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China Surges, Japan Closes Green On Horrible Econ Data; Oil Tumbles To Fresh 5 Year Lows
Without doubt, the most memorable line from the latest quarterly report by the BIS, one which shows how shocked even the central banks' central bank is with how perverted and broken the "market" has become is the following: "The highly abnormal is becoming uncomfortably normal.... There is something vaguely troubling when the unthinkable becomes routine."
Overnight, "markets" did all in their (central banks') power to justify the BIS' amazement, when first the Nikkei closed green following another shocker of Japanese econ data, when it was revealed that the quadruple-dip recession was even worse than expected, and then the Shanghai composite soaring over 3000 or up 2.8% for the session, following news of the worst trade data - whether completely fabricated or not - out of China in over half a year. Perhaps the biggest surprise out of the broken, rigged market is that the massively overbought Dollar is actually listening to the BIS and as of this moment is at overnight lows, dragging European stocks (despite yet another miss of German industrial production printing at 0.2%, vs Exp. 0.4%, and the prior revised from 1.4% to 1.1%, something which normally would be super bullish) and US futures to session lows too: because it is truly shocking to see rationality in the "market" these days.
And speaking of China, it too is now caught in one of those New Normal infinite loops, with DB saying that the probability of a rate cut and liquidity flood by the PBOC - the primary driver for the recent market surge - has been slashed as a result of the market surge as China would be leery to fan the flames of the euphoric market any further. In other words, courtesy of the reflexive nature of central planning, the market has frontrun PBOC action so much it has effectively made such action impossible.
The Nikkei 225 closed slightly higher (+0.08%) as upside was capped with continued weakness in the JPY against the greenback, despite the final reading of the Japanese GDP Q/Q number -0.5% vs. Exp. -0.1% (Prev. -0.4%) confirming that the Japanese economy contracted. The Hang Seng (+0.5%) and Shanghai Comp (+2.9%) whipsawed in yet another volatile session, the latter breaking above 3,000 for the first since 2011 as Chinese Trade Balance (USD) (Nov) M/M 54.47bln vs. Exp. 43.95bln (Prev. 45.41bln) printed a record surplus aided of by lower oil prices. However, the export and imports component was weak as speculation mounts on further PBoC stimulus.
European equities have started this week under selling pressure, with Bunds ticking higher after being spurred on by dovish comments by ECB’s Nowotny stating that the ECB sees ‘massive weakening’ in the Euro-Area and remained downbeat on inflation. Nowotny was previously known as a hawk but was dovish on Friday and is now making very downbeat comments.
Bunds have now retraced all of the losses seen on Friday following the strong US jobs report and back to levels last seen during the ECB press conference. The continued divergence in the strong US economy and a weak European economy takes the US/GE 10yr spread to the highest levels since the Eurozone was formed at 157.5bps.
Downside seen in European equities is also attributed to the pull-back from Friday’s record highs. The FTSE 100 underperforms the European bourses as the materials sector drags the index lower due to Chinese Trade Balance data which showed a weak import and export component.
On the commodity front the one thing everyone is watching continues to be oil, where futures dropped for 5th Day, in part driven by Morgan Stanley cutting its 2015 Brent estimate by $28/bbl to $70 "With OPEC on the sidelines, oil prices face their greatest threat since 2009 and appear on track for an extremely volatile 2015." Overnight brent trades down ~$1.50/bbl after hitting new 5-yr low of $67.35. WTI also lower, discount to Brent narrows. WTI speculator net-long positions increased in week through Dec. 2 as prices fell; Brent data due today. Kuwait Petroleum CEO sees oil staying near ~$65 for 6 months. "There is no discernible floor to the mkt right now, we are in for 3 mos., 6 mos, maybe longer of weak prices,” says Jefferies Bache senior broker Christopher Bellew, in London. "Prices may now go below $60 before recovering.” Jan. Brent -$1.43 to $67.64 as of 10:33am London, range $67.35-$68.79; 14-day RSI ~22%, agg volume down 21% on 100-day avg. WTI -$1.13 at $64.71; day low $64.59, earlier high $65.55; RSI ~26%. Brent-WTI narrows to $2.95, settled Friday at $3.23.
