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Goldilocks PMIs Mean Another Overnight Meltup To Start The Week

Tyler Durden's picture




 

Just as Friday ended with a last minute meltup, there continues to be nothing that can stop Bernanke's runaway liquidity train, and the overnight trading session has been one of a continuing slow melt up in risk assets, which as expected merely ape the Fed's balance sheet to their implied fair year end target of roughly 1900. The data in the past 48 hours was hot but not too hot, with China Non-mfg PMI rising from 55.4 to 56.3 a 14 month high (and entirely made up as all other China data) - hot but not too hot to concern the PBOC additionally over cutting additional liquidity -  while the Eurozone Mfg PMI came as expected at 51.3 up from 51.1 prior driven by rising German PMI (up from 51.1 to 51.7 on 51.5 expected), declining French PMI (from 49.8 to 49.1, exp. 49.4), declining Italian PMI (from 50.8 to 50.7, exp. 51.0), Spain up (from 50.7 to 50.9, vs 51.0 expected), and finally the UK construction PMI up from 58.9 to 59.4.

Also the all important European confidence got another reflexive boost when the Sentix Investor Confidence printed at 9.3, up from 6.1, and above the 6.3 expected.

Looking ahead, Thursday will be a busy day with the ECB (plus Draghi’s press conference) and BoE meetings. Some are expecting the ECB to cut rates as early at this week although most believe the rate cut will not happen until December. Draghi will likely deflect the exchange rate’s relevance via its  impact on inflation forecasts. This could strengthen the credibility of the forward guidance message, but this is just rhetoric — a rate cut would require a rejection of the current recovery hypothesis. They expect more focus on low inflation at this press conference, albeit without pre-empting the ECB staff new macroeconomic forecasts that will be published in December.

Elsewhere on Thursday, the advanced Q3 GDP report for the US is scheduled, which may have some bearing on market expectations for tapering. Consensus is calling for 2% QoQ ann growth. We'll be interested in the nominal growth numbers as ever to see whether the recent global inflation downdraft continues to keep YoY US nominal GDP depressed. The first two quarters of the years have seen this number at only 3.1% - the lowest since 2010. Other data releases on Thursday include German industrial production and US initial jobless claims.

 

Market Re-Cap

European equities have started the week on a firmer footing as Wall Street's positive close on Friday coupled with a 14-month high in China's non-manufacturing PMI allowed stocks to hold opening gains. HSBC's earnings release has been received favourably, allowing the firm's 2.0% gain today to press the FTSE-100 to be the best performer. Switzerland's SMI has been tempered by weakness in Credit Suisse and UBS, as the WSJ writes that Swiss politicians are mounting an effort to curb the country's banking giants with new restrictions that could be more severe than those in place elsewhere.

In the currency markets, GBP shines once again as Construction PMI data showed the sector started Q4 on a strong note, with talk of offers at 1.5970 countering the post-data rally. The greenback has traded slightly softer, as Japan's market holiday and key risk events later in the week keeps liquidity thin.

Today's session brings earnings from CME Group and Anadarko Petroleum, as well as Factory Orders data for both August and September but the bulk of the session looks to be pre-setting ahead of the ECB rate decision on Thursday, followed by Nonfarm Payrolls this Friday.

 

Overnight News Bulletin from RanSquawk and Bloomberg :

  • European equities begin the week positively, with the FTSE-100 lifted by strong HSBC earnings.
  • Chinese Non-Manufacturing PMI hits a 14 month high, however slowing new orders temper sentiment.
  • Monday sees a quiet calendar ahead of BoE, ECB and RBA rate decisions, US GDP and Nonfarm Payrolls later this week.

 

Asian Headlines

Chinese Non-Manufacturing PMI (Oct) M/M 56.3 (Prev. 55.4) - highest in 14 months.
- New Orders 53.7 (Prev. 55.7)
- Construction 62.0 (Prev. 61.5)

With Japanese markets shut for Culture day, Asia-Pacific trade was muted, with China's Non-Manufacturing PMI failing to lifted sentiment as the Shanghai Composite closed flat, with the Hang Seng Index falling 0.25% at the close.

