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Futures Rise On Big Misses In Chinese Industrial Production, Retail Sales And Fixed Investment

Tyler Durden's picture




 

It was another day of ugly overnight macro data, all of it ouf of China, with industrial production (8.6%, Exp. 9.5%, Last 9.7%), retail sales (11.8%, Exp. 13.5%, Last 13.1%) and fixed asset investment (17.9% YTD vs 19.4% expected) all missing badly and confirming that in a world of deleveraging, the Chinese economy will continue to sputter. Which is precisely what the "bad news is good news" algos needs and why futures levitated overnight: only this time instead of latching on to the USDJPY correlation pair, it was the AUDJPY which surged after Australia - that Chinese economic derivative - posted its third best monthly full-time jobs surge in history! One can be certain that won't last. But for now it has served its purpose and futures are once again green. How much longer will the disconnect between deteriorating global macro conditions and rising global markets continue, nobody knows, but sooner rather than later the central planner punch bowl will be pulled and the moment of price discovery truth will come. It will be a doozy.

In Europe, stocks traded mixed this morning, with the FTSE-100 index underperforming its peers following the release of less than impressive earnings by Morrisons, shares down around 10%. As a result, heading into the North American cross over, consumer services sector is among the worst performing, while the recovery by base metals also ensured that basic materials related stocks traded higher. Still, the move higher was led by financials, with Commerzbank trading with good gains following an upgrade by SocGen to buy rating.

Looking elsewhere, in spite of the bounce back by stocks this morning, USD/JPY traded lower, with Swiss rates also bid, as market participants remained vary of any future shocks stemming from China amid fears of more corporate defaults. On that note, Chinese Premier Li said that China is to take measures to regulate local financing vehicles and ensure no systemic financial risks arise from defaults. Of note, Ireland made a successful return to markets, selling its first 10y bond since entering the bailout in 2010.

Going forward, market participants will get to digest the release of the latest weekly jobs and retail sales reports from the US, while the US Treasury will auction off USD 13bln in 30y bonds.

Bulletin headline summary from Bloomberg and RanSquawk

  • FTSE-100 index underperformed its peers following the release of less than impressive earnings by Morrisons, down 10% at the open.
  • Chinese Premier Li said that China is to take measures to regulate local financing vehicles and ensure no systemic financial risks arise from defaults.
  • Bundesbank's Weidmann said that it is premature to declare euro zone debt crisis over, adding that ECB’s expansionary monetary policy stance is appropriate.
  • Treasuries steady before week’s auctions conclude with $13b 30Y bonds, WI yield 3.675% vs 3.69% at February sale; retail sales due at 8:30am ET, est. +0.2%
  • Yesterday’s $21b 10Y reopening was awarded at 2.729%, about 1.5bps below WI yield at 1pm according to Stone & McCarthy
  • Other metrics strong, including highest bid-to-cover and lowest primary dealer award lowest since March 2013, as increase in direct award offset drop in indirects
  • China’s industrial-output, investment and retail-sales growth cooled more than estimated in January and February, signaling an economic slowdown that makes the government’s 2014 expansion target harder to reach
  • Chinese Premier Li Keqiang said there’s some flexibility around the nation’s target of 7.5% growth this year without specifying how much of a slowdown leaders would tolerate
  • Russian government officials and businessmen are bracing for sanctions resembling those applied to Iran after what they see as the inevitable annexation of Ukraine’s Crimea region, according to four people with knowledge of the preparations
  • Australia boosted payrolls in February by the most in more than 22 years, with the number of people employed full time rising by 80,500; overall employment climbed 47,300 vs 15k  median estimate
  • New Zealand raised its key interest rate, the first developed nation to exit record-low borrowing costs this year, and said it plans to remove stimulus faster than previously forecast to contain inflation
  • The missing Malaysian airliner kept flying after it dropped off controllers’ radar screens, raising new questions about whether foul play was involved, according to people familiar with data gathered in the inquiry
  • Sovereign yields mostly lower. EU peripheral spreads little changed. Asian equities mixed; Nikkei and Topix lower, Shanghai +1%. European equity markets, U.S. stock-index futures gain. WTI crude and copper lower, gold gains