Today is the start of the two-day Eurogroup/ECOFIN finance ministers’ meeting which also marks an important date for Greece. Recent talks between Athens and the Troika have ended in something of a standstill and it looks increasingly likely that a technical extension to the programme will be required although the finer details remain unclear – we could however hear some greater clarification around the topic over the next couple of days.
In summary: European shares remain lower with the construction and oil & gas sectors underperforming and tech, basic resources outperforming. The U.K. and French markets are the worst-performing larger bourses, the Spanish the best. China’s Shanghai Composite index rises to 3-year high, trade surplus advances to record. Japan 3Q GDP below estimates. German industrial output also less than estimated. Russian 10-year yields rise to 5-year high, Brent crude drops to 5-year low. The euro is weaker against the dollar. Japanese 10yr bond yields rise; German yields decline. Commodities decline, with oil underperforming and silver outperforming.
Market Wrap:
- S&P 500 futures down 0.3% to 2070
- Stoxx 600 down 0.3% to 349.8
- US 10Yr yield up 2bps to 2.32%
- German 10Yr yield down 4bps to 0.74%
- MSCI Asia Pacific down 0% to 139.9
- Gold spot up 0.2% to $1195.2/oz
Bulletin Headline Summary from RanSquawk and Bloomberg
- European equities in negative territory across the board with earlier ECB’s Nowotny comments denting Eurozone sentiment as bleak Eurozone prospects are highlighted.
- EUR, JPY, CNY, AUD all trade near lows against the greenback as policy divergence is the theme of today’s session.
- Looking ahead, today’s data slate is relatively light with Canadian Housing Starts, Building Permits with possible comments from Fed’s Lockhart, ECB’s Draghi and Coeure.
- Treasuries decline, 2Y yield at highest since April 2011, 3Y approaching YTD high, as Friday’s strong Nov. employment report spurred reassessment of how soon Fed may begin raising interest rates.
- China’s exports rose 4.7% in Nov., less than 8% median estimate in Bloomberg News survey; imports fell 6.7% vs expectations for 3.8% increase, leaving a trade surplus of $54.47b, the customs administration said today
- PBOC adviser Chen Yulu expects 2015 China GDP growth at about 7.1% and inflation at about 2.5%, Takungpao reports, citing an interview
- Japan’s economy contracted an annualized 1.9% in 3Q, weaker than the 1.6% preliminary estimate amid a surprise decline in business investment; result was below every forecast in a Bloomberg News survey that showed a median 0.5%
- German industrial production gained 0.2% in October, less than the median estimate of 0.4% in a Bloomberg News survey
- ECB Governing Council member Ewald Nowotny sees “high probability” that inflation rate will slow further in 1Q, ECB sees “massive” weakening in euro-area economy, with Germany contributing to downturn
- Nowotny also told reporters in Frankfurt that for any potential QE, “the biggest relevant market surely is the market for government bonds”; “there’s a possible debate about corporate bonds, and you could think about other things”
- The U.S. said it was unaware of the possibly imminent release of a South African hostage in Yemen, who was killed during a raid to free one of his American co-captives
- The euro area signaled that Greece will win extra time to qualify for its next installment of international aid as the government in Athens resists calls for more spending cuts
- As Alexis Tsipras, leader of the Coalition of the Radical Left, moves closer to taking control of Greece, most indebted country, he’s trying to convince bond investors they have nothing to fear
- Eleven months after New Jersey Governor Chris Christie apologized for deliberate traffic jams at the George Washington Bridge, no evidence has linked him to the plot
- Sovereign yields mostly higher. Nikkei little changed while Shanghai +2.8%. European stocks fall; U.S. equity-index futures higher. Brent crude declines to a new five-year low, gold higher, copper falls
US Event Calendar
- 10:00am: Fed Labor Market Conditions Index Change, Nov. (prior 4)
FX
EUR, JPY, CNY, AUD are all trading near their lows with each respective country erring towards easing. The latest weak currency in focus is now the Yuan which is at its lowest levels since August with the Shanghai comp speculating further easing closing higher by 2.9%.
