Higher energy costs in Japan have not turned consumer opinion back in favor of nuclear power.
One year later and due mainly to the fact the Japanese stock market has risen an astounding 70% year-over-year, talking-heads, politicians, and central bankers proclaim Abe's trip into the monetary policy black hole as a success (it would seem on that basis that the head of Venezuela's central bank deserves a Nobel prize). Abe has managed to devalue his nation's currency by 25.5% against the USD in that time and the price of Japanese government bonds (despite some early teething trouble with the government's repressive activity) is practically unchanged up 0.75% on the year. But away from the 'market', inflation is rising (but thanks to import prices) and wages languish down 0.9% as the trade balance is collapsing. One thing is for sure - dueling QEs between Japan and the USA make for highly correlated FX and equity market co-movements...
In the upcoming week, the key event is the US FOMC, though we and the consensus do not expect any key decisions to be taken. Though a strengthening of forward guidance is still possible, virtually nobody expects anything of import to be announced until the Dec meeting. In the upcoming week we also have five more central bank meetings in addition to the FOMC: Japan, New Zealand, India, Hungary and Israel. In Hungary we, in line with consensus, expect a 20bps cut to 3.40% in the policy rate. In India consensus expects a 25bps hike in the repo rate to 7.75%. On the data front, US IP, retail sales and pending home sales are worth a look, but the key release will be the ISM survey at the end of the week, together with manufacturing PMIs around the world. US consumer confidence is worth a look, given the potential impact from the recent fiscal tensions.
Busy, Lackluster Overnight Session Means More Delayed Taper Talk, More "Getting To Work" For Mr YellenSubmitted by Tyler Durden on 10/25/2013 07:00 -0400
It has been a busy overnight session starting off with stronger than expected food and energy inflation in Japan even though the trend is now one of decline while non-food, non-energy and certainly wage inflation is nowhere to be found (leading to a nearly 3% drop in the Nikkei225), another SHIBOR spike in China (leading to a 1.5% drop in the SHCOMP) coupled with the announcement of a new prime lending rate (a form a Chinese LIBOR equivalent which one knows will have a happy ending), even more weaker than expected corporate earnings out of Europe (leading to red markets across Europe), together with a German IFO Business Confidence miss and drop for the first time in 6 months, as well as the latest M3 and loan creation data out of the ECB which showed that Europe remains stuck in a lending vacuum in which banks refuse to give out loans, a UK GDP print which came in line with expectations of 0.8%, where however news that Goldman tentacle Mark Carney is finally starting to flex and is preparing to unleash a loan roll out collateralized by "assets" worse than Gree Feta and oilve oil. Of course, none of the above matters: only thing that drives markets is if AMZN burned enough cash in the quarter to send its stock up by another 10%, and, naturally, if today's Durable Goods data will be horrible enough to guarantee not only a delay of the taper through mid-2014, but potentially lend credence to the SocGen idea that the Yellen-Fed may even announce an increase in QE as recently as next week.
In addition to the already noted repeat spike in Chinese overnight repo rates as the PBOC refuses to inject liquidity for nearly a week offsetting the "news" of a better than expected HSBC PMI, the other kay datapoints to hit in the overnight session were various European PMIs which were broadly lower across the board. Of note being the French, which missed both the Manufacturing Index (49.4 vs 50.1 expected, down from 49.8) and the Services (50.2 vs 51.0 expected, down from 51.0) and Germany, which missed in Services (52.3 vs 53.7 expected, same as September), while modestly beating Manufacturing at 51.5 vs 51.4 expected, up from 51.1 last. On a blended basis, the Composite Flash PMI fell from 52.2 to 51.5, against the consensus expectation of a modest rise (Cons: 52.4). Today's correction brings to a halt a series of six consecutive monthly rises in the Euro area composite PMI.
Last week, the main area of focus was the political situation in the US where Democrats and Republicans finally agreed upon a short term fix to reopen the government and extend the debt ceiling. The conclusion of this saw equity markets rally to all time highs in Europe and the US, with the USD continuing to slide as markets turn their attention to the Fed’s QE programme and push back expectations of when the central bank will begin to pull back on asset purchases. With the government now reopen, attention will turn to the numerous data releases that were delayed but will now take place over the next two weeks, including the jobs report which is due on Tuesday. The release of this report will once again be used to help predict when the Fed will begin to taper QE however, recent comments from Fed members have suggested that October is likely to be too soon trim bond buying due to the lack of key macroeconomic data and the unknown economic impact as a result of the government closing for 16 days.
Following last week's last two day panic buying driven not by data (since in the US it has been delayed until late October and November, and elsewhere in the world it is just getting worse) but by the catalyst that the US isn't going to default (yes, that's all that is needed to push the S&P to all time highs) and just hopes that the tapering - that horrifying prospect of the Fed reducing its monthly monetization by $15 billion from $85 to $70 billion in line with the decline in the US deficit - will be delayed until March or June 2014 because, you see, the Fed isn't sure how the economy is doing, it makes no sense to even comment on the market. Squeezes, momentum ignitions, rumors about what Messers Bernanke and Yellen had for breakfast, Goldman's 2015 S&P forecast of 2100: that's the lunacy that passes for market moving factors. News, and reality, have long since been put in the dust. Just keep an eye on flashing read headlines, and try to buy (remember: anyone caught selling by the NSA is guaranteed a lifetime of annual IRS audits) ahead of the algos. That's what Bernanke's centrally-planned "market" has devolved to.
