In the second of three interviews (part 1 here), Hugh Hendry tells MoneyWeek's Merryn Somerset Webb why central banks will go even further than anyone expects to keep the global economy afloat. Hendry notes, "there’s so much debt that if you reprice debt, the economy slows down. We saw that I think in 2012, after the taper tantrum and ten-year bond use went over 3%. What happened next? The economy slowed down. If anything I would be a buyer of U.S. Treasuries."
While hopes of the J-Curve recovery in the deficit are long forgotten in the annals of Goldman Sachs history, silver-lining-seekers will proclaim the very modest beat in tonight's Japanese trade deficit a moral victory for a nation whose economic data has been nothing but abysmal for months. However, the near $1 trillion Yen deficit is the 44th month in a row as exports to US and Europe rose modestly in Yen terms but dropped to China and US in volume terms. USDJPY continues its march higher (now 118.25) but, unfoirtunately for Abe's approval ratings, Japanese stocks continue to languish an implied 1000 points behind - unable to break back above pre-GDP levels... as faith in Kuroda's omnipotence falters.
Brace yourselves, the zero sum game is on like Donkey Kong.
Nothing to see here, move along...
- From Yes We Can to Probably Not (BBG)
- How Mitch McConnell did it (Politico)
- Tough road ahead for Obama after Republicans seize Senate (Reuters)
- Election 2014: Who were the big winners and losers? (USA Today)
- GOP Senate Takeover Puts Fed on Hot Seat (WSJ), and other fables
- GOP Won by Recruiting the Right Candidates (WSJ)
- McCain could shake up U.S. defense in powerful new Senate role (Reuters)
- Investors Pulled Record Amount From Pimco’s Flagship Fund in October (WSJ)
- Taliban group threatens to attack India following border blast (Reuters)
- Oil Import Decline to U.S. Revealed by Louisiana as Truth (BBG)
The cacophony of various talking heads proclaiming this morning that oil price weakness is not due to weak demand but to over-supply (which are obviously merely different sides to the same coin) was deafening. While he hate to steal the jam from their aggregate donuts, the following chart may just provide a hint at what is really driving oil prices... "it's the economy, stupid!"
As the chart below shows, US trade excluding Petroleum, just tumbled to $48.3 billion, essentially matching the worst print in the history of the series, suggesting that portrayals of the US as a resurgent export powerhouse are completely erroneous, and that instead the US is as big a net importer of goods and services, aside from the Shale revolution of course, as ever.
This could be a problem for the escape velocity believers... The US trade balance printed its biggest deficit since April at -$43.0bn (missing expectations of -$40.2bn) bn. This mainly reflected a decrease in exports (but, but decoupling!?) though imports also slid.
what is strange is that while traditionally such a major downward growth revision would have been sufficient to send futures soaring - why: because in a world where only central banks are left, it means more central bank global bailouts of course - this time the adverse update actually had the impact of sending futures to their lows of the session, granted just a few tiny points since the market is clearly disconnected with even the most pro forma, non-GAAP version of reality, but the reaction direction was clearly unexpected. Perhaps this is explained by the ongoing devastation in both WTI and Brent, which were trading at $76.70 and $82.50 at last check, both down almost 3% as the plan to use Saudi Arabia to crush Russia has instead backfired and the Saudi princes are now openly looking at destroying the US shale infrastructure, as we forecast in the worst, for Obama, scenario.
Before: "The U.S. economy expanded steadily again during the third quarter, a sign of sustained growth fueled by American consumers and businesses despite mounting concerns about the health of overseas economies."
After: "The U.S. economy expanded at a healthy pace during the third quarter, a sign of sustained growth fueled by government spending and a narrower trade deficit despite mounting concerns about the health of overseas economies."
While the last clause in that sentence maintains the sunshine optimism, it is hardly the same interpretation, is it?
- Futures rally after BOJ ramps up stimulus (Reuters), Japan's central bank shocks markets with more easing as inflation slows (Reuters)
- Kuroda Jolts Markets With Assault on Deflation Mindset (BBG)
- Japan Mega-Pension Shifts to Stocks (WSJ)
- Russia Raises Interest Rates (WSJ)
- Oil-Price Drop Has Saudi Officials Divided (WSJ)
- Not anymore, the BOJ is here: Fed Exit Could Spark Slump in All Markets, ATP CEO Says (BBG)
- Wal-Mart Weighs Matching Online Prices from Amazon (WSJ)
- Euro-Area Inflation Picks Up From Five-Year Low on Stimulus (BBG)
- Big Banks Brace for Penalties in Probes (WSJ)
- Ex-UBS Trader Defense Could Be Threat to U.S. Forex Cases (BBG)
The head of Japan's Central Bank kept a straight face while unleashing a torrent of comedic genius this evening with regard the Japanese economy and its monetary and fiscal policy success... Enjoy...
The seemingly insatiable appetite of the growing Indian middle class for gold is causing the government in India to again consider imposing sanctions on the importing of gold.
The Japanese Yen's real effective exchange rate (REER) has collapsed to the weakest since 1982, according to Mitsubishi UFJ Morgan Stanley Securities. Simply put, REER is a trade-weighted measure of Yen strength (or weakness) against, in this case, 59 trading partners; and as the nation posts an unprecedented 27th straight month of trade deficits, Bloomberg reports MUFJ indicates "a structural shift" has taken place. As MUFJ chief FX strategist warns, "If the trade deficit doesn’t noticeably narrow from here, the yen’s real effective rate could fall to levels never seen before," and, ominously, "from a supply and demand perspective, yen selling for foreign currency by Japanese importers will just continue endlessly." And Japan becomes Venezuela...