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Fiscal Cliff Headline Manic Depression Set To Continue

Tyler Durden's picture





 

Today's "trading", in a repeat of what has become a daily routine, can be summarized as follows: flashing red headline about Fiscal Cliff hope/optimism/constructiveness out of a member of Congress who bought SPY calls in advance of statement: market soars; flashing red headlines about the inverse of Fiscal Cliff hope/optimism/constructiveness out a member of Congress who bought SPY puts in advance of statement: market plunges. Everything else is noise, as is said hope/expectations/constructiveness too since it is increasingly likely nothing will happen until the debt ceiling hike deadline in March, but stop hunts must take place in a market which nobody even pretends is driven by fundamental newsflow. Such as the bevy of PMIs released last night, the key of which was the China HSBC PMI as reported previously, which beat expectations by the smallest of possible increments, at 50.5, but rising to expansion territory and the highest in 13 months, which sent the EURUSD spiking and has kept it in the 1.3030 range for the duration of the overnight session. Sadly, those on the ground in China hardly felt the number was a bullish as EURUSD trading algos around the world, sending the Shanghai Composite to a fresh post-2008 low, closing down over 1% at 1,960. But let's just ignore this inconvenient datapoint shall we?

Europe then followed suit, with several goldilocks PMI numbers, as the Euroarea came right on top of expectations, with some weakness out of France and Italy, offsetting strength in Spain and the UK, and Germany also coming just as expected: France manufacturing PMI: 44,5., Exp 44.7, Italian Manufacturing PMI: 45.1, Exp. 46.0, Last 45.5, Spain Manufacturing PMI: 45.3, Exp. 43.9, Last 43.5; German Manufacturing PMI: 46.8, Exp. 46.8, Last 46.8. Euroarea November Manufacturing: 46.2, Exp. 46.2, Last 46.2. As Europe opened we finally got details of the Greek debt buyback which came in at higher prices than expected, which in turn has sent the yields of other European peripheral debt lower, if unclear just what thesis is being applied here.

As the final month of the year begins, here are the key events to keep an eye on via SocGen:

The final calendar month of the year kicks off today with a fairly busy agenda and yet another EU Ecofin gathering where ministers will assemble for talks over bailout terms for Greece (debt buyback) and Cyprus. The exact amount needed to recapitalise Cypriot banks has not yet been established but indications from the Troika suggest the funds will be roughly EUR10bn (of a total EUR17.5bn bailout). The exact amount is likely to be determined after the report on the banking system by Pimco (due for completion in January). In return for the funds, a fiscal adjustment of roughly 7.3% of GDP will be required between 2012 and 2016.

 

The post-Greece relief rally last week proved very short lived indeed and instead it was month-end flows that nudged the EUR/G10 higher. It was also curious to see 10y bund yields pinned below 1.40% as the Eurostoxx completed a 5.4% rebound from the mid-November lows. However, as month-end flows subside we should get a true picture of risk sentiment and whether a squeeze in the EUR can continue. Talks on the Greek debt buyback appeared to have ground to a halt after Greek banks voiced their opposition to being burdened by fresh losses after having already taken a hit in the March PSI. Let's see what EU finance ministers come up with today.

 

The data calendar is focused on manufacturing PMIs. The US index has dropped steadily since April's high of 54.8 and a fresh drop towards 50.0 would not do sentiment any good just as US House speaker Boehner hints that fiscal cliff talks are still light on substance

The complete event recap as usual comes from DB's Jim Reid:

After much 'bah-humbuging' I've finally succumbed, and much, much earlier than I usually do. Regular readers can guess why. Yes the Xmas tree went up on Saturday and I played an hour of Xmas songs while we decorated the tree. Three weeks today it will be Xmas Eve but we still have a lot to get through market wise before then. Unless you've been on a desert island then you'll clearly be aware of the fiscal cliff story that needs some kind of progress before Xmas to hit the first important deadline (Dec 31st). Outside of this we have possible QE4 being announced on the 12th and the potential landmark Japanese election on the 16th. As you'll see in the performance review at the end of today's EMR, Japanese equities have been one of the best performers in November on hopes of a more radical monetary policy framework with a new administration. Interestingly the S&P 500 lagged its peers last month on the fiscal cliff concerns. So there’s still a lot to process before the holidays.