Every month we say it, and every month it just keeps getting worse: RIP Abenomics... until next month, when it will be RIP-er. Overnight Japan posted its latest, September, trade numbers which were absolutely abysmal, as the trade deficit rose to a fresh record high of 932 billion yen ($9.5 billion), the 15th consecutive monthly shortfall. The deficit for April-September rose to nearly 5 trillion yen ($51 billion), also a record for the first half of the fiscal year. The reason: as we warned in January when we predicted that the surging import costs of energy and food as a result of the plunging yen will far outweigh any incremental benefits for exports, is that, well, surging cost of energy and food far outweighed any incremental benefits for exports courtesy of the ongoing Yen devaluation. But at least Japan's 0.1%, like the 0.1% in the US and Europe, have their wealth effect. The rest can just go on a diet. And walk getting there since they can't afford gas.
Dispassionate discussion of some of the vexing issues.
It's gotten beyond silly: with less than a day to go until the first X-Date, beyond which if Jack Lew is correct (he isn't) all hell will break loose if the US doesn't have a debt deal in place, stocks couldn't care less, Bills continue to sell off, carry traders only care how big the central banks' balance sheets are, all news are generally shunned and yet stocks have soared 600 DJIA points on Harry Reid's relentless optimism a deal will get done, even though so far none has. Today, as we observed on Monday, we expect more of the same: stocks and futures will ignore the reality that the midnight hour will come and go with no deal in place, but will continue to explode higher as Harry Reid's latest set of "optimism" headlines hits the tape in low volume trading. We expect the first big hope rally around POMO time, then shortly after Senate comes back in Session, around noon. Then for good measure, another one just before market close. Why not: it's not like the "market" even pretend to be one anymore. Keep an eye on today's 4-Week bill auction before noon. It should be a far bigger doozy than yesterday's longer-dated bills.
In a world devoid for the past two weeks and certainly for foreseeable future of most US economic data (this week we get no CPI, Industrial Production and New Home Sales among others), markets are now reliant on China for an indication of how the economy is doing, which is why this weekend's weaker than expected Chinese exports (ignoring the fact that China trade data is largely made up) and higher than expected consumer price inflation (driven by higher vegetable prices), even as new yuan loans soared to CNY787 billion, well above the CNY675 billion estimate despite broader M2 slowing from 14.7% in August to 14.2% in September, means the Chinese economy is once again in a vice and following the summer's liquidity driven boost, is set to roll over. Which in turn means that once again the PBOC is flying blind: unable to inject more liquidity without risking broader inflation, while most indicators are already rolling over. In short, ugly and certainly rolling over Chinese economic indicators for the market to mull over on Columbus day, even though all this will be promptly forgotten once the Washington debt ceiling song and dance resumes and the now traditional 10:30 am surge grips the algotrons as the latest set of "imminent deal" rumors is unleashed.
Big picture and dispassionate discussion.
For all expectations of a big jump in US futures overnight on the largely priced in Janet Yellen nomination announcement which is due at 3 pm today, the move so far has been very much contained, as expected, with a modest 90 minute halflife, as the markets' prevailing concern continues to be whether the debt ceiling negotiation will be concluded by the October 17 deadline or if it would stretch further forcing the government to prioritize payments. There is however some hope with Bloomberg reporting that some possible paths out of the debt impasse are starting to emerge with less than a week before U.S. borrowing authority lapses after Obama said he could accept a short-term debt-limit increase without policy conditions that set the terms for future talks. Whether this materializes or just leads to more empty posturing and televized press conferences is unclear, although as Politico reports, the stakes for republicans are getting increasingly nebulous with some saying they are "losing" the fight, while the core GDP constituency is actually liking the government shutdown.
Markets are so obsessed by developments with the US debt ceiling, that absolutely nobody noticed that the Japanese Current Account (JPY152Bn, Exp. JPY520bn), Industrial Outuput in Spain (-2.0%, Exp. -1.6%), Factory Orders in Germany (-0.3%, Exp. +1.2%), Trade Balance in Germany (€13.1bn, Exp. €15.0 bn) and that the Jan-Aug tax revenue in Greece below expectations by 5.7%, all missed horribly, and that for all the talk of a European recovery (which was merely driven by a brief surge in Chinese credit spending making its way into the European pipeline) is once again fully and entirely premature. But with Congress on everyone's mind, even increasingly China and Japan, who cares about fundamentals: after all there is a Federal Reserve to mask the fact that nothing but liquidity injections matters. Even if that means a complete collapse in the actual economy as those separated from the Fed by one or more layers of banks, crash and burn.
While the ongoing government shutdown, now in its second week, means even more macro data will be retained by the random number generators, central banks are up and running. This means that in the upcoming week the key event will be the release of the FOMC minutes from the last meeting at which the Fed surprised almost the entire market by not tapering asset purchases as effectively pre-announced. There are MPC meetings in the UK, Brazil, South Korea and Indonesia. The main focus, however, will be on the US political situation still. Data that will most likely be delayed this week includes the US Trade balance, JOLTs, Wholesale and Business inventories, Retail sales, PPI, Import Prices, and the Monthly Federal budget.