University Of Michigan
Abe's honeymoon is over. Following nearly two years of having free reign to crush the Japanese economy with his idiotic monetary and fiscal policies - but, but the Nikkei is up - the market may have finally pulled its head out of its, well, sand, and after last night's abysmal economic data from Japan which saw not only the highest (cost-push) inflation rate since 1982, in everything but wages (hence, zero demand-pull) - after wages dropped for 23 consecutive months, disposable income imploded - but a total collapse in household spending, the USDJPY appears to have finally been dislodged from its rigged resting place just around 102. As a result the 50 pip overnight drop to 101.4 was the biggest drop in over a month. And since the Nikkei is nothing but the USDJPY (same for the S&P), Japan stocks tumbled 1.4%, their biggest drop in weeks, as suddenly the days of the grand Keynesian ninja out of Tokyo appear numbered. Unless Nomura manages to stabilize USDJPY and push it higher, look for the USDJPY to slide back to double digits in the coming weeks.
Following last month's drop and disappointing miss, University of Michigan Consumer Confidence just got even worse. Despite record high stock prices and near record high car purcahsing exuberance, consumer confidence tumbled for the 2nd month in a row (just when the pent-up demand of Q1 is supposed to kick in). This is the biggest miss of expectations since Dec 2012 and appears to confirm the lack of exuberance seen in the government's survey data. Inflation expectations dropped to the lowest in 2014 as hopes for the economic outlook dropped to 3-month lows. Not the animal-spirity, wealth-creatingy, exuberance the Fed (and every multiple expansion-hoping muppet) was expecting...
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Equity Blow Off Top Takes Brief Overnight Rest, Prepares For Another Session Of Low Volume LevitationSubmitted by Tyler Durden on 05/30/2014 07:03 -0400
Last night's docket of atrocious Japanese economic data inexplicably managed to push the Nikkei lower, not because the data was ugly but because the scorching inflation - the highest since 1991 - mostly driven by import costs, food and energy as a result of a weak yen, and certainly not in wages, has pushed back most banks' estimates of additional QE to late 2014 if not 2015 which is as we predicted would happen over a year ago. As a result the market, addicted to central bank liquidity, has had to make a modest reassessment of just how much disconnected from reality it is willing to push equities relative to expectations of central bank balance sheet growth. However, now that the night crew trading the USDJPY is replaced with the US session algo shift which does a great job of re-levitating the pair, and with it bringing the S&P 500 higher, we expect this brief flicker of red futures currently observable on trading terminals to be promptly replaced with the friendly, well-known and "confidence-boosting" green. The same goes for Treasurys which lately have been tracking every directional move in stocks not in yield but in price.
After another, even deadlier, terrorist attack in Urumqi, Beijing must reevaluate its anti-terrorism strategy.
The perfectly expected if completely irrational overnight ramp in various Yen carry pairs tried, and failed, and both the USDJPY and EURJPY were tumbling to overnight lows as we go to print. This is happening despite a rout in India in which Narendra Modi's opposition block is poised for the biggest Indian election win in 30 years, with his BJP party currently leading in 332 of 543 seat - an outcome that is seen as very pro business (and seemingly pro asset bubbles: the INR soared and the Sensex was up as much as 6% in intraday trading before paring virtually all gains following what many say was RBI intervention). And while the Nikkei (down 200 points) did not help the mood this move was mostly in response to yesterday's US selling, which means as usual the culprit for lack of algo risk-taking overnight has been the Yen carry, which moments ago hit intraday lows, and is increasingly flirting with the 101 level (after which double digits, and Abe's second resignation, come very quickly).
Bonds, Gold, and JPY are bid this morning as US equity futures are fading fast. The Dow and S&P futures are now back below pre-AAPL/FB levels and Nasdaq futures falling fast. Gold is back above $1300 (up over $30 from yesterday's pre-Putin lows). Treasuries, led by the long-end, are rallying as safe-haven bids appear across the whole complex. 30Y yields are down to 3.53 - the lowest since July. JPY is bid once again as USDJPY tests back to the crucial 102 level.