Indeed given it’s the first of the month, today is PMI/ISM day which will as ever be a good real-time guide as to the momentum in the global economy. We start with the weekend release of China’s official PMI. The series came in at a 7-month high of 50.6 (vs 50.2 prior month). Despite coming a tad below expectations (50.8), DB’s Jun Ma sees this as an encouraging data point which was followed by the confirmation of the first >50 HSBC manufacturing PMI print in 13 months overnight. China’s non-manufacturing PMI for November also saw a modest improvement versus the previous month (55.6 v 55.5). Moving to Europe, we kick-off at 8:15am London time today with the Spanish manufacturing PMI followed shortly thereafter by the Italian equivalent. The market is expecting a marginal improvement in both the Spanish (43.9 vs 43.5 previous) as well as the Italian (46.0 vs 45.5) reading, although both should still remain well in contractionary territory. We also get the final readings for France, Germany and the Eurozone aggregate this morning. For the record, the flash estimates for these were 44.7, 46.8 and 46.2 respectively. In the US, we also have the final Markit PMI today where the consensus is going for a 51.7 (vs 52.4 preliminary reading and 51.0 for October). In terms of the manufacturing ISM, the market is expecting a small pullback to 51.5 (vs 51.7 previously).

Aside from today’s PMI, we can also expect a fairly busy week of central bank activities. The ECB, BoE, BoC, RBA and RBNZ are all meeting this week. With the notable exception of the RBA, the other central banks are expected to remain on hold. On the ECB, our European economists expect Draghi to maintain his moderately dovish tone at the post-meeting press conference.

Markets wise we are starting the week on a mixed tone overnight. Asian equity gains are being led by the ASX200 (+0.57%) and KOSPI (+0.48%) as investors are seemingly encouraged by the weekend’s Chinese PMI, although Chinese equities themselves are underperforming (Shanghai Comp -0.33%; Hang Seng - 0.21%). The Nikkei is continuing last month’s outperformance by trading 0.40% higher this morning helped by a stronger-than-expected capital spending (ex software) report (+2.4% v +1.0%) for Q3. Looking slightly ahead its worth noting the busy political month in North Asia with Japan and South Korea holding elections on the 16th and 19th, respectively. Elsewhere the EURUSD is up 0.3% and consolidating above the key 1.300 level on the better risk tone.

Taking a briefly look at some weekend headlines, Republican and Democrat positions remain as entrenched as ever as both sides traded blame over the weekend for the current fiscal cliff stalemate.

Bloomberg highlighted that there is a “small and potentially influential group of lawmakers in both parties that is emerging as fiscal-cliff sceptics, willing -- and some even arguing -- to take the dive” rather than reaching for a compromise that violates their principles. In Europe, the FT wrote that Merkel is prepared to forgive some of Greece’s debt once Greece’s budget moves into surplus. Elsewhere, La Razon newspaper quoted Rajoy as saying it is very complicated to meet Spain’s 2012 deficit goal of 6.3% of GDP and that he would not hesitate to seek ECB assistance if needed. Spanish 10 year yields closed at the lowest since March on Friday at 5.31%.

More onto the week ahead, details of Greece’s bond buyback including the size, scope and pricing are expected to be announced today. We’re also likely to get more statements on Greece with the Eurogroup/ECOFIN meeting starting today in Brussels. Aside from the PMIs, other notable data releases include the Eurozone’s preliminary Q3 GDP and German factory orders (Thursday). Spain reports unemployment (Wednesday) and IP (Thursday) this week. A Spanish auction involving 3yr, 7yr and 10yr bonds on Wednesday is also worth noting. In the UK, the Chancellor will outline his autumn statement of fiscal and economic forecasts to parliament on Wednesday.

Moving to the US, we have a busy week of data leading up to Friday’s payroll. For now, Joe expects a hurricane-impacted +25k gain on the headline (+35k private) and a one-tenth increase in the unemployment rate (to 8.0%). Ahead of that, today’s motor vehicle sales, Wednesday’s factory orders and ADP report, Thursday’s jobless claims and Friday’s UofM consumer confidence and consumer credit data are all notable releases.

 


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Mon, 12/03/2012 - 08:29 | Link to Comment Northeaster
Northeaster's picture

"in a market which nobody even pretends is driven by fundamental newsflow." -

Speaking of which, maybe someone that has better bailout/Fed banking accounting than I. I recently had a "debate" with a banker regarding The Fed Audit and what was the REAL amount since 2007. In the audit, it stated $16 trillion, but the banker stated it was GAO bad accounting practices and it was only $1.139 Trillion. The banker referred to "Bloomberg" and "Forbes" amd that the GAO was counting balance carried (wrongly) in the report.

A little off-topic, but maybe someone lurking can set the record straight: Bad GAO accounting, or did domestic/foriegn Fed money equal $16 Trillion?

