Fact: manufacturing has lost jobs two months in a row, and which as the BLS reported today saw hourly compensation collapse by 6.9% in Q1 - the most ever. As for the Taper... look at the chart below.
In a considerably worse 'crash' than the Japanese stock market, a building has collapsed in Philadelphia with 12 injured and 2 still trapped in the rubble. Just as suddenly as the market went from euphoric stability to volatile entropic failure, perhaps a massive infrastructure spending project (Quantitative constructing?) is required in a country in which major urban building can be perfectly stable one moment and a pile of rubble the next...
Back on Monday, following the huge miss in the Manufacturing ISM, in collaboration with Nanex, we exposed yet another instance of blatant headline data frontrunning in "15 Milliseconds Of HFT Fame: Watch Today's Early Leak Of The ISM Print" where we showed aggressive trading amounting to tens of millions in notional contracts ahead of the 10am release of the key economic indicator. We assumed that just like every other lament about a market that is front-run by those "who have the means", manipulated (by the Fed of course - remember when that was just a conspiracy theory: good times) and simply broken, it would disappear in the ether forever. After all: why bring attention to facts when hopium is sufficient for the E-Trade baby to retire rich and famous before it has hit 2. We were delighted to learn that CNBC's Eamon Javers picked up the torch and actually did some further investigating, which in turn led to an actual admission out of Reuters that it "inadvertently" sent out the data to "a select group of high frequency traders, many of whom immediately traded on the information before it was available to the wider market, CNBC has learned." Inadvertently? The humor just never stops.
The topic of the IMF's idiocy - unquestioned here following years and years and years of absolutely horrific forecasts, not to mention charts like this one courtesy of the Troika, of whom the IMF is a proud member has been widely covered in the past. However, while in the past we have attributed to stupidity all the faults of the Angela Mozilla Christine Lagarde-headed organization, we never had the factual backing to also invoke malice, lies and manipulation. Now, we can.
It's a central bank world, and we are all just suckerfish attached to the Great Central Planning Whites, hoping for little scraps to trickle down as trillions (Yen-denominated) in bonds are monetized every day.
Last night's over-promised and under-delivered 'third arrow' from Abe appears to have solidified market opinions about the chances of Abe slaying his deflation-monster nemesis. UBS' CIO Alex Friedman fears that Japan may face a fearsome stagflation - where accelerating inflation in asset prices is not met by higher growth rates - a scenario he calls "Abegeddon." In an "Abegeddon" scenario, Friedman said "investors may grow increasingly concerned about the sustainability of Japanese debt levels that could lead to a 'stampede' out of government bonds." With Nikkei 225 futures having faded their European morning bounce and pressuring back towards the 20% 'bear market' correction levels once again, it seems the 'stampede' is out of growth-expectation-driven equities as JGBs are bid for now. That bid (no matter how hard the BoJ tries) is unlikely to last if the doubt grows as Japan's debt-to-GDP would rise above 300% (from 226% currently) and the 10Y JGB yield could approach 5%!
With the Nikkei 225 trading back under 13,000 once again, the countdown to the 12,815 level is back on and the pronouncement of the Japanese bear market. Bad was not good this morning acoss risk assets in general as the BTFDers were unsure if their man in the big house is really gonna keep pumping. Treasuries are modestly bid (2-3bps) as US stocks crack back below recent lows near a one-month low in the S&P 500. Carry drivers are getting pummeled as AUD is sold and JPY is bid. European markets are bleeding (equities worse than sovereign bonds for now).
Non-Manufacturing ISM Comes In Line, Factory Orders Miss: Inventory To Sales Highest Since October 2009Submitted by Tyler Durden on 06/05/2013 10:14 -0400
Despite market bull hopes for a collapse in the non-manufacturing ISM (remember: bad news is good news for momentum chasers and the Mandarins of Marriner Eccles) and a repeat of the sub-50 Manufacturing ISM fiasco, moments ago the Institute for Supply Management released the June Non-manufacturing ISM which printed at 53.7, just above expectations of a 53.5 print, and above last month's disappointing 53.1. The New Orders index rose from 54.5 to 56.0 and the Business Activity also rising from 55.0 to 56.5, offset by a drop in inventories from 56.0 to 51.5, a collapse in Imports from 58.5 to 49.5 and, troublingly, an ADP validating decling in the employment index from 52.0 to just above contraction at 50.1. Perhaps the most informative respondent comment was the following: "Healthcare reform and sequestration are having a strong negative impact on business." (Health Care & Social Assistance). Oh well, a mixed report that is neither overly bullish or bearish, so those hoping for bad news will have to look at the Factory Orders release which posted its second miss in a row, printing at 1.0% on expectations of a 1.5% rise.
