- Ringing endorsement: Lithuania to Adopt Euro When Europe Is Ready, Kubilius Says (Bloomberg)
- Credit Agricole net plunges 67% on losses in Greece and a writedown of its stake in Intesa Sanpaolo SpA (Bloomberg)
- Europe finally starting to smell the coffee: ECB Urging Weaker Basel Liquidity Rule on Crisis Concerns (Bloomberg)
- Japan Cuts Economic Assessment (Reuters)
- France’s Leclerc Stores to Sell Fuel at Cost, Chairman Says (Bloomberg)
- China Eyes Ways to Broaden Yuan’s Use (WSJ)
- Berlin and Paris forge union over crisis (FT)
- Brezhnev Bonds Haunt Putin as Investors Hunt $785 Billion (Bloomberg)
- Republicans showcase Romney as storm clouds convention (Reuters)
- ECB official seeks to ease bond fears (FT)
- German at European Central Bank at Odds With Country’s Policy Makers (NYT)
By now everyone is well aware that the payback for the absolute zero that was August in terms of newsflow and events, the first quiet August in three years, will be September, which as we and others dubbed, will be "Crunchtime" for Europe. And with September now just days away, and with the transitionary Jackson Hole forum virtually assured to be the latest dud, with Draghi surprisingly bowing out at the last minute (even as Buba's Jens Weidmann is still set to attend), and with Bernanke guaranteed to do nothing more than just jawbone some more without real action, the time to refresh on what to expect over the next 30 days has come, courtesy of this annotated calendar from SocGen.
With the market realization slowly dawning that Bernanke will not announce anything of note at this year's Jackson Hole meeting, especially with the NFP number following the symposium expected to demonstrate another improvement in the economy, and ahead of the FOMC meeting in the second week of September, many hopes were resting on the shoulders of Draghi, whose ECB has now become a backup option when it comes to jawboning markets higher on empty promises. It is the same ECB which is also expected to announce something, anything on September 6, or else the market will really get angry after "believing" Draghi back in July as he said, and not delivering anything for two months straight. At this point however, the Jackson Hole meeting appears to be a complete dud because as was just reported, Mario Draghi, who was previously scheduled to speak on August 30, has decided to skip the meeting entirely. According to Bloomberg, citing an ECB official, Draghi won’t be attending Jackson Hole forum this year, and the reason given is "due to workload in coming days."
Yesterday, Spain was kind enough to advise those who track its economy, that things in 2010 and 2011 were in fact worse than had been reported, following an adjustment to both 2010 and 2011 GDP "historical" data. Today, we learn that Q2 data (also pending further downward adjustments), contracted by 0.4% sequentially in Q2, in line with expectations, but somehow, and we have to figure out the math on this, the drop on a Year over Year basis was far worse than expected, printing at -1.3% on expectations of just a -1.0% decline. However, while its economic collapse is well known by all, the surprise came in the deposits department which imploded by a whopping 5% in July, plunging to 1.509 trillion euros at end-July from 1.583 trillion in the previous month. Keep in mind this is after the June 29 European summit which supposedly fixed everything. Turns out it didn't, and the people are no longer stupid enough to believe anything Europe's pathological liar politicians spew.The good news: Greek deposits saw a dead cat bounce after collapsing by ridiculous amounts in the past several years: at this point anyone who puts their money in Greek banks must surely realize that the probability of getting even one cent back is equal odds with going to Vegas and at least having a good time while watching one's money burn.
The case for ultra easy monetary policies has been well enough made to convince the central banks of most Advanced Economies to follow such polices. They have succeeded thus far in avoiding a collapse of both the global economy and the financial system that supports it. Nevertheless, it is argued in this stunningly accurate paper via none other than the Dallas Fed (and BIS economist William White), that the capacity of such policies to stimulate “strong, sustainable and balanced growth” in the global economy is limited. Moreover, ultra easy monetary policies have a wide variety of undesirable medium term effects - the unintended consequences. They create malinvestments in the real economy, threaten the health of financial institutions and the functioning of financial markets, constrain the “independent“ pursuit of price stability by central banks, encourage governments to refrain from confronting sovereign debt problems in a timely way, and redistribute income and wealth in a highly regressive fashion. While each medium term effect on its own might be questioned, considered all together they support strongly the proposition that aggressive monetary easing in economic downturns is not “a free lunch”. Absolute must read!
If the unofficial end of the European summer season comes with the return of those 9-saying Germans who dash every carefully laid plan to stuff German taxpayers with the European bailout bill for the second year running, the official end is when the Greeks come back from their German-sponsored two week vacation in the Cyclades (soon to be known as Nieder-Niedersachsen) and start bombing things. Which is precisely what happened two hours ago. From Reuters: "A makeshift bomb exploded outside a National Bank of Greece branch in Athens early on Tuesday, causing minor damage but no injuries, police said. Windows were smashed and four parked cars suffered minor damage in the blast, which took place about 4 a.m (0100 GMT) in the western suburb of Ilion." Luckily nobody was hurt. However, it would not look good on the front page of German papers that the general Greek population is not ungrateful for the continued ECB recycling of ponzi cash, but has decided to take out an ATM machine or two, which is why... "We suspect it is linked to terrorism," said a police official who declined to be named. Sure enough, when all else fails, blame something: Bush, a glitch, or terrorism.
