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Japanese Outlook Data Collapses As China's PMI Misses And Beats (And Economy Contracts & Expands)
UPDATE: Abenomics double #fail - Japanese Base Labor Earnings dropped YoY for the 21st straight month...
Another night, another disaster for Abe. Japan's all-important Tankan Business conditions forecast dropped to a one-year low and missed by the most since Lehman (but apart from that Abenomics is "nailing it"). China's "official" Manufacturing PMI beat expectations modestly and printed at a stimulus-busting 50.3 (expanding) as imports and new export orders jumped rather cough-notably-cough given external conditions and all other economic data. Rather remarkably, the New Order sub index of the Steel Industry PMI report showed a huge surge from 32.4 to 46.1 as New Export orders tumbled - this is the biggest jump in new Steel orders in.. well as far back as we have data...Then HSBC's PMI hit. Printing at 48.0 - worse than the flash print at 48.1 and still firmly in contraction territory leaving China once again in Schrodinger baffle 'em with bullshit economic growth mode.
Japan's Tankan Large Enterprise Busines Outlook Survey is losing its hope...
Then China followed up with the ubiquitous Schrodinger economy with the official PMI data beating expectations and showing an improved expansion while HSBC's manufacturing PMI (broader-based survey of less SOEs) remained firmly in contraction territory... and worse than the Flash data!!

So HSBC lowest in 8 months and missed and Official highest in 3 months and beat - Stimulus or no?
And aside from in the inflationary pressure in Japan, data is a disaster and stimulus hopes are renewed as terrible news is great news... And don't worry about the JGBs dumping on inflation concerns...
- *ASO: JGB YIELDS WON'T JUMP BECAUSE OF HIGH QUALITY OF BONDS
And China stimulus hopes appear dashed for now with official stats showing "improvement"...
Day after day Japanese data has been missing expectations (and is dismissed as the storm before the calm), US data has been missing expectations (all the weather, don't worry), and European data has flatlined for 5 months (amid calls for a great recovery or new QE). But, what is keeping the dream alive for stock investors all over the world is another region that is expressly set on tightening credit and instilling "moral hazard destroying" reforms. One look at the following chart of China's macro data (at 5 year lows) and the howls of optimism will grow loud as stimulus must come any minute, right?... except, as we noted previously, it won't (unless things get a lot worse).
Just how bad is China?
We suspect, for Xi and his merry men, this bad news will remain bad news as any retracement on their promised reforms so soon after the Plenum would be a disaster and would risk an even bigger correction down the road (a lesson they are learning from the Americans very well).
BofA believes that there are structural and cyclical factors at play in China's weakness and that the authorities will be more inclined to deal with the cyclical than the structural for now - the contractionary fiscal drag of the anti-corruption reform.
We believe the major drag is the contractionary fiscal policy as a consequence of Beijing's anti-corruption and anti-vice campaign which was started at the beginning of last year and was significantly escalated this year. The strong evidence was the abnormally high growth of bank deposits of governments and quasi-government agencies (up 28.3% and 23.6% yoy in February 2014 respectively), a significant slowdown in retail sales growth, and some deceleration in FAI growth.
....
We believe China should continue its anti-corruption campaign and should even take further long-term institution-building measures to more effectively prevent corruption. But the government, just like all other governments in the world, also holds the responsibility in delivering stable growth and full employment in the short-term. How can Beijing reconcile the innate conflicts between the anti-corruption campaign and stable economic growth? In our view, Beijing could reverse the contractionary fiscal policy to some extent by spending the extra government savings on social welfare projects such as social housing, health care, urban infrastructure and infrastructure projects in Western areas.
To be sure, we don't expect a big fiscal stimulus
Our discussions above do not mean that we expect a big stimulus. Actually we think the government needs to recognize the major factors behind the economic slowdown and could come up with appropriate offsetting measures to arrest the slowdown (at least the cyclical part). Unlike the case in the US in 2013, it's hard to measure the exact scale of China's "fiscal cliff", but we can at least get a rough estimate (around 60-150bp, in our view), the cyclical slowdown now is quite clear, and Beijing can experiment with some incremental spending from its own coffers to boost both demand and confidence.