WSJ sources suggest China’s banks are pressing the PBOC to cut the RRR as banks want to reduce the share of deposits it must set aside.
Over the weekend the BIS warned that the strong USD will hurt EM economies and companies, as borrowers leveraged with cheap debt will now have to repay more because of currency moves. This may cause serious issues and threaten financial stability and has pushed EM currencies to their weakest since 2000. YTD USD is up more than 10% against EUR.
Weakening commodity prices (oil and iron ore) is impacting global corporates and oil producing nations such as Russia, Nigeria and Venezuela who are feeling the pain. The Middle East has larger wealth funds to weather the storm but analysts are already forecasting Saudi's revenues as a nation will fall by 16%. On the corporate front both BP, Total and Anglo American have warned about falling commodity prices and are already on cost cutting drives.
ZAR is at a six year low, TRY has weakened to lowest levels in a month, IDR and MYR at their lowest since 2008/2009.
Fridays CFTC data shows all currencies are net short against the USD which is a trend that is expected to continue.
From a technical perspective analysts have noted the USD index may well have the momentum to break above the 2009 high of 89.63 as this time instead of a flight to quality boosting the USD the recent move is now a story of fundamental strength in the US economy, as evident in Friday's jobs report.
With ECB, RBA, PBOC and BOJ having an easing bias and as the USD continues to firm, GBP has benefited as it is the only major central bank likely to follow a Fed rate hike. Weekend BOE reports that the UK could withstand a rate hike also helping.
COMMODITIES
In the energy complex, WTI and Brent futures recover some of the overnight losses following the slight pullback from highs seen in the USD-index but still trade in a particularly tight range with a lack of macro-news giving commodities a lack of direction as the US-index settles around the 88.50 level. Furthermore, Fitch cut Brent oil price to USD 83 per barrel in 2015, USD 90 per barrel in 2016 on the back of Brent Futures falling to its lowest level since October 2012 on the subsequent USD strength with Morgan Stanley also slashing its 2015 base case forecast for Brent to USD 70 from USD 98 and for 2016 to USD 88 from USD 102. In its bear-case scenario, the bank sees Brent falling to a low of USD 43 in the Q2’15.
DB's Jim Reid concludes the overnight even recap
It'll be interesting to see the ramifications this week from the largest payroll print since January 2012 on Friday. It certainly spices things up ahead of next week's FOMC. Indeed, the +321k headline print came in well ahead of market consensus of +225k and there were total cumulative upward revisions of 44k – which in turn has lifted the three-month average growth rate to 278k and the fastest since 2006. Perhaps more encouragingly for the economy was the breadth of job gains which showed impressive broad-based growth. The diffusion index of private employment (a measure of the breadth of job gains) touched 69.7 – now the highest reading since January 1998. With regards to other employment indicators, the unemployment rate remained unchanged at 5.8% along with the labour force participation rate at 62.8% although the broader U-6 measure dropped down to 11.4% which represents the lowest level since September 2008. Finally, average hourly earnings climbed +0.4% mom (vs. +0.2% mom expected) which ticked the annual rate up a notch to +2.1%.
Taking a look at the price action on Friday, the Treasury curve flattened with 2yr yields closing 10bps higher at 0.643% - the highest level since early 2011 whilst 10yr notes (+7bps) and 30yr notes (+3bps) advanced to 2.307% and 2.967% respectively. In terms of Fed Funds expectations, the Dec15 contract jumped 11bps to 0.64%, although this still remains below the highs of earlier in the year, whilst further out the curve the Dec16 contract rose 14bps to 1.59%. Meanwhile the Dollar closed firmer, with the DXY Index advancing +0.63% including a notable gain against the JPY (+1.68%) to close at a seven year high of ¥121.46. Equity indices on the other hand were fairly subdued, perhaps weighed down somewhat following declines to both WTI (-1.45%) and Brent (-0.82%) – which have slid further this morning - dragging down energy stocks. The S&P closed +0.17% and Dow Jones +0.33% - although both finished at record highs. With the final FOMC meeting of 2014 due next week on the 16th, we’ve got limited Fedspeak running up to the event so the market may be forced to wait before getting any official reaction from members.
