Overnight Sentiment: Same Old Same Old

Tyler Durden's picture

If anyone still actually cares, or trades, we just saw the third California muni bankruptcy in two weeks, German bonds priced at record low yields, and Spanish 2 year nominal yields just hit all time lows of -0.37%. Abroad Spain promised to crush its middle class even more by impairing retail held sub debt and hybrids, while forcing them to pay more taxes, a move which will lead to some spectacular Syntagma Square riotcam moments, yet which has sent Spanish bonds slightly higher. As for US equity futures, they continue the headless chicken dance higher even as company after company now rushes to preannounce horrifying Q2 earnings. And that's it in a nutshell.

More from BofA:

Market action

Asian equity markets finished mixed. The Shanghai Composite rose 0.5% and the Hang Seng closed 0.2% higher. On the flip side, the Japanese Nikkei lost 0.1%, the Korean Kospi fell 0.2% and the Indian Sensex shed 0.7%. 

For the fifth time in six days, European equities are selling off. Today, investors are worried that the slowing global economy will hurt company's earnings. In the aggregate, European equities are 0.3% lower. At home, futures are pointing to a 0.2% increase in the S&P 500 later today as the market bounces back from yesterday's 0.8% sell off. 

Treasuries are backing up modestly in the longer part of the curve after rallying yesterday. Both the 10-year Treasury and the long bond are 1bp higher at 1.51% and 2.63% respectively. In Europe, borrowing costs for Spain and Italy are falling. The 10-year yields for both countries' are down 5bp to 6.68% and 5.87% respectively. 

The dollar is weakening with the DXY index off 0.2%. Commodities are higher with WTI crude oil up 73 cents to $84.66 a barrel and gold trading $7.93 higher an ounce at $1,575.20. 

Today's events:

Trade: The trade deficit is likely to narrow to $48bn in May from $50.1bn in April. The reduction in the deficit is largely a price story, reflecting the sharp drop in commodity prices. This will reduce the nominal amount of petroleum imports, helping to shrink the deficit. Elsewhere, we think that exports should remain soft due to the continued slowdown global growth. This will offset part of the collapse in imports. After adjusting for inflation, we believe that the real goods balance, which is the main input into our GDP tracking model, should be little changed. 

Wholesale inventories: Consensus expectations are for wholesale inventories to rise by 0.3% mom in May. That would follow the 0.6% increase recorded in the prior month.

Consensus starting to see the cliffs

The latest Blue Chip report - a leading provider of consensus estimates of economic forecast - was just released; we are beginning to see evidence of the fiscal cliff work its way into consensus expectations. In a special question Blue Chip asked about the looming fiscal cliff.

Here's what Blue Chip recorded: 

  • Almost 89% of the panelists believe uncertainty associated with the scheduled expiration of the 2001 and 2003 tax cuts at the end of 2012 will dampen consumer spending and business investment, and thus GDP growth, in the second half of this year. About 54% said the impact would be "small", but 39% expect a "moderate" impact. Asked when there will be some clarity about whether or not the tax cuts will be partially or totally extended, about 65% of the panelists said after the November elections, but before the end of this year. However, about 30% said not until after the end of this year. About 39% of the panelists say they assume total extension of the 2001 and 2003 tax cuts, while almost 59% anticipate only a partial extension. 

While 88.6% of respondents see uncertainty from the fiscal cliff depressing H2 2012 growth, only 4.3% expect a "large" impact from uncertainty. Quarterly growth rate forecasts are now a tenth or two lower than in June but growth still accelerates into the fourth quarter according to consensus expectations (2.3% now vs. 2.4% forecast in June) then dips briefly in Q1 (1.9% now vs. 2.1% in June) before rebounding. The bears continue to take down their forecast. It is interesting to note that the bottom 10% of forecasters now see growth averaging 1.5% in the third and fourth quarter of this year, then 0.7% for Q1 2013 before rebounding back to 1.5% for Q2. So our 1.0% in Q4 is no longer the bottom of the pack, although our overall trajectory is still below our fellow bears. 