The impact of unsustainable production in Chinese Steel-making plants, to avoid the inevitable employment consequences, has created a 'glut'. This excess inventory will need to be worked through before spot Iron Ore (and Coking Coal) prices can stabilize. Morgan Stanley believes the sharp raw material price declines since mid-July followed a collapse in Chinese steel prices and aggressive margin compression. This is in turn has resulted in aggressive thrifting of raw material purchases. More recently, the price declines have accelerated with Chinese re-bar and HRC prices reaching 33-month lows. In their view, prices of steel making raw materials can recover in 4Q 2012 and in 2013, but spot prices for both iron ore and coking coal first have to fall below the marginal cost of seaborne (not Chinese) production to drive out the short-term supply overhang - Iron Ore prices could fall 17% further before this 'stabilization' and spot coking coal over 8% from current levels.
No sooner had Azumi announced his rather unsurprising admission (via Bloomberg) that:
*JAPAN CUTS ASSESSMENT OF DOMESTIC ECONOMY
*AZUMI SAYS HE SEES RISK OF GOVT FUNDS DRYING UP
then Aussie Home Sales came in much weaker than expected (and their lowest in six months). The repatriation of JPY accelerated - dragging JPY higher and snapping all the other majors lower relative to the USD; and AUD weakened significantly (though already priced for some easing). Of course, as a funding pair for everything still, the AUDJPY carry-unwind is weighing on equity futures (though minimally for now).
Saudi Arabia has gone on the offensive against Iran to protect its interests. Their involvement in Syria is the first battle in what is going to be a long bloody conflict that will know no frontiers or limits. Ongoing Disorders in the island kingdom of Bahrain since February of 2011 have set off alarm bells in Riyadh. The Saudis are convinced that Iran is directing the protests and fear that the problems will spill over the twenty-five kilometer long COSWAY into oil rich Al-Qatif, where The bulk of the two million Shia in the kingdom are concentrated. The territory is likely to adopt the more fundamentalist principals of the Salafists as it serves as a stepping stone to Iran Itself. It promises to be a bloody protracted war that will recognize no frontier and will know no limits by all of the participants.
Color us unsurprised by this turn of events as Automotive News reports GM is set to idle the plant where it assembles the Chevy Volt for four weeks - starting next month. GM will close its Detroit-Hamtramck plant from Sept 17 to Oct 15 with its 1500 staff being made aware by union reps at the end of last week. The knock-on effect is relatively obvious as the illustrious government-owned auto manufacturer notified suppliers last week and while a GM spokesperson would not confirm the planned shutdown, we couldn't help but raise an eyebrow at the comment that "we continue to match supply and demand" as we note this is the second time this year that GM has throttled back on Volt production. The Detroit-Hamtramck plant was idled from March 19 until April 16 amid swollen Volt inventories.
Those who think that China's centrally-planned transition to the world's leading, fastest growing economy in the shortest time in world history, coupled with its attempt to shift from a mercantilist, export-driven economy, to one sporting the world's largest middle class is progressing smoothly and according to plan, especially as related to millions of overeducated young adults who are finding it impossible to find a job in China's big cities, and find their diplomas uselss in the small ones, are urged to watch the following documentary exposing "China's Broken Dreams." From Al Jazeera: "[The Chinese] people are discovering that society's resources and opportunities are increasingly concentrated in the hands of a few. People in the middle and lower strata of society are becoming increasingly marginalised and are finding that improving their lives is getting harder. [This imbalance could lead to] the rich getting richer and the poor poorer, the strong permanently strong and the weak permanently weak .... The biggest harm may not be in the gap between rich and poor itself, but the deterioration of the overall societal ecosystem." Translation: class war unlike anything seen even in America, where class war is the basis for the entire presidential campaign. Because unlike the US, "class war" in China will have a far more true to its name outcome.
According to the plethora of long-only managers willing to trot out on the public stage and beg for more commissions, the US has been (and will remain) the cleanest-dirty-shirt in the global risk asset laundry basket; but as David Rosenberg of Gluskin Sheff points out not only has the S&P 500 hit a new record high in its total return index but it also possesses a rather 'ebullient' valuation premium (2012E P/E) of 13.8x relative to China 9.8x and Europe 11.4x. However, while this is more than enough to slow some investors from backing up the long-truck, Rosie goes on to highlight a very worrisome indicator - that favored by ex-PIMCO's Paul McCulley. The YoY trend in the three-month moving average of core capex orders (which was updated last Friday) has just cracked negative, crushing the hopes of US growth prospects and we assume equity superlatives. However, since the market no longer reflects anything; certainly not the economy, but merely who will ease more when and how, one really can't short much if anything, even if McCulley is 100% spot on.