Richmond Fed

The Richmond Fed survey surged to 14, its biggest beat since April 2010 and its highest level since January 2011. All makes perfect sense right? Just a 3.5 sigma beat of analyst expectations at 0. All sub-indices improved to multi-month highs and expectations for six months ahead also surged (even as prices paid and received collapsed). Consumer Confidence, amid surging interest rates and near-record gas prices for this time of year (and a pending war), rose (beating expectations) after falling last month. All of the gains in confidence came from 'hope' as the expectations sub-index rose from 86.0 to 88.7 as the present situation fell from 73.7 to 70.7 - the biggest drop since January. Remember, beware of the big 'con'.

A quiet week to send off August ahead of a deluge of key data next week and as the fateful Septembr 18 FOMC announcement approaches. Still, quite a few macro events to keep track of.

After a slow start in the week, there is a substantial pick up with announcements from the FOMC, ECB and BOE (as well as monetary policy updates from the RBI, RBA, Israel, and Czech Republic) with the possibility, if not probability, of a Fed update on tapering expectations. On Wednesday we get the much expected wholesale GDP revision which will boost "growth data" all the way back to 1929 and is expected to push current GDP as much as 3% higher, and on Friday is the "most important NFP payroll number" (at least since the last one, and before the next one), where the consensus expects a +183K print, and 7.5% unemployment. All this while earnings season comes to a close.

Thanks to a total and utter collapse in new order volume (from +9 to -15 - worst in 2 years) and order backlog (-1 to -24), the Richmond Fed manufacturing survey just printed at -11 (against expectations of an exuberant +8). This is the biggest miss since May 2006. Wages plunged; the average work-week plunged; capacity utlization plunged; but on the bright-side, the number of employees was flat (at 0). Perhaps more concerning is the outlook that sees prices paid rising notably more than prices received and capacity ultization dropping notably.

In a day in which there was and will be virtually no A-list macro data (later we get the FHFA and Richmond Fed B-listers), the inevitable low volume centrally-planned levitation was attributed to news out of China, namely that Likonomics has set a hard (landing) floor of 7% for the GDP, and that just like other flourishing economies (Spain, Italy, California) China would invest in "monorails" to get rid of excess capacity, as well as a smattering of European M&A activity involving Telefonica Deutscheland and KPN. In Japan, the government upgraded its economic view for the 3rd straight month and also raised its view on capex for the 1st time in 4 months: who says the (negative Sharpe ratio) PenNikkeistock market is not the economy? All this led to a 2% rise in the Shanghai Composite - the most in 2 weeks - and the risk on sentiment also resulted into tighter credit spreads in Europe, with the iTraxx Crossover index falling 4bps and sr. financial also declining by around 4bps, with 5y CDS rates on Spanish lenders down by over 10bps. Naturally, US futures wouldn't be left far behind and took today's first major revenue miss of the day, that of DuPont, which beat EPS and naturally missed revenue estimates, as bullish and a signal to BTFATH (all time high). On the earnings side, in addition to Apple, other notable companies reporting include Lockheed Martin, Altria, AT&T and UPS.

With earnings season in full swing as some 20% of the S&P is expected to report, the quieter macro picture moves to the backburner especially with the Fed now silent for a long time. Looking at key central banks events, at the Turkey central bank meeting this week, Goldman expects that the bank is more likely to deliver a moderately hawkish “surprise” and hike the lending rate by 100bp to 7.5% (7.0% for primary dealers), and leave the key policy (1-week repo) and the borrowing rates unchanged at 4.5% and 3.5%, respectively.  Among the other central bank meetings this week, benchmark rates are expected to remain unchanged in New Zealand, Philippines and Colombia, in line with consensus, while a 25bp cut is expected to be announced at the Hungary MPC meeting.

"Bond and stock markets fell sharply in response, but that should not be too surprising. The Chairman’s statement forced financial market participants to re-evaluate the likely total amount of securities the Fed would buy under this open-ended purchase plan — in other words, how much liquor would ultimately be poured into the punch bowl. Market participants also had to reconsider their estimate of when the Federal Reserve would begin to remove the punch bowl by raising interest rates. These reassessments appear to have warranted price changes across an array of financial assets. As market participants gain additional insight from the words of Federal Reserve officials or by policy actions in coming quarters, further asset price volatility seems likely." - Richmond Fed's Jeffrey Lacker

It's been quite a morning. Beats across the board at the macro headline level. Housing (prices and sales), check; Durable Goods, check; Confidence, check; Richmond Fed, check. So why are stocks not surging?

