corporate profits tied to international exposure it is unlikely that the U.S. can remain decoupled from the rest of the global community for long.