Turning our attention to the reaction in Asia this morning, markets in China are generally leading the way with the CSI 300 +2.93% and marking its twelfth consecutive day of gains. These gains come on the back of trade data out of China which shows the economy reporting a record trade surplus of $54.47bn, up from $45.4bn in October and boosted by an unexpected fall in imports to -6.7% yoy (vs. expectations of +3.8%). Elsewhere around Asia, bourses are generally mixed as we type. There are modest gains for the Hang Seng (+0.20%, whilst the ASX 200 is +0.70% after results over the weekend showed that Australian banks, as expected, would be required to hold additional capital to cover potential loan losses. Elsewhere in Japan the Topix (-0.08%) is softer after a downward revision to Q3 GDP to -1.9% SAAR.
Returning back to China, our colleagues have noted that the recent equity rally since the surprise rate cut on 21st November (Shanghai +18.1%) has lowered the probability of a cut in the reserve requirement ratio (RRR) to under 20% from 40% initially following the rate cut. Although the rally in equities reflects a strong expectation that policy easing is coming soon, they suggest that cutting the RRR amid a sharp stock market rally may add fuel to the fire and jeopardize financial stability. This is especially true given the sharp rise in financial leverage in the market currently along with tight liquidity conditions. Overall they think the recent market rally may delay major policy easing measures.
Also of note within DB this weekend was our US credit strategy colleagues publishing their 2015 Outlook. We've been discussing the recent spread divergence between European (tighter) and US credit (wider) with them a lot of late and we both think it could go further at the start of 2015. As a start, with the ECB likely about to go in the opposite direction of the Fed the technicals are different. Experience though tells us that a large decoupling is unlikely but we expect more widening before US credit starts to out-perform. A lot also depends on where Oil prices go early in 2015. The problem is that few have genuine intelligence here. Oil is down by 37% since June and our commodity strategists see a possibility of further price declines given the likely over supply. In their Outlook our US credit strategists have updated their recent analysis showing that the weakest US shale producers could enter a zone of deep distress at oil prices below $60/bbl. Their updated analysis shows they could actually have an additional $5 room before this happens. If prices were to stay sustainably below these levels for a few months/quarters, chances of a broad sector restructuring increase materially. This scenario would have repercussions for the timing of the overall HY default cycle. With this, they believe HY defaults have seen their lows for this cycle at 1.7% in September, and are now heading towards a 3.5% level next year.
Just wrapping up the moves on Friday, risk assets ended the week on a positive foot in Europe with the Stoxx closing +1.8% and Xover rallying 10bps tighter. Following stronger than expected German factory orders (+2.5% mom) and firmer Spanish industrial output (+1.2% yoy), 10yr benchmark yields in Spain (-5bps), Italy (-6bps) and Portugal (-5bps) hit fresh lows at 1.83%, 1.98% and 2.75% respectively. Rounding off the data releases on Friday, preliminary Q3 GDP for the Euro-area was confirmed at +0.8% yoy.
Before we look at this week’s calendar, today is the start of the two-day Eurogroup/ECOFIN finance ministers’ meeting which also marks an important date for Greece. Recent talks between Athens and the Troika have ended in something of a standstill and it looks increasingly likely that a technical extension to the programme will be required although the finer details remain unclear – we could however hear some greater clarification around the topic over the next couple of days.
