What do people in Utah (apparently) and Republicans have in common? Now, that’s a conundrum if ever you have heard one! The clock is ticking away and I guess you still haven’t found the answer.
Previewing the rest of this week’s events, we have a bumper week of US data over the next five days, in part making up for two days of blackout last week for Thanksgiving. Aside from Friday’s nonfarm payroll report, the key releases to look for are manufacturing ISM and construction spending (today), unit motor vehicle sales (tomorrow), non-manufacturing ISM (Wednesday), preliminary Q3 real GDP and initial jobless claims (Thursday), as well as personal income/consumption and consumer sentiment (Friday). Wednesday’s ADP employment report will, as usual, provide a preamble for Friday’s payrolls.
- America’s Role as Consumer of Last Resort Goes Missing (BBG)
- Holiday sales sag despite blitz of deals (WSJ)
- Abe Support Falls Below 50% for First Time Amid Secrecy Drive (BBG)
- U.S. airlines give China flight plans for defense zone (Reuters), while Japan: no change to airlines' notification policy when flying in East China Sea zone (Reuters)
- Thai protesters seek to topple PM after clashes (Reuters)
- Hilton Seeks as Much as $2.4 Billion in Biggest Hotel IPO (BBG)
- Biden on delicate mission to defuse tensions in East Asia (Reuters)
- Fed eyes financial system weak link (WSJ)
- Pentagon in line of fire in US budget war (FT)
- China’s monetary squeeze collides with housing bubble (FT)
In addition to its three previously announced so far "Top Trades" for 2014 (see here, here and here), just over an hour ago Goldman revealed its fourth top recommendation to clients. To wit: Goldman is selling China equities (via the HSCWI Index), while buying copper (via Dec 2014 futs), or at least advising its flow clients to do the opposite while admitting that "for the long China equity/short commodity pair trade to “work” best, these two assets, which are usually positively correlated, will have to move in opposite directions." For that and many other reasons why betting on a divergence of two very closely correlating assets will lead to suffering, read on. Finally - do as Goldman says, or as it does? That is the eternal question, one whose answer is a tad more problematic since the author in this case is not Tom Stolper but Noah Weisberger.
Asian equities have gotten off to a rocky start to the week despite some initial optimism around the twin-Chinese PMI beats at the start of the session. That optimism has been replaced by selling in Chinese equities, particularly small-cap Chinese stocks and A-shares after the Chinese security regulator issued a reform plan for domestic IPOs over the weekend. The market is expecting the reforms to lead to a higher number of IPOs in the coming quarters, and the fear is that this will bring a wave of new supply of stock to an already-underperforming market. Indeed, the Chinese securities regulator expects about 50 firms to complete IPOs by January 2014 – and another 763 firms have already submitted their IPO applications and are currently awaiting approval. A large number of small cap stocks listed on Hong Kong’s Growth Enterprise Market were down by more than 5% this morning, while the Shanghai Composite is down by 0.9%. The Hang Seng (+0.4%), Hang Seng China Enterprises Index (+0.8%) are performing better on a relative basis, and other China-growth assets including the AUDUSD is up 0.5%. The Nikkei (-0.1%) is also a touch weaker after Japan’s Q3 capital expenditure numbers came in well below estimates (1.5% YoY vs 3.6% forecast). Elsewhere Sterling continues to forge new multi-year highs against the USD (+0.3% overnight).
The implicit, and ever more explicit, institutional acceptance of the dominant cryptocurrency Bitcoin (we say dominant because as we pointed out last week, there has been an unprecedented spike of digital currencies one can pick and choose from) continues when following the surge in vendors willing to transact in BTC over Thanksgiving, the latest news comes from the birthplace of the modern central bank, the UK, where we learn that none other than the UK Royal Mint has been working on plans since this summer to issue physical Bitcoins in collaboration with the Channel Island of Alderney. But where the story gets downright surreal is that as the FT reports, the same symbolic Bitcoin token issued by the Royal Mint "would have a gold content – a figure of £500-worth has been proposed – so that holders could conceivably melt and sell the metal if the exchange value of the currency were to collapse." In brief: a perfect, and utterly incomprehensible, fusion of (opposing) hard, soft and digital currencies all rolled into one...
Overview of the week's economic and poltiical calendar in the context of the investment climate.
