Sentiment Shifts From Macro To The Micro, As Washington Is Forgotten For A Few Brief Days

Tyler Durden's picture

D-day - the real D-Day: the day after which the US government will have to start shutting down - is now 52 days away, but with the Pyrrhic victory on the Fiscal Cliff, which once more, did nothing to resolve the Fiscal Cliff issue but merely hiked payroll taxes for some, general income taxes for others, even as drunken sailor spending has persisted, it is virtually a guarantee that nothing will happen in D.C. for at least 3-4 more weeks until the posturing and jawboning soars in earnest. Only this time the can kicking won't be nearly as easy. In other news, for the first time in maybe 2 months, the algos are neither gripped by headlines about Washington, or macro events, but micro, as the fourth quarter earnings season kicks off, with Alcoa reporting on Tuesday, Wells on Friday and a true launch of Q4 earnings season next week. And since revenues are set to continue deteriorating despite estimates of a Y/Y increase in top lines following a disastrous Q3, and let's not even mention cash flow, operating earnings and capital reinvestment, once again it will all be about EPS rejiggering and accounting games.

There was a bevy of regulatory news over the weekend, which finally buried the farce that was Basel III and, just like everything else, kicked the can on boosting regulatory liquidity and allowing equities - equities! - to be included as part of its adjusted liquidity coverage. We are now back to where we were in the summer of 2007. As for that other provision of Basel III - deleveraging by some €3 trillion in Europe alone - that's pretty much over, as banks either have to sell trillions in assets to other banks, which isn't happening as nobody has the free cash, or trillions in earnings have to be generated, which certainly isn't happening.

More on the most recent events from Deutsche:

The week after payrolls usually brings a lull in the US data calendar but Alcoa’s after-market Q4 results this Tuesday is a gentle reminder of the unofficial start to the upcoming reporting season. Indeed we only have a total of five S&P 500 companies reporting this week before activity picks up next week. Wells Fargo this Friday will kick off the earnings season for banks though. On the other side of the pond, the BoE and ECB policy meetings on Thursday will be the key policy event. We’ll preview these as well as the key data points this week later in a little more detail but we’ll first take a look at some of the key stories over the weekend.

On Sunday, the Basel Committee on Banking Supervision announced changes to the liquidity coverage ratio requirement for banks under Basel III. The changes allow for a greater range of assets to be included in the liquid asset pool including some equities, corporate bonds rated as low as BBB- and some mortgage-backed securities, though at a substantial discount. The revisions also push out the implementation date for compliance by four years to 2019. Speaking at a press conference, BoE governor and chair of the Group of Governors and Heads of Supervision Mervyn King said that the revisions will “prevent central banks from becoming lenders of first resort” and will in “no way hinder the ability of the global banking system to finance a global recovery” (FT).

Back in Washington, the discourse between Democrats and Republicans continued to gradually escalate over the weekend with Senate Minority Leader Mitch McConnell ruling out further changes to taxes on top of the rate increases for top income earners agreed by Congress last week. McConnell added that “the tax issue is finished, over, completed”. In contrast, Obama insisted that any spending cuts “must be balanced with more reforms to our tax code”. The President reiterated that he will be targeting tax deductions and loopholes used by “the wealthiest individuals and the biggest corporations….that aren’t available to most Americans” (Bloomberg).

Also making headlines over the weekend was the Fed’s Vice Chairperson. Janet Yellen said that she hoped that the Fed will be able to “exit” monetary policy, but she gave no indication of when that may happen. The statement comes after last Thursday’s FOMC minutes where several members thought it would be “appropriate to slow or stop asset purchases well before the end of 2013”. Yellen added that “people have raised important questions about the role financial stability considerations should play in our conduct of monetary policy”. US Treasuries had a challenging start to the year not helped by the latest FOMC minutes. .

Turning to overnight markets, Asian equities are trading weaker despite a positive payrolls-fuelled gain on Wall Street last Friday. The Nikkei (-0.65%), KOSPI (-0.2%) are edging lower while Chinese equities (Shanghai Composite (-0.1%) and Hang Seng (-0.05%)) are outperforming on a relative basis. The latter are being supported by a positive day for financial stocks which are benefiting from the relaxed liquidity requirements outlined in Basel over the weekend.

China’s Global Times reported on Sunday that the Chinese government’s top economic policy arm, the NDRC, is expected to unveil a detailed urbanisation plan in March in an attempt to boost domestic consumption which is also supporting Chinese equities.