EU & UK Headlines

Germany's Social Democratic Party will poll its members by December 15 on whether to enter a coalition pact to form a government with Chancellor Merkel's union parties. (Die Welt) Separately, The German finance minister Schaeuble said there is to be no ESM money for ailing banks in the Eurozone, and the opposition SPD party agreed with this decision. (Tagesspiegel)

German Manufacturing PMI (Oct) M/M 51.7 vs. Exp. 51.5 (Prev. 51.1)

French Manufacturing PMI (Oct) M/M 49.1 vs. Exp. 49.4 (Prev. 49.8)

Italian Manufacturing PMI (Oct) M/M 50.7 vs. Exp. 51.0 (Prev. 50.8)

UK Construction PMI (Sep) M/M 59.4 vs. Exp. 58.9 (Prev. 58.9) UK construction output continued to rise with housing, commercial and civil engineering activity all seeing strong rates of expansion at the start of Q4.

The UK CBI have lifted their UK growth forecasts, seeing 1.4% growth this year (1.2% previously), 2.4% in 2014 and 2.6% in 2015. (Newswires)

US Headlines

Fed's Fisher said he does not see that Fed balance sheet rising to USD 6trl or more and does not see the purchase program going on indefinitely or getting larger. Fisher added that he doesn't see prospects for QE expansion and that he expects low rates for a long time if inflation permits. (Newswires)

Goldman Sachs COO has said tapering is unlikely until next summer as US economy remains sluggish. (Business TImes)

Equities

Europe's gains are led by the FTSE-100, as HSBC's Q3 pretax rose to USD 4.53bln from USD 3.48bln, resulting in a gain for HSBC of over 2.0%. However, Swiss banks underperform, with Credit Suisse and UBS falling after the WSJ writes that Swiss politicians are mounting an effort to curb the country's banking giants with new restrictions that could be more severe than those in place elsewhere.

The banks' shares failed to be supported by comments from the Swiss finance ministry says no changes planned before 2015 Too Big Too Fail review.

European airliners have been under pressure from the open, prompted by Ryanair's profit warning premarket. The company have lowered their FY profit goal to EUR 500mln from EUR 520mln, driven by weakness in the pricing environment.

FX

The EUR remains above the 1.35 figure as the USD starts the week on a negative tone. Trading has been relatively muted in the EUR/USD pair as participants sit on the sidelines ahead of the ECB's rate decision on Thursday and the Change in Nonfarm Payrolls on Friday. A slew of bids under 1.3450, with pressure above 1.3550 looks to dictate range in the upcoming trading session. Options expiries at 1.35 and 1.3465 remain the closest to market ahead of the 10am NY cut. A firmer than expected UK Construction PMI lifted GBP/USD to test touted offers at 1.5970, with Asian names said to assisting upside. Elsewhere, the AUD has been lifted by stronger than expected retail sales data from the country, as well as the Chinese services sector hitting a 14-month high rate of growth.

Commodities

Silver has extended last week's heavy decline today, falling 0.75% ahead of COMEX trade, dragging gold lower in tandem. Support for the yellow metal is seen at the USD 1,300 handle, with the 100DMA at USD 1321.89 also helping to dictate range. In the energy complex, WTI and Brent crude futures have seen thin trade, managing to ebb into positive territory amid modest USD-weakness.

Workers from South Africa's National Union of Mineworkers began a strike over wages at mid-tier producer Northam Platinum on Sunday evening.

China's gold output is seen at 430 tonnes in 2013, while consumption is seen to top 1,000 tonnes according to China Gold Group.

 

Finally, we round off this recap as usual with Jim Reid's view on things from the perspective of Deutsche Bank.

I'm writing this with a full blown dust allergy this morning after clearing out clothes yesterday ahead of builders demolishing our bedroom later this week. I've been forced to throw out clothes I haven't seen for over a decade (including some very funky outfits!) and in the process have caused a dust storm. We've now got builders in for 4 months so I think I'm going to have to conveniently stop being involved in the rest of the clear out. Cats, pollen and dust set me off in long sneezing fits and stop me from being able to breathe properly so they are all my kryptonite.

The market's kryptonite is early taper talk at the moment and this first full week of November has the potential for it to be hurled at it from all directions with no shortage of US economic data on the agenda including the all-important October payrolls report and the advanced estimate of Q3 GDP. We’ll preview more of the week ahead below, but first we’ll take a quick look at how overnight markets are trading this morning.