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Josh Randall's picture

Ahhh muni defaults - Meredith W. - we hardly knew ye...

EscapeKey's picture

I, personally, am sitting waiting for morons^H^H^H^H^H^H clueless economists (I neglected to add the word "Keynesian" as it's clearly redundant) to write up long essays (say, in New York Times) as to why Meredith Whitney is STILL WRONG, and all the defaults are for ENTIRELY OTHER REASONS!!11eleventyone!

Much like the same morons wrote long stories about how Peter Schiff was wrong about the housing bubble pop.

cossack55's picture

The latest Calif BKs were because none of the cities/towns happened to be located on the high-speed rail line.  Brings many old Randolph Scott westerns to mind.

EscapeKey's picture

Speaking of which - what sort of moron designs a HS rail system, and then leaves out the major metro areas? I mean LA/Bay Area/Diego/Sacramento accounts for - what - 70% of the population in CA, and the rail line doesn't go to any of those places.

Those morons must clearly be some sort of government advisors. Perhaps they should go into banking?

DeadFred's picture

The current plan allows them to build the thing cheaper. Sure you're still paying people prevailing wage rates that would tempt a stock broker but you're building it on only mildly overpriced farmland not LA/Bay Area real estate. They know they aren't going to actually build the thing so they needed a plan with numbers that would fly. Think of this like the ECB's recent repo of Spiderman towels, Politically they can't just give CA cash so they needed a ruse with number that would fly. They should have done a water works/flood control system instead. Sacramento has the possibilty of making the New Orleans-Katrina thing look tame. That way they could bail out the state AND actually hire some workers. If you want to have a Krugman DeathStar project at least do one that accomplishes something.

The Monkey's picture

The Fed does not really want to implement QE3, or at least wants to delay the inevitable as long as possible. That's why I would bet on some serious jawboning coming up. It's a "no action required" method to pump up the asset markets. With Google and Apple on tap in the next two weeks, and the Wall Street talking heads joining in the frey, we could get a serious headless chicken rally.

I am a Man I am Forty's picture

Meredith Whitney WAS WRONG.  She said 50 to 100 LARGE bankruptcies LAST YEAR.  I have made a killing not listening to Meredith Whitney on municipal bonds.  TIMING AND QUANTITY MATTER.

Yes, there are going to be bankruptcies, but mainly due to corrupt banksters and politicians that got the municipality in some shady deal such as Jefferson County.

Municipal bonds have strengthened/gone up in value ever since MW made her call.  THESE ARE THE FACTS.


Doubleguns's picture

Back to school spending by munis to be subdued this summer. Less teachers etc....

Sudden Debt's picture

The trade deficit is likely to narrow to $48bn in May from $50.1bn in April

That should be good for a 500 point rise on the DOW...


SheepDog-One's picture

While the DOW will still be crying for more QE.

Yellowhoard's picture

Muni, muni, muni, muni, muni, muni come on come on come on muni, muni, muni, muni, muni, muni, I said yeah, yeah, yeah, yeah, yeah, yeah

youngman's picture

I am waitng for the Obama crisis response of some bailout monies...what was the last thing....US Bonds......these will be Union bonds...I agree though...the first to file gets the best deal...

overmedicatedundersexed's picture

one item which is not listed for the cliff of economic death: wealth confiscation. BK gov of all sizes must raise taxes, the gov or tax exempt growth of the last 4 years only shrunk the tax base everywhere.. so for business owners they know the bulls eye is even more focused on them..hiding wealth from the new taxes is becoming job one.

I maintain it was not tariffs that worsened the depression but the fear of wealth confiscation that caused more economic weakness in the depression now and then. obuma care is just a means to confiscate more, in MD the taxes are raised on over $100,000 tax units and a new Flush tax for septic tank owners to name 2.