Mon, 12/03/2012 - 08:33 | Link to Comment CunnyFunt
Mon, 12/03/2012 - 08:39 | Link to Comment Northeaster
Northeaster's picture

Apologies if I wasn't specific, I'm not talking about the public debt, I talking about the secret (now public) lines of liquidity The Fed was giving the banks starting in 2007.

http://www.gao.gov/new.items/d11696.pdf

Mon, 12/03/2012 - 08:44 | Link to Comment CunnyFunt
CunnyFunt's picture

My bad. Through April 2010, I believe the figure was $1.2T, but since then, I don't know.

http://www.bloomberg.com/data-visualization/federal-reserve-emergency-le... (Perhaps this was your friends reference)

Mon, 12/03/2012 - 09:22 | Link to Comment smlbizman
smlbizman's picture

correct me if im wrong, but while everybody is being carpet bombed with perpetual fiscal cliff focus, i think the already passed obamacare has passed and it is giving all employee's a substantial raise in 2013.  the medical benes are to be considered income to you...so hows a 12 to 15k dollar raise were, you will not see 1 dollar of it but would have the privledge to pay your fair share of what, 30% sound to you?.....plus many other goodies......

Mon, 12/03/2012 - 08:35 | Link to Comment stocktivity
stocktivity's picture

It's all Bullshit!!!

Mon, 12/03/2012 - 08:48 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

At least it's still warm.

Mon, 12/03/2012 - 08:52 | Link to Comment francis_sawyer
francis_sawyer's picture

So if you go off the fiscal cliff 3 straight times does that mean you're traveling back UP again?...

Mon, 12/03/2012 - 09:28 | Link to Comment spastic_colon
spastic_colon's picture

ultimately today will be a 1%+ green day for all equities sans Asia

Mon, 12/03/2012 - 08:59 | Link to Comment Disenchanted
Disenchanted's picture

 

 

Personally I think it happened long before 2008...

 

excerpt from:

Political Resistance to the Unfolding American Holocaust Is Futile

 

The United States government is totally illegitimate and it is absolutely under the control of the international bankers who want 95% of you dead. When historians revisit our time and write about the fall of the American empire, they may disagree on the exact date that the international banker coup d’état was successful in taking over our former constitutional republic, but that date will most certainly precede 2012. In other words, America has already been conquered and you reformer types are engaged in a fool’s errand in trying to change something that no longer belongs to you. Your efforts are hurting the chances for survival of your fellow citizens who will put their faith in such reform movements such as the former Ron Paul movement, when they should be focusing on individual survival and not some distracting pipe dream. The America you thought you knew, no longer exists.

 

Please allow me to digress for a moment and answer what some of you may be wondering; When did it all go wrong? The nexus of the power shift between legitimate and illegitimate government will most likely be placed in 2008 with the first wave of massive wealth transfer from the American public to the international bankers with the series of banker bailouts. The greatest wealth transfer in human history was spearheaded by the former Secretary of the Treasury and former Goldman Sachs gangster, Hank Paulson, when he threatened Congress with the rollout of martial law if Congress did not let selected Wall Street firms loot the American treasury and to let the FED print untold number of fiat currency to give away to their foreign banking interests. And if the threat of martial law wasn’t enough to twist the arm of our two legislative houses to give away the American dream, Paulson and his criminal gang of international bankers certainly have access to electronic surveillance of Congressman, and their illicit behaviors, so their voting practices could be compromised by blackmail. The blackmail was often accomplished by the sponsoring of wild parties and orgies which were secretly videotaped with the evidence being saved for opportunistic “arm twisting.” And if that still wasn’t enough to twist the arms of our largely hedonistic representatives and senators, there’s always the blackmail associated with members of congress recreational participation in the services provided by child sex slavery rings, involving such nefarious events such as the Franklin Scandal (see below).

 

"Nation of Sheep Ruled by Wolves Owned by Pigs"

http://www.thecommonsenseshow.com/siteupload/2012/12/nation-of-shept.jpg

Mon, 12/03/2012 - 08:31 | Link to Comment JackT
JackT's picture

So it is fixed and really never was broken? I've heard on the street that if you print a PMI of 30+ you get a re-do on your debt. Maybe it's true and all will be fixed by Christmas?

Mon, 12/03/2012 - 08:30 | Link to Comment buzzsaw99
buzzsaw99's picture

they are just trying to manufacture trading volume via headlines. imo it won't work.