Risk has started the week on a softer footing led by underperformance in EM equities, fixed income and currencies. EM sentiment is being weighed by the 7bp rise in UST yields on Friday (to a two week high of 2.62%) and the recent US dollar strength. Indeed, the USD index has gained for six straight days including a sharp 0.65% gain in the USD index on Friday (largest % increase since August 1st) on the back of some hawkish-sounding comments from the Fed’s Bullard and stronger than expected ISM manufacturing data. This morning Indonesian sovereign bonds have been hit by moderate selling with bonds across the curve down by more than 1pt and Indonesian 5yr CDS gapping up by 25bp. Philippines and Malaysia CDS are quoted around 5-6bp higher as well. EM equities in Thailand (-2.5%) and Indonesia (-0.4%) are down and we’re also seeing some softness in currencies such as the Korean Won (- 0.1%), the Thai Baht (-0.3%) and the Indonesia Rupiah (-0.4%). Comments from the ever-hawkish Dallas Fed’s Fisher, who spoke in Sydney this morning, are adding to the weakness across Asian EM. Thailand is underperforming due to reports of civil unrest. While Japanese markets are closed for public holidays, other DM equity indices such as the Hang Seng (-0.1%) are faring a touch better, but are still lower on the day. Chinese A-shares (-0.1%) are outperforming on a relative basis, partly helped by the weekend’s official Chinese services PMI (56.3 vs 55.4 previous) which printed at 14 month highs. AUDUSD (+0.5%) is being supported by better than expected Australian retail sales data (0.8% vs 0.4% expected). Crude oil is steady this morning, following a sharp drop (-2.7%) on Friday.

So EM and Asia is being influenced by the re-pricing of taper risk and this week will see plenty of opportunity to further adjust the probability of when the Fed will remove stimulus. As we mentioned at the top it's a very big week for data everywhere and also for central bank meetings and speeches. Europe will be getting the final Eurozone manufacturing PMIs today including the first October PMI readings for Spain and Italy (forecast is 51.0 for both countries).

Later today, the US gets factory orders for the months of August and September (which were delayed due to the shutdown) and there are also speeches from the Fed’s Powell and Rosengren. Speaking of the Fed, Yellen has scheduled further meetings this week with key Republican members of Congress, ahead of her formal confirmation hearing next week. Yellen is expected to meet with Senators Mike Crapo, David Vitter and Bob Corker over the next few days, who were among six Republicans on the Senate banking committee who opposed Ms Yellen’s vice-chair nomination in 2010 (Financial Times).

Tomorrow the Reserve Bank of Australia meets with the general expectation being for the bank to remain on hold. The European Commission also releases its latest economic growth forecasts. Stateside, the ISM non-manufacturing index will be important to watch out for and the Fed’s Williams and Lacker will be speaking at separate events on the same day. Moving onto Wednesday, final Eurozone services PMIs and German factory orders are the key data releases in Europe; with UK industrial production also due.

Getting to the business end of the week, Thursday will be a busy day with the ECB (plus Draghi’s press conference) and BoE meetings. DB’s Wall  and Moec expect the ECB easing bias to be reiterated but are not expecting a rate cut. Draghi will likely deflect the exchange rate’s relevance via its  impact on inflation forecasts. This could strengthen the credibility of the forward guidance message, but this is just rhetoric — a rate cut would require a rejection of the current recovery hypothesis. They expect more focus on low inflation at this press conference, albeit without pre-empting the ECB staff new macroeconomic forecasts that will be published in December. With M3, the Bank Lending Survey and issuance data pointing to tentative improvements in market sources of bank funding, they also expect the ECB to bide its time on the vLTRO decision. No change in policy is also expected from the BoE.

Elsewhere on Thursday, the advanced Q3 GDP report for the US is scheduled, which may have some bearing on market expectations for tapering. Consensus is calling for 2% QoQ ann growth while DB is at the top-end of estimates at 3%. We'll be interested in the nominal growth numbers as ever to see whether the recent global inflation downdraft continues to keep YoY US nominal GDP depressed. The first two quarters of the years have seen this number at only 3.1% - the lowest since 2010. Other data releases on Thursday include German industrial production and US initial jobless claims.