...
Looking beyond the technical drivers, we expect PBOC will keep liquidity relatively ample and stabilize interbank rates to support growth and smooth corporate financing costs. In terms of RRR, we believe the PBoC will eventually cut the too high RRR, but at the moment we think the chance for a cut is still low.
Charts: Bloomberg
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Yes Taro, high quality bonds to be repaid with worthless Yen. Excellent job there sir.
Paul Krugman just tweeted -
@NYTimeskrugman -"If Kuroda bravely keeps doing more of that which hasn't worked, Japan should recover robustly any decade now."
When the geopolitical quandaries of the world have been settled, 160 to the dollar or dollar equivalent will be normality.
Burrish!
Because I'm dumber than a brick...can anyone review the data of the US's three largest creditors and make any sense of these nations buying habits???
Japan
Jan '08 - Japan owned $585 B in US treasury's
Jan '14 - Japan owns $1.2 T in US Treasury's
+$615 B
Japans consistently ran trade surplus' peaking in '07 but beginning in '08 began running trade deficits and has subsequently collapsed to an all time deficit in Jan '14 (http://www.tradingeconomics.com/japan/balance-of-trade). Same true for current account (http://www.tradingeconomics.com/japan/current-account)
However, since '08 Japan has massively increased their recycling of US dollars into Treasuries while having far fewer dollars to recycle....paradox? How did Japan come up with an extra $600 B in US $'s to more than double their Treasury holdings while simultaneously suffering a nuclear energy collapse requiring far greater energy imports...imports of oil and gas necessitating payment in petro-dollars? Where do all the $'s to buy both T's and oil come from???
China
Jan '08 - China owned $493 B in US treasury's
Jan '14 - China owns $1.27 T
+$777 B
China ran large trade surplus' (http://www.tradingeconomics.com/china/balance-of-trade) (except for their annual lunar new year plunges) but has had positive yet shrinking current account surplus since '08.
China also purchased up to 5,000 tons of gold @ $1500 = $240 B
Belgium
Jan '08 - Belgium owned $13 B in US treasury's
Jan '14 - Belgium owns $310 B
+$297 B
Since '00 and continuing since '08 Belgium has run a small trade surplus (http://www.tradingeconomics.com/belgium/balance-of-trade) of approx. 10 B/yr Euro's and a current account deficit (http://www.tradingeconomics.com/belgium/current-account). Just WTF???
Simple, you just make the shit up. That's it.
Since its all about confidence you say whatever the fuck you need to say to keep the con game going.
Oh....and slam the paper gold price in the process too.
It is so absurd that it is incomprehensible at this point.
Mr. Rock n Roll, that's my pov as well but I don't manage client money or have a phd...I'm just curious what sort of justifications or pimco meme is told to clients to maintain their "con" fidence???
The folks in the industry I've contacted maintain that only the major trading houses actually know who buys these and nowhere is this data made available in greater detail than what's available in TIC. Anyone with greater insight???
Since the Japanese are busy claiming all is well and the Chinese are trying to keep their banking sector from vaporizing ask the friggin Belgians to show you the goods. Otherwise you have to believe the bullshit our treasury department puts out.
small hands.....
I did some back of the napkin projections on probable economic growth rates, using Federal Reserve style models, and here's what I came up with for the remainder of 2014 on an annualized rate for certain countries:
US - 4.2% GDP Growth
China - 9.9% GDP Growth
Japan - 4.1% GDP Growth
Germany - 6.8% GDP Growth
India - 11.7% GDP Growth
Additionally, core inflation should average exactly 2.135% - annualized - in each nation listed above for Q2, Q3 & Q4.
/OBVIOUS-SARC
I conjure up money bits in my computer to trade for conjured up money bits in your computer. Wheeeeeeeeee
In '04-'08 (5yrs) the US ran a $3.47 T trade deficit (http://www.tradingeconomics.com/united-states/balance-of-trade) vs. an increase in "foreign" treasury debt ownership of $1.4 T...