Looking at the week ahead, the calendar is reasonably light following the usual post-payrolls lull for data. We kick this morning off in Germany with industrial production followed soon after with the business sentiment reading out of France. As mentioned the two-day Eurogroup meeting starts today whilst over in the US we just have the Fed labour market conditions index due out. On Tuesday we have the continuation of the Eurogroup meeting in Brussels with notable data prints for the morning session being trade data out of Germany and France as well as industrial and manufacturing production in the UK. Across the pond in the afternoon we are expecting consumer optimism, wholesale inventories and perhaps of the more interest the JOLTS October print which DB expect to be strong although they note the one month lag versus other employment indicators. On Wednesday we kick off the morning in Asia with data out of China including CPI, PPI and money supply as well as consumer confidence in Japan. We follow this up in Europe with industrial and manufacturing data out of France followed by trade data in the UK. Attention in the afternoon however will likely be on the US budget print for November. Perhaps of some interest, the OPEC monthly oil report is due out on Wednesday at some point also. We start Thursday with machine orders data due out of Japan, although eyes will likely be on the European session with the final CPI print due for Germany (+0.6% yoy) as well as inflation data due for France and Portugal. In the afternoon in the US, the market will likely be focused on the retail sales reading as well as claims, business inventories and the import price index. We close the week out on Friday with capacity utilisation and industrial production due out of Japan, as well as the industrial production, retail sales and fixed asset investment prints for China. Closer to home in Europe on Friday, we have wholesale inventories due in Germany, as well as inflation prints in Spain and Italy (final) and finally industrial production for the Euro-area. Finally, over in the US we will keep an eye out for the PPI and University of Michigan prints.
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It never rains in california.
If anyone wants to see the smoking gun evidence as to how massively Central Banks and governments (owned by corporations - literally) have tortured the facts about the real health of the economy - with their puppet-proxy "media" in tow repeating the propaganda - just LOOK AT THE BALTIC DRY INDEX.
*EXPECT A RETAILER MASS EXTINCTION EVENT POST CHRISTMAS.*
No one can deny that we're in a Depression when China can't cut prices on discretionary goods' exports low enough to get sheeple consumers (who have been economically spayed & neutered) to buy 850" HDTV 3D Fleshlight ED Massage/Rub/Tug Interactive Interstate Escapism LCDs in increasing him ers on a YoY basis (it's declining, in fact).
Welcome to State Sponsored Statistical Fabrications & The Age of Full On Krugmanomics.
When fiat money can be created in unlimited quantities then it becomes not a store of value but just another variable in the relative value equation.
Which has made trading the USDJPY lots of fun lately. I'm thinking of sending a Christmas to Abe and Kuroda since they have made me so much money this year....what should I get them?
One one-use Tanto each.
I will conceed somethings seem very skewed and hard to reconcile. I believe what I see, not what I hear. For example the fall in sales on Black Friday shocked even me, not only were the parking lots empty but many of the stores had more employees working than customers.
My office is across from the second largest mall in my state so as I went into work an unplanned visit seemed in order. Foot traffic inside the mall was far less than I imagined, most of the shoppers were younger women and older girls. These are considered the "core" and most diehard of shoppers. Many were carrying few if any bags, this indicates little in the way of buying. The article below includes a picture of foot traffic at 7:00am and looks at why animal spirits in reaction to Black Friday were far less enthusiastic than in the past. Note that stores did fill as the day went on.
http://brucewilds.blogspot.com/2014/11/retail-sales-expectations-should-be.html
Foot traffic this past Saturday at 4:00pm was also nothing to brag about!
Guy said one day everything will be purchased online and sent via mail, did you get that memo yet?
Yeah but those numbers were not up either.
It will be interesting to see how corporations weather this Christmas season. I normally do not visit stores during this time of year, I did wear out my timer that I use for canning and broke down and went to a store to purchase another and hardly anyone in the walmart store. I usually give food baskets for the holidays and usually too busy to notice traffic at the stores.
I want to sell.....so I will buy.
One pjll makes you small
Futures down until Janet wakes up, has her coffee and orders the buying of E-Mini's...
Idiot!
You obviously have no clue, as to what sarcasm is...
Maybe he was talking about the toad Yellen
INDIAN OCEAN (INTELLIHUB) — According to freelance journalist Jim Stone, one of the American passengers, Phillip Wood, a technical storage executive at IBM, who was aboard the now missing Malaysian Airlines flight, keystered his iPhone 5 in his anus after the Boeing 777 carrying 239 people was hijacked by military personnel while on route to China.
Amazingly, Stone claims that metadata within the photo yields evidence confirming “100 percent” that Phillip Wood sent the photo, along with a brief voice activated text, from GPS coordinates which put Wood only a few miles away from the U.S. controlled Diego Garcia military base which is located on an island south of the Maldives in the Indian Ocean. In his post Stone claims that the coordinates may be off by a few miles (see update below post), proving that the iPhone actually sent the otherwise blank black picture revealing nothing else. Stone speculates the picture was taken in a dark room or in some position in which Wood’s hands were bound.