Mon, 12/03/2012 - 08:43 | Link to Comment mdtrader
mdtrader's picture

Even if they come up with resolution to the fiscal cliff, it will still involve higher taxes and spendings curbs, I have no idea how the market thinks that's bullish for stocks??? Also governments are starting to go after these big companies that use legal but morally questionable methods of reducing their tax bills. These big companies are going to end up paying more tax, because western governments are broke and they will tap the only source of cash left, and that's the cash rich multi-nationals. For the politicans this is a dream ticket, they get to claim more tax and also the moral high ground, which sits well with the public. 

Mon, 12/03/2012 - 08:37 | Link to Comment q99x2
q99x2's picture

Isn't it time for Moody's to downgrade the S&P index. I mean there are only two politicians and a bunch of machines left trading. That's not safe for pension funds. What if one of the politicians cashes out?

Mon, 12/03/2012 - 08:37 | Link to Comment ZFiNX
ZFiNX's picture

See what happens when you take away insider trading privileges? They have to resort to alternative shenanigans.

Energy can be neither created nor destroyed, it can only be transformed. The corrupt will of the politicians has been transformed. But, hey, if you had the power, wouldn't you?

Mon, 12/03/2012 - 08:42 | Link to Comment LikeClockwork
LikeClockwork's picture

Shanghai is down down down but can someone enlighten me on this Ftse China 25:

 

http://www.google.com/finance?q=NYSEARCA%3AFXI&ei=Upy8UNipLsOvkAWi0wE

bottoming in September. What to make of that? An ETF but ... answers please

Mon, 12/03/2012 - 08:44 | Link to Comment negative rates
negative rates's picture

He is the only answer you need to know.

http://www.youtube.com/watch?v=hfWEPu0w-7w

Mon, 12/03/2012 - 08:52 | Link to Comment tongue.stan
tongue.stan's picture

I bet most trading volume and flow can be traced and correlated to phone call/text/IM records between congressional offices and brokers. Our gov is the biggest insder trader of them all (sorry  GS). Explains why it's never prosecuted. Who's Holder's broker, I wonder?

Mon, 12/03/2012 - 08:47 | Link to Comment orangegeek
orangegeek's picture

SP500 shows another bounce today.

 

http://bullandbearmash.com/chart/sp500-hourly-shows-consolidation-anothe...

 

This gong show should continue until Q4 reporting starts in mid January.

Mon, 12/03/2012 - 08:55 | Link to Comment BandGap
BandGap's picture

Tell you what, I went MANIC Christmas shopping with my wife this past weekend. She asked me why I had ZERO aversion to buying ANYTHING I thought her or the kids would want/need/desire. I told her I think it best that we turn paper assets into tangible assets before the SHTF. She especially liked my view that gold and diamond earrings are not only gifts but a store of wealth and should be accumulated.

Added 100 oz. of silver to the mix, as well.

People should realize that we're already airborne off the cliff and that the powers that be are trying very hard to get people NOT to look down.

Mon, 12/03/2012 - 08:58 | Link to Comment Alcoholic Nativ...
Alcoholic Native American's picture

SHIT!  The fiscal cliff!  Better spend all my money!

Mon, 12/03/2012 - 09:13 | Link to Comment BandGap
BandGap's picture

Not ALL your money, same some for the after-party.

Mon, 12/03/2012 - 09:16 | Link to Comment txsilverbug
txsilverbug's picture

You're confusing currency and money.

 

Currency - paper crap, will become obsolete

Money - Gold and silver, has been money for 6k years. 

 

Spend the currency, save the money.

Mon, 12/03/2012 - 09:01 | Link to Comment fonzannoon
fonzannoon's picture

So the dollar is falling at the thought of spending cuts and tax increases and it will rise sharply when we completely avoid those two things. Sounds logical.

Mon, 12/03/2012 - 09:02 | Link to Comment bobthehorse
bobthehorse's picture

It's official.

The sky is falling.

Hosana.

Run to the hills.  Run for your lives.

Mon, 12/03/2012 - 09:20 | Link to Comment txsilverbug
txsilverbug's picture

HAHA, angry sinner... that guy is a few cards short of a deck.  Is that MDB's blog?

Mon, 12/03/2012 - 09:26 | Link to Comment mvsjcl
mvsjcl's picture

The dude sort of reads like Deep Thoughts by Jack Handy, albeit not-so-deep:

"I took the family to eat. We had Korean beef. The meal was expensive. But sometimes you have to splurge."

Mon, 12/03/2012 - 09:27 | Link to Comment mvsjcl
mvsjcl's picture

Why do I get this feeling that this whole "Fiscal Cliff" bollocks can be visualized as a M. C. Escher creation?

Do NOT follow this link or you will be banned from the site!