While the government's survey of consumer confidence saw new cycle highs - progressing the multiple expansion dream - the University of Michigan (private) survey has been falling for 3 months and is now at its lowest since November. Both current conditions (reality) and expectations (hope) missed expectations (overall index missed by the most in 5 months) but "hope" did rise modestly from 69.4 to 70.0. Must have been a 'winter stormy' week when UMich surveyed consumers...
Just last week Goldman noted that February was "the busiest month in the buyback desk's history," so one has to wonder just what management is thinking when the Wall Street Journal reports that corporate insiders are more bearish than they have been at least since 1990. According to this adjusted measure, there have been two prior occasions when the insider ratio got almost as bearish as it is today - early 2007 and early 2011 - and the first came a half a year before the beginning of the worst bear market since the 1930s. Simply put, it seems management teams are using their company's balance sheet as their own personal piggybank.
So far the overnight session has been a replica of yesterday, with the all important carry trade once again fizzling overnight during Japan trading hours, and dipping as low at 101.60 before staging a modest rebound to the 101.8 level. We expect the "invisible" 102.000 USDJPY tractor beam to be again engaged shortly and provide market support and/or levitate stocks higher as the now standard selling in Japan, buying in the US trade pattern repeats. On the other hand, US equity futures appear to have decoupled from the pure carry trade, and instead latched on to USD weakness and EUR strength following European Q4 GDP data, which came at 0.3% on expectations of 0.2%, up from 0.1%. Considering the constant adjustments to the European definition of GDP, at this point Mongolia would have been able to demonstrate growth if it was in Europe (but apparently not Greece which once again missed GDP expectations with Q4 GDP of -2.6% vs Exp. -2.0%). Expect ES and USDJPY to recouple shortly, as they always do - the only question if the recoupling will take place lower or higher.
Today, more than 10,000 Baby Boomers will retire. This is going to happen day after day, month after month, year after year until 2030. It is the greatest demographic tsunami in the history of the United States, and we are woefully unprepared for it. We have made financial promises to the Baby Boomers worth tens of trillions of dollars that we simply are not going to be able to keep. Even if we didn't have all of the other massive economic problems that we are currently dealing with, this retirement crisis would be enough to destroy our economy all by itself. During the first half of this century, the number of senior citizens in the United States is being projected to more than double. As a nation, we are already drowning in debt. So where in the world are we going to get the money to take care of all of these elderly people?
People Powered Privacy Savior ... Or Honey Trap Pushed By the Central Banks and TBTF?
Weak results from Intel, American Express and Capital One, not to mention Goldman and Citi? No problem: there's is overnight USDJPY levitation for that, which has pushed S&P futures firmly into the green after early overnight weakness: because while the components of the market may have such trivial indicators as multiples and earnings, the USDJPY to which the Emini is tethered has unlimited upside. And now that the market is back into "good news is good, bad news is better" mode, today's avalanche of macro data which includes December housing starts and building permits, industrial production, UofMichigan consumer confidence and JOLTs job openings, not to mention the up to $3 billion POMO, should make sure the week closes off in style: after all can't have the tapped out consumer enter the weekend looking at a red number on their E-trade account: they might just not spend as much (money they don't have).
The economist Herbert Stein once said that if something can't go on forever, it will stop. The pattern of the last few decades, in which higher education costs grew much faster than incomes, with the difference made up by borrowing, can't go on forever... There is no point in trying to preserve the old regime as "working your way through college" is now impossible. For an 18-year-old, investing such a six-figure sum in an education without a payoff makes no more sense than buying a Ferrari on credit.
- BAD TRADE #1 For 2014: Ignoring Mean Reversion
- BAD TRADE #2 For 2014: Which-flation?
- BAD TRADE #3 For 2014: Forgetting Late Cycle Dynamics
- BAD TRADE #4 For 2014: Blind Faith In Policy
- BAD TRADE #5 For 2014: Reaching for Yield During Late Cycle