US Event Calendar

  • 8:30am: Retail Sales Advance, Feb., est. 0.2% (prior -0.4%); Retail Sales Ex Auto, Feb., est. 0.1% (prior 0.0%); Retail Sales Ex Auto and Gas, Feb., est. 0.2% (prior -0.2%)
  • Retail Sales Control Group, Feb., est. 0.2% (prior -0.3%)
  • 8:30am: Initial Jobless Claims, March 8, est. 330k (prior 323k)
  • Continuing Claims, March 1, est. 2.903m (prior 2.907m)
  • 8:30am: Import Price Index, Feb., est. 0.5% (prior 0.1%)
  • 9:45am: Bloomberg Consumer Comfort, March 9
  • 10:00am: Business Inventories, Jan., est. 0.4% (prior 0.5%)
  • 2:00pm: Monthly Budget Statement, Feb., est. -$195b (prior - $203.5b)
  • 11:00am: Fed to purchase $3.25b-$4b in 2018 sector

Asian Headlines

Chinese Premier Li said that China is to take measures to regulate local financing vehicles and ensure no systemic financial risks arise from defaults. (BBG)

- At the same time, Moody's said that non-financial companies in China will see little effect from the Chaori Solar default as their exposure to any follow-on tightening is limited.

- This follows the first corporate bond default in China's history last Friday, with markets keenly focused on what could be the next domino to fall.

Of note, JGBs closed sharply lower and had a brief moment of extreme volatility as it spiked to the downside by 1 point but then immediately pared the large majority of the move, which was attributed to a rogue algorithmic trade and a sharp reaction to the Bank of Japan's decision to buy JPY 170bln of long-term bonds vs. Exp. JPY 180bln. In terms of Chinese data released overnight:

- Chinese Industrial Production YTD (Feb) Y/Y 8.6% vs. Exp. 9.5% (Prev. 9.7%) - Retail Sales YTD (Feb) Y/Y 11.8% vs. Exp. 13.5% (Prev. 13.1%)

EU & UK Headlines

Bundesbank's Weidmann said that it is premature to declare euro zone debt crisis over, adding that ECB’s expansionary monetary policy stance is appropriate. Also, even though Bundesbank's Weidmann said that the risk of widespread deflation in the Eurozone is very limited, EU inflation indicators (ie swap rates) continued to point to growing fears of lower inflation for a prolonged period of time, with 2y inflation swap rate falling to its lowest since late 2008.

This morning, Italy sold EUR 7.75bln vs. Exp. EUR 7.75bln worth of BTPs, while the Irish debt agency successful returned to markets with its first 10yr auction since entering the bailout in 2010.

US Headlines

Congress will fail to approve an aid package to Ukraine before a Sunday referendum in Crimea, where voters will decide whether to break away from Kiev’s government to join Vladimir Putin’s Russia. (TheHill) While a Senate panel on Wednesday approved legislation in a bipartisan vote, aides said differences between the House and Senate will prevent Congress from completing its work before lawmakers leave Washington on Friday for a weeklong recess.

Equities

Consumer services sector underperformed since the open, following earnings by Morrison's, which consequently weighed on other retailers such as Tesco and Sainsbury's. At the same time, with stocks trading higher enabled credit spreads to reverse some of the recent widening, which when combined with a positive broker recommendation by SocGen meant that financials outperformed on the sector breakdown.

FX

Resumption of the downward trend by USD/CNY following the conclusion of the annual congress meeting in China, together with the pick up in sentiment saw the USD index fall to its lowest level since late October 2011. In turn, EUR/ USD advanced to its highest level since September 2011, in spite of the fact that there remains a growing risk of deflation in the joint currency bloc.

AUD benefited from a rebound by gold prices and also the release of better than expected jobs report which also saw the pair move above its 100DMA line. Also of note, RBNZ hiked their Official Cash Rate by 25bps to 2.75% as expected, adding that NZD remains a headwind and that the current exchange rate is not sustainable in the long-run.

Commodities

Credit Suisse says platinum selling at USD 1,550/oz is possible on continuation of strikes in South Africa. (BBG)

Peruvian silver mine Uchucchacua owned by Bueaventura has been hit by a miners strike. The Union leader said it was based on the dismissal of 10 employees and the need for better working conditions that has halted production.