1000pips's picture

States defaulting will be the next leg down.  Tax revenue cannot fund the massive infrastructure cost, pension plans and welfare cost that US states are obligated to provide.  In essance, IL, CA, FL, RI, NY, MS, AL, MI and more are bankrupt NOW.  This ponzi sceme called 'the United States of america' has run out of scams to keep the illusion of 'solvency' intact.  

Next stop-Civil Unrest-and then Military occupation.  

When those ETB cards don't work and the welfare citizens can't afford cable on their 50 inch HD Plasma TV's in thier section 8 housing-that is when the SHF.  

Get you ammo making equipment now-probably the best investment there is--other than Gold.


cossack55's picture

As we learned a few years ago, all ammo production depends on primer production.  Reloaders are on the bottom of the primer distribution list.  You would be correct if you encourage everyone to buy primers now, shared/resiliant use of reloading equipment is essential. 

1000pips's picture

Just looked quickly at a few primer websites, they are all-almost sold out completly...that tells us all we need to know.

see how to recycle fired primers below.


Sudden Debt's picture

The fairness taxes will solve it all...


death_to_fed_tyranny's picture

The whole fucking world is bankrupt! Corruption Runs Rampant. The Rule of Law is not enforced. The USA has a fourth branch of government. It is WE THE PEOPLE. Time is getting close for the 3 percenters. Someone has to end this defacto clusterfuck!

mainuh1's picture


"We" will end up enforcing the constitution with force of arms against banksters, Wall St and CONgress. It is clear there will be no change in November as both presidential candidates will rob us blind.

SheepDog-One's picture

Yes talking and analysis obviously will not accomplish a thing, they laugh at riots even...obviously time to send hands attached to WH cufflinks to the media press release style.

midgetrannyporn's picture

Clap my hands and jump with glee, I got a clean bill of health from the CFTC. BWA AH AH!

SheepDog-One's picture

Markets near all-time highs CRYING for 'QE NEW'....yet will not allow even a 1% drop to stay before next pre market open.

mayhem's picture

It is hard to imagine any rally holding during earnings. Who wants to buy right now??

SheepDog-One's picture

No I wouldnt touch a market buy with a 10 foot pole myself....then again youd be crazy not to buy because obviously theyve got a death grip on the 'pump markets' throttle and will not allow any market drop to stick even for an overnite.

mayhem's picture

I think Biderman is right about no QE til 15% drop but that won't stop the neverending articles claiming QE is coming. QE 2013 is priced in already lol.

SheepDog-One's picture

Biderman is wrong, he'll never see markets just slide an easy 15%, one morning futures will be down 40% though, trading and accounts frozen till further notice, wiping the muppets out completely.

q99x2's picture

Stable range-boundedness outside of which the cracks begin.

Broomer's picture

"If anyone still actually cares, or trades, we just saw the third California muni bankruptcy in two weeks"

After the tenth bankruptcy this will be relegated to the newsbar only.

SheepDog-One's picture

Well you know how they'll spin it of course, 'This week we only had 9 cities declare bankruptcy while experts predicted 10'... 'good news' of course and DOW rises another +200.

RSloane's picture

The sad thing is you are absolutely right.

eigenvalue's picture

Spanish 2 year nominal yields just hit all time lows of -0.37%???

Mark Carney's picture

LOL, I was like WHAT?


Slow morning, then realized duh...Siwss typo.

sudzee's picture

Three of the top 10 states in which to do business just happen to include Utah, N. Carolina and Georgia. What do they have in common? Utah has passed "gold as legal tender" legislation. N, Carolina and Georgia are studdying legislation along with Minn., S. Carolina and Idaho.  

Meesohaawnee's picture

IL cant be on the list. no way hose.. We just handed out 220 million in tax breaks to dead man walkin sears and the CME. Oh and were gonna give the banker that owns the cubs 150 mil in renovations to the dump on the north side. Were not broke. you guys are wrong. <sarc>

Meesohaawnee's picture

i think i need some coffee. ..jose

mayhem's picture

i picked the wrong week to give up coffee