This brings us to Friday where the highlight of the week will be the shutdowndelayed October payrolls report. Expectations for this report have generally been lowered following the recent ADP employment report. DB expects a modest +130k gain (Bloomberg consensus 125k) on the headline and for the unemployment rate to tick up 0.1ppt to 7.3% (in line with consensus). The shutdown makes this even more of a random number than normal but that won't stop us all from eagerly anticipating it. Friday also sees the latest trade numbers for China, as well as for France, Germany and the UK. In the US, the latest UofMichigan consumer confidence survey will be of some interest to assess whether there has been a recovery in sentiment following the short-term resolution of the US budget impasse. The latest US personal income and spending data are also scheduled. Ben Bernanke and Larry Summers will be speaking at the IMF on the topic of Policy Responses to Crises. The panel will be moderated by IMF Chief Economist Blanchard. The Fed’s Williams and Lockhart will also be speaking at a separate event during the day.

Capping off a blockbuster week on the economic calendar, China’s central committee will open its Third Plenum meeting of the 18th Party Congress on Saturday. Expectations are for wide ranging and aggressive reforms to be announced across a number of industrial and financial sectors. China’s latest inflation, fixed asset investment and retail sales data will also be released on Saturday.

 

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Mon, 11/04/2013 - 08:00 | 4118818 GetZeeGold
GetZeeGold's picture

 

 

All is clearly well.....don't look behind that curtain.

Mon, 11/04/2013 - 09:26 | 4118962 MisterMousePotato
MisterMousePotato's picture

Maybe I'm just kinda small time, but I would question the judgment of anyone who would spend time and money at this moment in history demolishing and (presumably) rebuilding a bedroom. Even more so because he is allergic to dust.

Mon, 11/04/2013 - 08:03 | 4118820 jubber
jubber's picture

US National debt up another $65 Billion since Friday!!!!!. $17,130,445,735,785 a while back, nothing mentioned about this by those fucking CNBC pricks, who are due to fellate Jim Bullard live on air shortly

Mon, 11/04/2013 - 08:05 | 4118824 GetZeeGold
GetZeeGold's picture

 

 

Well if it worries you.....we'll just cut you a check for that right now.

 

You will take a check......right?

Mon, 11/04/2013 - 08:12 | 4118831 rationaldemocracy
rationaldemocracy's picture

U.S national debt is just a republican talking point..it has zilch to do with the health of the economy and everything to do with finding something to blame the ruling party for.

 

 

Mon, 11/04/2013 - 08:16 | 4118836 GetZeeGold
GetZeeGold's picture

 

 

Word up there dawg.....it's not like it's real money.

Mon, 11/04/2013 - 08:20 | 4118837 RSloane
RSloane's picture

It was Obama's talking point before he became president. The 'ruling party' would never accept responsibility for anything, from the direct enrichment of Wall Street at the expense of Main Street to the disasterous roll out of a health care program that forces individuals to buy a product from the private sector under threat of penalty. Grats on your 'ruling party'.

Mon, 11/04/2013 - 08:14 | 4118833 negative rates
negative rates's picture

You mean that positive only dry powder crowd? Good luck waiting for that.

Mon, 11/04/2013 - 08:12 | 4118830 NoDebt
NoDebt's picture

"I've been forced to throw out clothes I haven't seen for over a decade (including some very funky outfits!) and in the process have caused a dust storm."

Throwing them out?  Call Joe Biden and get some pointers on how to use those clothes as a tax write-off.

Mon, 11/04/2013 - 09:34 | 4118986 MisterMousePotato
MisterMousePotato's picture

The Clintons. Not Biden.

Mon, 11/04/2013 - 08:25 | 4118839 Ghordius
Ghordius's picture

"Germany's Social Democratic Party will poll its members by December 15 on whether to enter a coalition pact to form a government with Chancellor Merkel's union parties. (Die Welt)"

Now this is a good example, for once, on how democracy can be made work, in a properly set up republic: first the German Conservatives engage in talks with the German Social Democrats. Then they make a coalition contract. and then this is voted on by the party members of the SPD

"Separately, The German finance minister Schaeuble said there is to be no ESM money for ailing banks in the Eurozone, and the opposition SPD party agreed with this decision. (Tagesspiegel)" LOL

Mon, 11/04/2013 - 08:25 | 4118840 RSloane
RSloane's picture

"Early taper talk" is code for extreme generosity to Wall Street while Main Street experiences further wage suppression.

Mon, 11/04/2013 - 08:29 | 4118841 eddiebe
eddiebe's picture

Blahblahblahblah!

Mon, 11/04/2013 - 08:33 | 4118848 GetZeeGold
GetZeeGold's picture

 

 

Not sure what that means.....but it made a lot of sense.