Recapping Friday’s markets, the S&P500 finished close to the day’s highs of +0.49%, capping a week where the index gained 4.6% after a solid payrolls reading which featured a 155k gain in the headline (vs 161k previously and 152k expected). Upward revisions to the previous two months totalled +14k, and private payrolls over the same period were revised higher by +38k. The unemployment rate was unchanged at  7.8%. DB’s Joe Lavorgna also noted that positive trend in the average workweek (34.5 hrs vs. 34.4 previous) and average hourly earnings (+0.3% vs. +0.3% previously). December marked the second consecutive month with a +0.7% increase in aggregate income which is the strongest two-month performance since May 2010. Outside of equities, the VIX continued to lose ground (-5%) to close below 14 for the first time since September, while 10yr USTs rallied 1.3bp to close at 1.899% despite a 3bp sell-off immediately after the payrolls print.

In other headlines, Mario Monti unveiled on Friday a centrist political alliance, called "With Monti for Italy" for the upcoming elections although a recent poll showed that the alliance would attract only around 12% of the vote while the Democratic Left has 40% (FT). Over the weekend, Monti and Berlusconi sparred on the subject of property taxes and VAT with Monti saying there is a possibility of a tax cut if matched by spending cuts.

Previewing the rest of the week ahead data highlights in the US include consumer credit (Tues), jobless claims (Thurs) and trade balance (Fri). In Europe, no major changes to ECB and BoE policies are expected this Thursday. Indeed as far as the ECB is concerned, DB’s Wall and Moec note that with a rate cut already widely discussed, it might not take much data disappointment to tip the balance but a 25bp cut in March remains their base case. In terms of data we have Eurozone consumer/business sentiment readings, German trade and factory orders on  Tuesday. German and Spanish IP are due Wednesday and Friday respectively.

There will be a Spanish bond auction on Thursday followed by an Italian auction on Friday.

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GetZeeGold's picture



Everything is fixed......don't touch nothing.

Ruffcut's picture

Washington is filled with fiscal fucks that you don't dare touch or get shit all over your hands.

economics9698's picture

Meet the new clowns, same as the old clowns. 

odatruf's picture

You mean fecal fucks...

Sudden Debt's picture

there's still 52 days left... we'll do it tomorrow... maybe... we'll see... more than enough time...


SoundMoney45's picture

The script and acting for "Fiscal Cliff" was entertaining.  I am looking forward to seeing the lead actors and storyline in "Debt Ceiling 2013". Does anyone have an advance copy of the script they can share?

economics9698's picture

Look in your septic tank with the used rubbers. 

Ghordius's picture

I'd say the old Clinton Government Shut Down script is the classic - plenty of drama to make everybody happy

Hobbleknee's picture

Copy and paste the last script.  Throw in some more false flags for distraction.

Catullus's picture

I'd like to submit equity in myself as collateral for my own ponzi scheme.


Also, I really want CNN or CNBS or MSNBC to post a COUNTDOWN TO THE EARTH FALLING INTO THE SUN (default) tracker.

Racer's picture

But but but haven't they lowered 'expectations' low enough so they can easily beat them? Same as usual.. not about actual earnings but how easily they beat the new estimates? Whether they are negative or positive it doesn't matter

q99x2's picture

Looks like GS wants to get out of Chinese stocks and into bonds. War's a coming.

Disenchanted's picture

It sure has gotten quiet around here about FB stock...approaching $29/share.

What's up with that? There's been a stealth pump, so when's the next dump scheduled?

I've no dog in that hunt btw...

GetZeeGold's picture



Probably because no one around here has time to think about senseless crap.

odatruf's picture

You must not read many comments...

Seasmoke's picture

You know what really pisses me off , not that they raised the SS back up , it's that they took it out of the paycheck for work done 2012. Lying fucking scumbags.

Oldballplayer's picture

You worked then.  You got paid now.  Welcome to the government.  Calendars don't matter.  Fiat don't matter. 

You got paid, and you kicked the appropriate amount upstairs.  Now shut the fuck up and start earning.  The Capo wants a 60 inch plasma.

HD's picture

Any miss will be dismissed as Sandy or Fiscal Cliff related. The bullshit parade marches on.

Hobbleknee's picture

Reagan let the government shut down a couple times.  Remember?

adr's picture

In case the author didn't know, there were actually 500k+ jobs lost in December using the government's non-adjusted numbers.

By the government's own reported numbers there are over 1 million less people working in Dec 2012 than Dec 2011.

But go ahead and keep reporting adjusted BLS propaganda as the truth. 155k jobs were not added in Dec. Actual job gains were not +45k over the previous reported numbers for Q4.

XtraBullish's picture

BTFD and rid yourselves of that toxic paper called U.S. dollars.

Jack Sheet's picture

Just flipped through today's "Handelsblatt" (German near- equivalent of WSJ). In a big article with its nose up Ben's ass, they sucked in that FOMC minutes QE pullback krapp hook line and sinker ! Irony is, the markets will probably pull back but for other reasons. MSM is the same the world over.

billsbest's picture

A drunken sailor spends his own money. When broke, returns to his ship, not a nanny.

secret_sam's picture

That ship is paid for by the taxpayers.  It's just another form of State-provided babysitting for the enlistees who couldn't hack a living in the private sector.