Ever since going public, it appears that Markit's giddyness about life has spilled over into its manufacturing surveys: after a surge in recent Markit mfg exuberance in recent months in the US, it was first China's turn overnight to hit an 18 month high, slamming expectations and fixing the bitter taste in the mouth left by another month of atrocious Japan trade data (where even Goldman has thrown in the towel on Abenomics now) following which the euphoria spilled over to Europe just as the triple-dip recession warnings had started to grow ever louder and most economists have been making a strong case for ECB QE. Instead, German July mfg PMI printed at 52.9, above the 52.0 in June and above the 51.9 expected while the Composite blasted higher to 55.9, from 54.0, and above the 53.8 expected thanks to the strongest Service PMI in 37 months! End result: a blended Eurozone manufacturing PMI rising from 51.8 to 51.9, despite expectations of a modest decline while the Composite rose from 52.8 to 54.0, on expectations of an unchanged print. Curiously the soft survey data took place as Retail Sales declined both in Italy (-0.7%, Exp. +0.2%), and the UK (-0.1%, Exp. 0.3%), which incidentally was blamed on "hot weather." Perhaps Markit, now that it has IPOed successfully, can step off the gas or at least lobby to have surveys become part of GDP.
While we have again and again explained why Abenomics is ultimately doomed as you simply cannot print your way to prosperity (a message The Fed appears to be discovering rapidly), when Goldman Sachs unleashes an Abenomics-bashing piece, one has to wonder just what options Abe has left as economic data starts to collapse (and approval ratings drop just as fast). Simply put, as we concluded before, "Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery... Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes. Then the country is left with a depleted capital base and a higher price level. What a great policy!"
- Carl Icahn says 'time to be cautious' on U.S. stocks (Reuters)
- Banco Espirito Santo Lifts Lid on Exposure to Group (BBG)
- Slowing Customer Traffic Worries U.S. Retailers (WSJ)
- Insurgents enter military base northeast of Baghdad (Reuters)
- Obama tells Israel U.S. ready to help end hostilities (Reuters)
- Japan economics minister warns of premature QE exit, sees room for more easing (Reuters)
- Greek Banks See Quadrupling of Housing Loans by Next Year (BBG) ... to fund buybacks like in the US?
- Piggy Banks Being Raided Signal Swedish Housing Dilemma (BBG)
- London Seeks New Spenders as Russians Skip $719 Champagne (BBG)
Washington can’t stop lying. Don’t be convinced by last Thursday’s job report that it is your fault if you don’t have a job. Those 288,000 jobs and 6.1% unemployment rate are more fiction than reality. What you can take away from this is the opposite of what the presstitute media would have you believe. For the most part economists have turned a blind eye. Economists serve the globalists. It pays them well. The corruption in present-day America is total. No one serves truth and liberty. America has left us. We now have the tyranny of the Orwellian state that rules, not by the ballot box and Constitution, but by force and propaganda.
A look at the investment climate through the currency market and upcoming events and data.
What this chart shows is that when it comes to core manufacturing and service trade, that which excludes petroleum, the US trade deficit hit some $49 billion dollars in the month of May, the highest trade deficit ever recorded! In other words, far from doubling US exports, Obama is on pace to make the export segment of the US economy the weakest it has ever been, leading to millions of export-producing jobs gone for ever (but fear not, they will be promptly replaced by part-time jobs). It also means that the collapse in Q1 GDP, much of which was driven by tumbling net exports, will continue as America appear largely unable to pull itself out of its international trade funk, much less doubling its exports.
Policy ws left on hold, as the ECB monitors the effect of its earlier initiatives and prepares for the TLTROs and ABS purchases. However, important changes are taking place how it will conduct monetary policy starting next year.
Initial Jobless Claims Misses For 5th Week As Trade Deficit Improves Modestly (Thanks To Saudi Arabia)Submitted by Tyler Durden on 07/03/2014 07:40 -0500
Q2 GDP hope remains as a significant surge in exports of automotive vehicles, parts, and engines stalled the collapsing trade balance for a very modest beat (still a $44.4 billion deficit). This is the 2nd biggest trade deficit since November 2012 as imports dropped $0.7bn and exports rose $2.0 billion. Saudi Arabia, interestingly, was largely responsible for the improvement in the trade balance as the deficit dropped from $4bn to $2.3bn. Hope springs eternal but the deficit is still considerably more of a drag on Q2 GDP than it was on Q1 GDP. Initial jobless claims continue to go nowhere but missed for the 5th week in a row).
We could focus on whatever events took place in the overnight session or the seasonally-adjusted economic data avalanche that will dominate US newsflow over the next two days (ADP, ISM New York, Factory Orders, Services ISM, Yellen Speaking, and of course Nonfarm payrolls tomorrow), or we could ignore all of that as it is absolutely meaningless and all very much bullish, and use a phrase from Standard Chartered which said that "the dollars Yellen is removing could be compensated for by cheap euros from the ECB; result may be enough cash sloshing around to underpin this year’s run-up in risk assets even if the Fed begins mulling higher interest rates too." In other words, the bubble will go on, as the Fed passes the baton to the ECB, if not so much the BOJ which is drowning in its own imported inflation. Case in point: two of the three HY deals priced yesterday were PIK, and the $1 billion in proceeds was quickly used to pay back equity sponsors. The credit bubble has never been bigger.
A thumbnail sketch of the main events of during the week ahead.
New All time highs almost every single day, yet market volumes have literally collapsed. On any given day, you would see an average of 2M eminis (S&P Futures, spoos) trade, and now we are seeing barely 1M trade, sometimes even lower. This has left everyone, including big banks, who are now being forced to lay off traders amid the slowdown, asking the same question: WTF is going on?
For all those analysts who thought the debt binge of the previous decade marked end of the Age of Leverage, well, not so fast. It turns out that memories are short and government printing presses are powerful, and this combination has turned the “Great Deleveraging” into a minor speed bump on the road to something even more extreme. It was just six years ago that soaring consumer spending, massive trade deficits and generally excessive debt caused the biggest crisis since the Great Depression, and here we are back at it. The details are slightly different but the net effect is the same: inflated asset prices, growing instability and rising risk of a systemic failure capable of pulling down pretty much the whole show.
If corporate profits decline (as they did in Q1), what will hold up the market's lofty valuations other than the tapering flood of liquidity from the Federal Reserve? Answer: nothing. Complacent punters will discover to their great dismay that liquidity is only one dynamic of many.
Why low inflation in Europe is not caused by too high of interest rates and why a 10-15 bp cut in rates will not succeed.
The last 4 days have seen 10Y yields surge by over 20bps and recouple with equity market exuberance as the 'temporary' growth scare in bonds disappears into the mists of time (until the next one). This morning's farce in the markets was impressive as bonds managed to ignore all the weakness in hard data (weak ADP, dismal trade deficit, and worse productivity) and decided that what really matters is a seasonally-adjusted survey of the service industry.