In '09-'13 (5yrs) US ran a 2.45T trade deficit vs. $2.8 T increase in foreign treasury purchases??? yielding almost nothing???
"market" action and bond vigilantes??? vs. central planning and central buying. Can anyone make any case this makes sense (no matter however faintly).
Since '08 US trade deficit falls by 1/3 (fewer dollars for "foreigners" to recycle) while budget deficit increases by 4x's (far more dollars needed to purchase US debt) and yields collapse while the equity markets are flooded by new buyers...and "foregners" go wild purchasing new US treasury debt??? And nobody anywhere had to sell anything to buy anything else???
Cats and dogs living together...black is white...truth is lie.
Sure. "North Dakota"....among a multitude of other factors.
Also you're equating lower interest rates with success.
Look at Japan..."then you see failure."
"China" (so defined) is on the verge of flying apart.
The reason these treasury purchases have soared is because the Regional Governors have controlled China's economy since the 1980's, not the Politburo. Unlike the Russians who have parked the bulk of their money in London and New York China has parked almost the totality of their absolutely staggering wealth generation in Washington DC.
It's not complicated. "Who has the energy? Who keeps the energy flowing?" Certainly not Russia.
"Only the USA and the USA alone."
This is in addition to providing the technological know how to move beyond oil...and even natural gas.
The implications for a "deficit free USA" (both trade and budget) are indeed profound. Forget mere productive capacity...sheer production coming out of the USA since 2008 has been staggering...with price increases to boot.
And now war with Russia? That won't make Japan and China very happy with their gamble on Europe...let alone pre-disposed to going long Russia.
The only question that needs answering is "are ten million US servicemen about to appear in Ukraine?"
Not even John McCain goes there. But the USA sure might. "It's good for Japan and China." I mean where else will they get their food from?
If Russia takes Ukraine all the PROFITS will flow to Moscow and Putin. Europe will go hungry and cold. But that's nothing compared to China and Japan.
Not a problem if the fed sucks up all the bonds japan etc dump on the market. Just hope they don't change from suck to blow.
Japan: "Where do all the $'s to buy both T's and oil come from???"
Belgium.
"In our view, Beijing could reverse the contractionary fiscal policy to some extent by spending the extra government savings on social welfare projects such as social housing, health care, urban infrastructure and infrastructure projects in Western areas."
Thanks, B of A. That should do it. It's certainly working here in the US.
Who are these people? Is the same playbook ISSUED to them or do they all arrive at the same stupid conclusions on their own?
I'll take the HSBC number over the Offical number any day...
Super bullish news! Why is the ES only up a little? Shouldn't we be up another percent or two in the after hours? Guess we have to wait for tomorrow.
A miss and a beat on the same measure, double bull!
*ASO: JGB YIELDS WON'T JUMP BECAUSE OF HIGH QUALITY OF BONDS
That is really reassuring. Kind of when the pilot comes on the intercom and announces that the plane is not going to crash. Or when Bernanke said the subprime problem was contained.
With all of this bad news, Dow should see a 150 point rise tomorrow.
I love bad economic news EARLY in the morning .....economic shrinkage ...the smell of more liquidity victories!
what a fucking mess!
Quick to the Bat, uhh, signal: it's a job for the Flash Boys and their HFT liquidity providing algorithmic market drones. Save to markets. Save us Flash Boys. Save us all.
Bad weather in Japan.
So... the lesson futures got out of this is, Yellenspankespaneconomics works even better?
If this keeps up it is only a matter of time before the yen becomes worthless. Japan is the most indebted developed country in the world and its future prospects are dim and getting worse. If inflation begins to take root it will place upward pressure on Japanese bond yields and raise the cost of government to service its massive debt.
As the yen drops even higher stock markets in Japan will fail to protect the wealth of those invested within its borders. With the BOJ set to absorb half of the government bonds planned for sale this fiscal year, domestic investors have already started venturing overseas for higher yielding assets. If this turns in to a tsunami of money fleeing Japan it will constitute the end of the line for those holding both JGBs and the yen. More on this subject below,
http://brucewilds.blogspot.com/2013/08/japans-economy-going-forward.html