France and Italy are fighting against ambitious plans by the ECB to basically 'externally audit' 140 banks across the EU representing 80% of Europe's banking assets. The implementation of the project (by the head of financial stability at the central bank) appears to have two main drivers. First, to understand which banks' balance sheets are inhibiting lending (and why); and second, to ensure there is clarification on taxpayer-funded bailouts versus shareholders and depositors taking losses first. As Zeit reports, it seems the ECB appears to be questioning the reliability of the banks own figures.
This morning's 11.5% week-over-week plunge in mortgage applications is the fourth week of fading demand in a row as it appears the bloom is very much off the rose of the second-coming of the housing bubble. This makes it the worst plunge in mortgage applications since June 2009 and the lowest level of activity since December 2011. Wondering how this is possible? We explained in detail here but this collapse in mortgage demand fits perfectly with Mark Hanson's insights that a number of "large private mortgage bankers had mass layoffs last Friday to the tune of 25% to 50% of their operations staff." This all feels very deja vu all over again.
Hourly Compensation Crashes Most Ever, Labor Costs Drops By Most In 4 Years, Manufacturing Compensation Plummets By 7%Submitted by Tyler Durden on 06/05/2013 08:51 -0400
So much for the thesis of declining labor slack and rising labor leverage. Moments ago the BLS reported its Q1 labor costs which poured cold water over all recent hypotheses that the US worker's plight is improving. It isn't: productivity increased by 0.5% in Q1 in ling with expectations of 0.6% (on what is not exactly clear - everyone on their iPhones?) but it was labor costs which plunged -4.3% on expectations of a +0.5% increase driven by a 3.8% collapse in hourly compensation that was the stunner. This was the biggest labor cost drop in four years and the biggest collapse in hourly compensation in well, ever and confirms our observations from the last NFP report that quantity gains in jobs continue to be offset by quality declines in actual worker pay. As a reminder we were scratching our heads following the soaring Q4 labor cost and declining productivity data which made no sense in the general context of deteriorating labor conditions. Following this print, it all falls back into place and confirms the Q4 data was nothing but an outlier. Also,this may be the end of the core thesis behind David Rosenberg's recently developed reflationary argument.
By now it is futile to point out the woeful inability of the ADP report to predict the NFP's ARIMA X 12 output of pure noise so we'll leave it at that. Here is the headline: May private payrolls created 135K with consensus looking for 165K - only two analysts were looking for a weaker number. This was the second lowest print since September excluding only the April 113K print. What's worse is that the prior number which usually is revised to match the NFP was revised lower from 119K to 113K, confirming that the quality of NFP reporting in the past month is suspect to quite suspect. Don't expect the imminent arrival of a manufacturing renaissance: mfg jobs were down 6,000. But fear not - Mark Zandi blames it on the sequester: "Manufacturers are reducing payrolls. The softer job market this spring is largely due to significant fiscal drag from tax increases and government spending cuts." At least it wasn't the May weather or tornadoes...
We reported yesterday that Europe, in a surprising escalation of global trade wars, announced it would impose solar-panel duties against China in one week, with the terms rapidly deteriorating over the next three months. It took China less than one day to retaliate. What's worse the retaliation is aimed at Europe's already weakest - the PIIGS - by targeting not hard German machinery exports but something far more prosaic: French, Spanish and Italian wine.
- National Security Advisor Tom Donilon resigning, to be replaced by Susan Rice - Obama announcement to follow
- Japan's Abe targets income gains in growth strategy (Reuters), Abe unveils ‘third arrow’ reforms (FT) - generates market laughter and stock crash
- Amazon set to sell $800m in ads (FT) - personal tracking cookie data is valuable
- 60 percent of Americans say the country is on the wrong track (BBG) and yet have rarely been more optimistic
- Jefferson County, Creditors Reach Deal to End Bankruptcy (BBG)
- Turks clash with police despite deputy PM's apology (Reuters)
- Rural US shrinks as young flee for the cities (FT)
- Australia holds steady on rate but may ease later (MW)
- The Wonk With the Ear of Chinese President Xi Jinping (WSJ)
- Syrian army captures strategic border town of Qusair (Reuters)