Estimated output loss is 324,000 kilos of silver. (RTRS)

The decision to release 5mln bbls of crude from the US Special Petroleum Reserve is a 'warning shot' to Russia saying the decision has been engineered as a warning shot to Russia over the Ukrainian crisis, with the US excuse of 'testing operations' as too close to coincidence, according to analysts at SocGen. (BBG)

Arab countries will extend aid to Egypt in the form of petroleum products until at least September, according to Egyptian Finance Minister Dimian. (RTRS)

* * *

We conclude with the traditional overnight recap by DB's Jim Reid

As we went to print this morning China printed its retail sales, industrial production and fixed asset investment data for February. Overall the data is disappointing, which doesn’t help the general nervousness over the Chinese growth story at the moment, but again we need to be wary of seasonal factors. For the record China’s February industrial production (8.6% YTD YoY vs 9.5% expected), retail sales (11.8% YTD YOY vs 13.5% expected) and fixed asset investment (17.9% YTD YoY vs 19.4% expected) were all below consensus. In reaction, S&P500 futures are down about 1pt as we type and the AUD is down 20 ticks. Earlier this morning we saw better sentiment return to Asian markets but volumes were generally on the low side. In China, Premier Li spoke to reporters to mark the end of the National People’s Congress. Li said that he was aware of the downside risks to the Chinese economy but assured that the government will take measures to ensure growth was within a reasonable range, to secure jobs and to prevent inflation. Amid all the concern about corporate and trust defaults, Li indicated that though he did not want to see defaults of financial products, some defaults cannot be avoided. He also stated that the government must ensure that there is no systemic financial risk arising from debt market problems. The words have helped the closely-watched Shanghai Composite (+1.2%) lead the rest of the region’s bourses higher overnight but it’s safe to say that sentiment remains pretty fragile. Adding to the jumpiness in Asia is a potential “fat finger” incident in the JGB futures market overnight, which saw the 10yr contract collapse by more than 1pt in a matter of seconds before swiftly recovering most of those losses.

Nevertheless, confidence there has been weakened today and 10yr JGB yields are up 1.5bp. In Australia, the AUDUSD (+0.9%) spiked higher following a significantly stronger than expected employment report (+47k vs 15k expected).

A surprising turnaround in sentiment during the NY session helped the S&P 500 (+0.03%) record a small gain yesterday and in the process avoid its first 3- day-consecutive fall in nearly two months. The catalyst for the NY morning rally was unclear but it might have been a combination of a rally in copper futures (both in London and Shanghai) and news that US Secretary of State John Kerry will be meeting with Russian Foreign Minister Sergey Lavrov in London on Friday to discuss the Ukraine crisis. Some dovish prepared remarks from the Fed nominees Fischer, Brainard and Powell ahead of their Senate nomination hearings today perhaps also helped.

Aside from the headlines on the Kerry-Lavrov London meet up, yesterday’s EM news flow was hardly confidence-inspiring. The MSCI EM equity index closed down -1.2% and the CDX EM credit index (-0.25points) notched up its fourth straight loss but those losses could have been larger were it not for the abrupt risk turnaround during the NY session. Reports of anti-government unrest in Turkey intensified yesterday and the BBC said that there were violent protests in at least 32 towns and cities across the country that were partly triggered by the funeral of a youth who had tragically passed away earlier in the week (BBC). Turkish bond yields spiked another 10bp, but still fared better than Russian 10yr USD bonds which sold off more than 20bp in yield terms yesterday. US and European lawmakers appeared to be inching slowly towards imposing sanctions against Russia, and the G7 issued a statement to the effect of condemning Russia’s actions in Crimea. The G7 also announced that the group has cancelled preparations for the next G8 summit in Sochi. Russian president Putin was said to have told his finance minister and central bank governor that he was dissatisfied with Russia’s economic growth rate (Reuters), but there was very little other detail provided on the discussions.

There were a few bright spots in EM, such as in India where there was better dataflow in the form of industrial production (January +0.1% vs -0.9% expected) and CPI (8.1% vs 8.3% consensus) but even that failed to inspire the INR (-0.44% against the USD).

Though we saw the S&P500 recover back to unchanged on the day and US treasuries close 4bp lower, there was surprisingly little macro data from the US to drive markets. Perhaps the biggest news was the release of prepared statements from the trio of Fed Board of Governor nominees. Of those, the most closely watched were the comments from the Fed vice-chair nominee Stanley Fischer who was on balance fairly dovish. He said that the Fed needed to remain very accommodative as “normalcy has not been restored”. He was referring to the unemployment rate which he thought was still too high and inflation which was below target. Interestingly, there was fair amount of commentary from Fischer on the Fed’s financial regulation role, saying that the financial crisis had driven home the lesson that the Fed also has to contribute its part to financial system stability. Staying on the Fed, the WSJ’s Hilsenrath wrote in a blog that the Fed’s rate guidance is likely to change, possibly at the next policy meeting on March 18th-19th with a shift away from unemployment-oriented guidance. He writes that Yellen’s next challenge is to rewrite guidance without unanchoring market expectations. Yesterday saw the front end of the UST curve underperform, with 2yr yields largely unchanged despite the rally in 10yr and 30yr.