 

Are you running for office....and where can I contribute?

Mon, 11/04/2013 - 08:43 | 4118864 Rory_Breaker
Rory_Breaker's picture

Yeah, atleast he is not lying.

Mon, 11/04/2013 - 08:29 | 4118843 jubber
jubber's picture

Feds Bullard laughs and jokes with the CNBC shills on TV that everything is fine

Mon, 11/04/2013 - 08:42 | 4118866 GetZeeGold
GetZeeGold's picture

 

 

That's pretty normal actually.

 

September 1929
There is no cause to worry. The high tide of prosperity will continue.”
- Andrew W. Mellon, Secretary of the Treasury.

October 14, 1929
“Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board.”
– New York Times

October 29 1929

Stock market crash

December 5, 1929
“The Government’s business is in sound condition.”
– Andrew W. Mellon, Secretary of the Treasury

December 28, 1929
“Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression.”
– Associated Press dispatch.

January 13, 1930
“Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today.”

– News item.

January 21, 1930
“Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction.”

– News dispatch from Washington.

January 24, 1930
“Trade recovery now complete President told. Business survey conference reports industry has progressed by own power. No Stimulants Needed! Progress in all lines by the early spring forecast.”

– New York Herald Tribune.

March 8, 1930
“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.”

– Washington dispatch.

May 1, 1930
“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.”
– President Hoover

June 29, 1930
“The worst is over without a doubt.”
– James J. Davis, Secretary of Labor.

August 29, 1930
“American labor may now look to the future with confidence.”
– James J. Davis, Secretary of Labor.

September 12, 1930
“We have hit bottom and are on the upswing.”
– James J. Davis, Secretary of Labor.

October 16, 1930
“Looking to the future I see in the further acceleration of science continuous jobs for our workers. Science will cure unemployment.”

– Charles M. Schwab.

October 20, 1930
“President Hoover today designated Robert W. Lamont, Secretary of Commerce, as chairman of the President’s special committee on unemployment.”

– Washington dispatch.

October 21, 1930
“President Hoover has summoned Colonel Arthur Woods to help place 2,500,000 persons back to work this winter.

– Washington dispatch.

November 1930
“I see no reason why 1931 should not be an extremely good year.”

– Alfred P. Sloan, Jr., General Motors Co.

January 20, 1931
“The country is not in good condition.”

– Calvin Coolidge.

June 9, 1931
“The depression has ended.”

– Dr. Julius Klein, Assistant Secretary of Commerce.

August 12, 1931
“Henry Ford has shut down his Detroit automobile factories almost completely. At least 75,000 men have been thrown out of work.”

– The Nation.

July 21, 1932
“I believe July 8, 1932 was the end of the great bear market.”

Dow Theorist, Robert Rhea.

Mon, 11/04/2013 - 08:46 | 4118875 RSloane
RSloane's picture

Yellen and Mellon. I wonder if they're related.

Mon, 11/04/2013 - 08:54 | 4118899 GetZeeGold
GetZeeGold's picture

 

 

Probably....those people take that bloodline crap pretty seriously.

Mon, 11/04/2013 - 09:10 | 4118931 new game
new game's picture

planning the opposite should be quite easy.

Mon, 11/04/2013 - 08:43 | 4118869 RSloane
RSloane's picture

Nothing is worse than Becky and Uncle Warren. At any second you expect her to unzip his pants and BJ him with the cameras rolling. Then they wonder why their audience now consists of their families, the camera and sound crews, and random maintenance guys in their studio.

Mon, 11/04/2013 - 09:16 | 4118946 negative rates
negative rates's picture

This is what goes on behind the scenes on cnbc.

 

http://www.youtube.com/watch?v=RpM84P6zO6E

Mon, 11/04/2013 - 09:26 | 4118965 modo
modo's picture

But it's ok to blow Tyler every day?

 

Mon, 11/04/2013 - 10:19 | 4119105 yogibear
yogibear's picture

Warren has that smile on his face when Becky Quikie is around.  He seems anxious 

Mon, 11/04/2013 - 10:17 | 4119096 yogibear
yogibear's picture

Wall Street boys have to run the market up. It's year-end bonus time.

With the help of Fisher, Bernanke, Dudley, Yellen and Evans and the infinte QE they'll have plently of QE money to push stocks upward. 

Rinse and repeat until there is a currency crisis.

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