Evidence of the sequester remains elusive. The warning signs that we track closely – initial jobless claims, Richmond Fed, personal income and payrolls – do not show any material deterioration that we can attribute to the sequester. One mystery is why personal income of government workers has not contracted, as fewer hours worked should equal less pay. The answer, BofAML notes, is simple - it's just beginning...

Just because you have to laugh (rightfully so since it seems everyone is so 'confident'), we thought a quick look under the covers of the Richmond Fed 'beat' was worthwhile. The index 'rose' from -6 to -2 (still negative), beating expectations of -4, seemingly driven by a 'surge' in Shipments (from -9 to +8). The Richmond Fed accounts for around 9.1% of the nation's GDP so it is intriguing that (drum roll please)... New order volume plunged to its lowest since January; the number of Employees swung to a negative, also its lowest since January; the average workweek cratered to -6 (its lowest since August 2012); and Wages dropped near its lowest level in a year. But apart from all that... of course, it's 'expectations' that are keeping the dream alive (despite a fading belief in higher wages). So hard data about the current situation is still collapsing but 'hope' brings us off the ledge?

First, the important news: in a few hours the Fed will inject between $1.25-$1.75 billion into the stock market. More importantly, it is a Tuesday, which means that in order to not disturb a very technical pattern that will have held for 20 out of 20 Tuesdays in a row, the Dow Jones will close higher. Judging by the futures, this has been telegraphed far and wide: it is a Ben Bernanke risk-managed market, and everyone is a momentum monkey in it. In less relevant news, the underlying catalyst for the overnight rip higher in risk was the surge in the USDJPY, which left the gate at precisely Japan open time, and after languishing at the round number 101 support for several days, did not look back facilitated by what rumors said was a direct BOJ intervention via a Price Keeping Operation in which banks bought ETFs directly. This was catalyzed by the usual barrage of BOJ and FinMin individuals engaging in post-crash damage control and chattering from the usual script.

Following last week's macro fireworks, the coming week will be an absolute snoozer with virtually nothing on the calendar until Thursday's Initial claims, which is the key event of the week, as well as much Fed president jawboning again, including both good and bad cops talking QE4EVA either up or down. And with earnings season basically over, at least coffee consumption will be higher than average.

“Labor market conditions are affected by a variety of factors outside a central bank’s control,” admitted the Fed's Jeffrey Lacker after the employment report bounced around the world.

It is one thing for the market to no longer pay attention to economic fundamentals or newsflow (with the exception of newsflow generated by fake tweets of course), but when the mainstream media turns full retard and comes up with headlines such as this: "German Ifo Confidence Declines After Winter Chilled Recovery" to spin the key overnight event, the German IFO Business climate (which dropped from 106.2 to 104.4, missing expectations of 106.2 of course) one just has to laugh. In the artcile we read that "German business confidence fell for a second month in April after winter weather hindered the recovery in Europe’s largest economy... “We still expect there to have been a good rebound in the first quarter, although there is a big question mark about the weather,” said Anatoli Annenkov, senior economist at Societe Generale SA in London." We wonder how long Bloomberg looked for some junior idiot who agreed to be memorialized for posterity with the preceding moronic soundbite because this really is beyond ridiculous (and no, it's not snow in the winter that is causing yet another "swoon" in indicators like the IFO, the ZEW and all other metrics as we patiently explained yesterday so even a 5 year old caveman financial reported would get it).

It is only logical that after last month's New Home Sales miss (exp. 420, printed 411K), which sent the market higher, today's tiniest of beats in New Home Sales, which printed at 417K, on expectations of 416K, would also send the market higher. The total months of supply indicated was 4.4, the same as February, and well above the 4.0 from January. Unnoticed in the release was that the January housing data was revised higher from 431K to 445K, meaning last month's drop would have been even more acute (-7.6% instead of -4.6%), but who cares about such things as data chronology now that the headline effect is long gone.  All that matters is that the trend is the mainstream media's friend, which can report new home sales have grown once more... if only back to levels last seen in April of 2010 when the same number was 422K. Was the data actually meaningful on a long-term basis? We will let readers decide on their own after one look at the chart below. Finally, and this will not be mentioned anywhere, the average New Home price plunged from $310,000 to $279,900 -  the lowest since June of 2012. One can only imagine the step down in quality that was required to make up in volume what was "lost" in price.