Returning to the topic of Ukraine, our EM strategists write that the crisis there is still at a dangerous stage and the economic element to the crisis has yet to be resolved. Ukrainian FX reserves are now more or less exhausted and exchange controls have therefore been tightened to prevent a freefall in the currency. This has bought a little time but is not a sustainable solution in their view. They estimate that about US$35bn of external financial assistance is needed. Public debt is moderate at 40% of GDP but will inevitably increase significantly. This is partly because about 60% of government debt is denominated in foreign currencies. Against this backdrop, they consider whether there is a case for bailing in the private sector and suggest an alternative approach to private sector involvement which could involve the voluntary exchange of short-dated for longer-dated bonds. The nature of the situation in Ukraine (a relatively low debt stock, but considerable short-term uncertainty) make for ideal conditions for a “PSI-lite” approach such as this, which could be beneficial for Ukraine and for investors.

Turning to the day ahead, the focus will be on US retail sales and the Senate nomination hearing for Stanley Fischer (mainly the Q&A given that the prepared remarks have already been published). The Senate committee will also consider the nomination of Lael Brainard and renomination of Jerome Powell to a new term at the Fed. US weekly initial jobless claims, French and Italian CPI are the other major data points today.

 

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Thu, 03/13/2014 - 07:22 | 4542183 GetZeeGold
GetZeeGold's picture

 

 

Everything is fixed.......BOOYAH!!!

 

This crap is easy squeezy.

Thu, 03/13/2014 - 07:29 | 4542190 Occident Mortal
Occident Mortal's picture

In a world where the general public do not fear the printing press, poor economic data is not a concern.

 

Years ago if somebody had spent their whole life clawing together some life savings only to see somebody else creating 1000’s of times that amount with the mere flick of a pen, that person would feel outraged… not any more.

 

Thu, 03/13/2014 - 07:33 | 4542199 flacon
flacon's picture

Obligatory early morning silver smackdown. Can't let real price discovery out of the bag. 

Thu, 03/13/2014 - 07:41 | 4542214 NoDebt
NoDebt's picture

Not sure what you guys are doing, but I'm trying to climb the mast of the ship faster than the boat is sinking out from under me.  I'm pretty sure it'll work.  Pretty sure.

Thu, 03/13/2014 - 07:46 | 4542221 Occident Mortal
Occident Mortal's picture

Nowadays the population is totally apathetic about counterfeiting (QE).

 

People are content to spend 50 years working 40+ hours a week just to get something that other people can get on tap.

 

The markets are apathetic about everything because we live in a world where opening the taps into the pockets of the people at the top is accepted by everyone else. The rest have given up the fight. They know it’s unfair but they choose to suspended disbelief.

 

They have no stomach for fighting for their share. They have supressed their outrage and anger and instead they just try to ignore it. They have been divided and conquered, they have been successfully domesticated, enslaved, they are civilized.

Thu, 03/13/2014 - 07:51 | 4542229 Sudden Debt
Sudden Debt's picture

we live in a world where on "RIGHT NOW" and "ME ME ME" and "MY RIGHT TO..." only matters... and tomorrow there'll be a rainbow

Thu, 03/13/2014 - 08:03 | 4542253 dobermangang
dobermangang's picture

And at the end of the rainbow is a pot of soylent green.

Thu, 03/13/2014 - 08:16 | 4542283 Obchelli
Obchelli's picture

How 8.5% YoY growth in China Manufacturing production is considere horrible thing?

How china even posts this number when HSBC ISM Mananufacturing is consistently below 50 for  the last few months (Shrinking). I simply can't wrap my hand around all this lies and BS

Thu, 03/13/2014 - 07:49 | 4542225 Sudden Debt
Sudden Debt's picture

I've seen this movie where going to the back of the ship gave you the best chance to survive... a bit longer...

http://youtu.be/Ie6XZ3buTuM

 

Thu, 03/13/2014 - 07:39 | 4542209 FlipFlop
FlipFlop's picture

In the new world black is white, terror is protection, war is peace, surveilance is safety this does not supriise.