(Photo: Public Domain) Jim Stone
As reported by Stone, the picture was posted along with the following text allegedly from Wood:
“I have been held hostage by unknown military personal after my flight was hijacked (blindfolded). I work for IBM and I have managed to hide my cellphone in my ass during the hijack. I have been separated from the rest of the passengers and I am in a cell. My name is Philip Wood. I think I have been drugged as well and cannot think clearly.”
Strangely the blank black image labeled “1395192158752.jpg” contains the following metadata:..
https://www.intellihub.com/freelance-journalist-hijacked-flight-370-pass...
My guess , maylasia targeted because it set itself up as a alternative to the Hague war crimes tribunal.
Convicting Blair & bush.
Scipol & Holland is the centre of Israeli/ jewish operations since at least the 1500s...........many centuries before the Weight brothers and Charlie linburgh.
Is that one of your like minded pals that dug that up?
..........hello Little Man. I knew your father. We were locked up together in Vietnam....... so he hid the watch in the one place he knew they wouldn't find it. In his ass. And when your father died, I hid it in my ass. And now it's yours.
i am confused - was the picture taken from inside his ass ?
Gee, you seem like a smart guy, maybe even a scholar. So I think you can help.
Boeing has produced somewhere on the order of 1250 777s of various configurations. At any given time, dozens of them are in hangars undergoing maintenance. It would seem---here’s where I need your help---that anyone who really wanted to grab one of these for nefarious future purposes would have had a heck of a lot less trouble just stealing one from a hangar, rather than go to all the trouble of grabbing that one from Malaysia Air. On top of that, why a 777? Wouldn’t a 767 or 757 do just as well? How about an A340 or 330? The perps surely would have known that taking one right out of the sky, rather than from a hangar, or even from the Boneyard north of Tucson, would attract a whole lot of unwanted attention.
THEY are just funnin’ you, aren’t they? But clearly you are one step ahead, a regular Sherlock Holmes, you are. Where would the internet be without people like you, with your tales of dastardly deeds, and especially with those LINKS. LINKS are gold, man.
Let’s be friends on Facebook, okay?
The strengthening dollar may be sending a signal that the whole system is unstable. Other currencies are under assault because both economies are weak and countries are buried in debt they can never repay at real market interest rates. The change in currency values may be dramatic and using history as a guide markets often show no mercy when this shift occurs.
For months the major world currencies had traded in a narrow range as if held in limbo by some great force. This has allowed people to think we were on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner. Recently some currencies have made multi-year highs or lows depending on the match-up.
John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. The article below looks at why this trend may accelerate and cause the stock market to drop like a stone.
http://brucewilds.blogspot.com/2014/10/fed-concerned-that-stong-dollar.h...
People believe what they want to believe, and even you are no exception.
Must look funny with the guy on all 4's having the lanyard coming out of his ass during recharging...
Samir amin talks about the destruction of the national capitalistic monopoly of the post 1648 world (nation state) in the period 1975_- 1990.
The treaty of Maastricht put a stamp on this in 1992.
We are witnessing the consequences of this ever since.
The euro 9 thcircle of market state entropy.
We however do not want to return to the post 1648 world.
We need to return to per Tudor times.
McDonald's sales fell more than expected in November
http://www.cnbc.com/id/102213990
BULLISH!
Consumers have dropped Mikky D's in favor of Ruth's Chris Steakhouse!
"Prices may now go below $60 before recovering.”
The oil price will do exactly what the manipulators want it to do as long as they want it done.
Gotta love these "experts" who analyze the oil price drop with razor-like insight after the fact, whereas none of the f*****s told their subscribers in July to take short positions.
I have yet to see someone come across with the QED for the drop from 140 to 36 in the last 6 months of 2008.
Gold had better get a move on pretty fast, because a billion Chinese, inveterate riverboat gamblers that they are, might start dumping what ain't working for them and start chasing what's moving apace.