The early effects of the reform program have triggered a surge in the Japanese stock market, accelerated by the anticipation of growth revival. So far, so good for the markets and traders. But how will Abenomics accommodate public debt of over 200% GDP, and will Abe’s radical policies inspire a long-term economic recovery in Japan? Saxo Capital Markets’ new infographic explores the efficacy of Japan's prime minister's dangerous experiment to stimulate economic growth.
- So much for the euphoria: Stores open early on Thanksgiving but shoppers in no rush (Reuters)
- Get to work Mr. Chairwoman: Do-Nothing Congress Dithers on Budget as Deadline Nears (BBG)
- FX to Libor Probes Leave U.K. Traders Looking for Lawyers (BBG)
- Protesters Briefly Storm Thai Army Headquarters (WSJ)
- Berlusconi accused of bribing witnesses in prostitution trial (Reuters)
- Japan Price Gauge Rises Most Since ’98 in Boost to Abe (BBG)
- S&P downgrades Netherlands’ AAA credit rating (FT)
- GrainCorp Verdict Clouds Australia Open-For-Business Pledge (BBG)
- Hertz Fix in Dollar Thrifty Deal Fails as Insider Warned (BBG)
- Narrow Budget Agreement Comes Into View (WSJ)
A hungover America slowly wakes up from a day of society-mandated consumption and purchasing excess to engage in even more Fed-mandated excess in the equity markets. The only difference is that while the "90%" was engaged in the former and depleting their equity, and savings, accounts in the process, far less than 10% will be doing the latter. Overnight attention was drawn to the rapidly escalating territorial dispute between China and Japan, now in the air, Bitcoin's brief surge above the price of an ounce of gold, and the ejection of the Holland from the AAA Eurozone club (where only Germany and Finland remain), following an S&P downgrade of the Netherlands from AAA to AA+, which however had been largely priced in long ago (and was coupled with an upgrade of Spain from negative to stable outlook, as well as an upgrade of Spain from CCC+ to B-). Europe surprised pleasantly on both the inflation (better than expected) and unemployment rate (dropped from an all time high of 12.2% to 12.1%), even if youth unemployment rose to fresh record highs.
- The second coming of Obamacare website - will it work? (Reuters)
- Winter Storm Moves North as Macy’s Waits to Make Parade Call (BBG)
- Eyeing holiday sales, more U.S. retailers to open on Thanksgiving (Reuters)
- It's all Verizon's fault: H-P Will Replace Verizon in Hosting HealthCare.gov Website (WSJ)
- Bitcoin Service Targets Kenya Remittances With Cut-Rate Fees (BBG)
- Embattled Thai PM easily survives no-confidence vote, protests persist (Reuters)
- For U.S. stores it is ugly out there: in more ways than one (Reuters)
- Japan and S Korea military flout China air zone rules (FT)
- UBS Restructuring Forex Unit (WSJ)
- Trader Messages Scrutinized as UBS Bans Chats Among Firms (BBG)
- ECB warns on external risks to eurozone financial system (FT)
Keep a close eye on China: it is on the cusp between the end of the leverage cycle (where as we reported over the past two days, it has been pumping bank assets at the ridiculous pace of $3.5 trillion per year) and on the verge of having its debt bubble bursting. What happens then is unclear.
It would likely also deal another blow to the U.S property market and the fragile U.S economy. JP Morgan, Bank of America and Wells Fargo appear to be most exposed - meaning that either taxpayers will again be asked to bail out banks or more likely the coming bail-in regime will confiscate cash from depositors.
- Winter storm lashes eastern U.S., threatens Thanksgiving travel (Reuters)
- Fed Reveals New Concerns About Long-Term U.S. Slowdown (BBG)
- Private equity keeps $789bn of powder dry (FT) - because they are "selling everything that is not nailed down"
- Merkel and SPD clinch coalition deal two months after vote (Reuters)
- Japan approves new state secrecy bill to combat leaks (BBC)
- CLOs are the new black: Volatile Loan Securities Are Luring Fund Managers Again (WSJ)
- Health website deadline nears (WSJ)
- Norway Debates $800 Billion Wealth Fund’s Investment Options (BBG)
- Set of global trade deals stalls (WSJ)
- Berlusconi To Learn Fate In Senate (Sky)
- Silvio Berlusconi withdraws support from Italy’s government (FT)