Thu, 03/13/2014 - 07:55 | 4542238 Seasmoke
Seasmoke's picture

Pretty much sums up Obama. 

Thu, 03/13/2014 - 07:46 | 4542223 agent default
agent default's picture

The problem is most people have spent their entire lives accumulating debts.

Thu, 03/13/2014 - 07:27 | 4542191 buzzsaw99
buzzsaw99's picture

please do not worry

Thu, 03/13/2014 - 07:34 | 4542203 Sudden Debt
Sudden Debt's picture

INDEED!! THEIR BOAT IS NOW SINKING FASTER THAN OUR BOAT SO THAT'S AS BULLISH AS IT GETS!

Thu, 03/13/2014 - 07:58 | 4542245 negative rates
negative rates's picture

And do not come back.

Thu, 03/13/2014 - 07:28 | 4542192 Its_the_economy...
Its_the_economy_stupid's picture

How much longer will the disconnect between deteriorating global macro conditions and rising global markets continue, nobody knows, but sooner rather than later the central planner punch bowl will be pulled and the moment of price discovery truth will come. It will be a doozy.

OK, I'm scared now. Make it better.

Thu, 03/13/2014 - 07:33 | 4542201 firstdivision
firstdivision's picture

Feels like the house has started to place its bets against the market (as seen with the several positive analysis released by various houses), and needed more time to get suckers to trade with.  This was evident in the market I'm in with certain houses calling us up to sign NG and basis deals that only seemed lucrative during that short lived run up in NG with the faux shortages.  Pretty much the same thing that is going on in RBOB 

Thu, 03/13/2014 - 07:29 | 4542193 firstdivision
firstdivision's picture

Okay that's it.  I'm starting to accumulate some short positions with what IOU's I haven't moved out of my casino account.  Either I'll win more IOU's, or (more probable answer) the house will win my IOU's.  Either way, Janet will print more. 

Thu, 03/13/2014 - 07:46 | 4542224 Sudden Debt
Sudden Debt's picture

I'm loaded with short positions and I'm bleeding from every opening in my body...

so if I could give you some advice... wait untill the market drops 3 days in a row and more than 1%...

I'm down like 70% on my puts and that hurts like shit

Thu, 03/13/2014 - 07:52 | 4542231 GetZeeGold
GetZeeGold's picture

 

 

Never short a bubble........ever.

Thu, 03/13/2014 - 07:59 | 4542247 negative rates
negative rates's picture

Marrooned on devils island.

Thu, 03/13/2014 - 08:00 | 4542248 Max Damage
Max Damage's picture

Playing it via the VIX. Less painfull and keeps having the odd spike for a swift profit, and then buyback

Thu, 03/13/2014 - 07:54 | 4542237 El Hosel
El Hosel's picture

Ancient Chinese Secret... If It Bad for Dragon it good for Ponzi, Please make note - Round Eye.

Thu, 03/13/2014 - 08:10 | 4542262 papaswamp
papaswamp's picture

No surprise..HARPEX (finished products shipping vs BDI raw materials) has been on a long term degradation, and presently in a down swing..rather ugly looking one.

http://www.harperpetersen.com/harpex/harpexRH.do?timePeriod=Years10&&dat...

Thu, 03/13/2014 - 08:15 | 4542273 youngman
youngman's picture

Now I know why they built all those casinos in China...they love to gamble..not only on a table..but in their business dealings...copper as collateral nails it

Thu, 03/13/2014 - 08:35 | 4542336 ...out of space
...out of space's picture

Peruvian silver mine Uchucchacua Estimated output loss is 324,000 kilos of silver

how much it is, if this number is important for the news?

Thu, 03/13/2014 - 08:36 | 4542338 NDXTrader
NDXTrader's picture

You forgot to add to your list that seemingly everyone on Walk St. Already knew the retail sales number

Thu, 03/13/2014 - 09:11 | 4542433 BullyBearish
BullyBearish's picture

Market blipped up at the end yesterday in anticipation of $4B POMO today, should start around 10:15a EDT...big green today

Thu, 03/13/2014 - 09:14 | 4542448 1fortheroad
1fortheroad's picture

Great info

 

Thanks Tyler

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