"The slump in the recent ISM data may be the ?straw in the wind? of what is to come. Certainly the three-month change of the leading indicator has now turned down sharply ? even before the recent ISM data has been incorporated. We watch the unfolding EM crisis with increasing trepidation because we know how this story ends. We have been here before. And even if the Fed resumes massive QE at some point as the world melts down, and markets desperately attempt their return to the dream trance, they will instead find themselves locked into a Freddie Kruger-like nightmare in which phase 3 of this secular bear market takes equity valuations down to levels not seen for a generation." - Albert Edwards
Yesterday we reported a warning by BNP that "The Run On Ukrainian Deposits May Have Already Started." Obviously, while the real implications for the country's financial system should a full-blown bank run emerge would be dire , they would take some time to manifest themselves, especially since as Interfax reported, the country's central bank still has $17.8 billion in reserves as of today (if sliding at an alarming pace). To be expected, overnight the same central bank reiterated its support for the currency, knowing that the last thing it can afford is an evaporation in confidence. However, judging by the surge in Ukraine CDS ealier today, which soared by 89bps to 1,089bps today, highest since Dec. 10 on closing basis, i.e., before the Russian bailout (which may or may not be concluded), investors are hardly convinced by the local developments. And the final confirmation that very soon it will be all up to a Russian bailout to fix the situation, was news from minutes ago that the Ukraine just had a failed bond auction. Then again, Russia itself had a failed bond auction just days ago, so perhaps it has bigger fish to fry than pre-funding the Ukraine rescue package.
While the stock market ramp on the disappointing ECB press conference can be, somewhat, explained and was to be expected by the central bank-addicted market's renewed focus that since the ECB did nothing, it is now the BOJ's turn to ramp up Quantitative Easing - a thesis which has been floating since November, and at one point resulted in 700 pips of "priced in" USDJPY upside - one group of investors is having a bad day: all those short Green Mountain Coffee shares, which as we pointed out last night exploded to 52 week highs in the aftermath of the Coke minority investment announcement. This is today's maximum pain trade.
Once the mafia state of mind has seeped into every nook and cranny of the society and economy, it's not even recognized as corruption: it's simply the way the system works. And so the residents of nominal democracies in Asia, Europe and the Americas do not even realize how thoroughly corrupted their societies and economies really are; they cling to the illusions of choice even as their incomes, wealth and political influence are funneled into the hands of various elites by overlapping extortion rackets.
"Remember that Adolf Hitler used the same methods when he rose to power," opposition leader Hasan Oren blasts as Turkish PM Erdogan as the Turkish parliament has approved a bill that would tighten government controls over the internet. As The BBC reports, the new law allows the government to block websites without first seeking a court ruling. "Now you are implementing fascism," Oren goes on, despite promises of "enhancing democracy in Turkey" when Erdogan was elected. The Erdogan government had already restricted access to "the scourge of Twitter" and Facebook's "menace to society," but this latest step dismisses any legal limits or restrictions.
Moments ago, the Senate Banking Committee started a hearing on the topic of "Financial Stability And Data Security." We assume the topic discussed will be financial stability, the highly diluted final version of the Volcker Rule, Dodd Drank, the London Whale, and other things legislators have no understanding of. As such it will be a complete waste of time, and the only thing that can possibly force anyone to fix the broken system is the next systemic crash, one which the central banks, already all in with their bailout efforts, will be unable to resolve.
Draghi did nothing; data provided no impetus; and earnings have destroyed many "narratives". So why are stocks soaring? Simple: in lieu of the ECB actually doing anything, it appears that the head of the ECB just announced the BOJ is launching more QE.
As the Fed continues to extract liquidity from the financial markets, it is likely that we will continue to see increased volatility in the markets. However, despite the ever bullish calls by the mainstream analysts, the current market rout has awoken many overly complacent, excessively bullish, investors. The 5-panel chart below really tells you all you need to know about the current market environment. We are overbought, over extended and exceedingly bullish. The combination of these metrics has a history of bad outcomes. Unfortunately, because these measures are generally overrun in the short term by price momentum and sentiment, they are disregarded as "this time is different."
Here come the downward revisions to the "strong" initial Q4 GDP print. Moments ago the December trade deficit was released, and it soared from the impressive November deficit print of $34.6 billion to a far less impressive $38.7 billion, far above the $36.0 billion expected, and an indication that, as we warned, the Q4 GDP revisions are imminent (unless of course inventory numbers rise even more to offset the weakness). As the BEA simply explains, "The deficit increased... as exports decreased and imports increased." Indeed.
While rate cuts were hoped for but not expected, the key to Draghi's jawboning or future easing efforts was hopes that the recent failed sterlizations of their SMP program (i.e. as close to outright money printing as they can get within the treaty as it stands) were supporting Europe. That was until:
DRAGHI SAYS STOPPING SMP STERILIZATION WAS NOT DISCUSSED
DAX is re-tumbling, EURUSD is soaring, and US Stocks have crumbled 10 points to overnight lows. It seems everyone wanted some intervention... and for now Draghi has disappointed.
Initial jobless claims fell 20k from a previously revised up 351k (the highest in a month) and hovers at the the average level of the last eight months as the downward trend in this apparently key indicator has broken. The BLS cites nothing unusual in this report aside from Kansas estimated its numbers (so we have no real way of deciphering signal from noise once again). Continung claims rose a modest 15k seasonally-adjusted (and less modest 44k non-adjusted) as emergency benefits remains at 0.
So far, no good. No rate cut (and thus no negative rates); no unsterilized QE; no new LTRO; and no new Italian handouts... With his monetary nightmare growing darker every day, we are sure the man himself will manage to jawbone forward guidance even more forward-er and keep the dream alive that he'll do whatever it takes when it really matters... Get back to work Mr. Draghi
What better way to assure your company has an earnings bomb? Have Jim Cramer tout it before earnings of course. Sure enough from January 28: "GM sales are going to be superb", and "Europe's coming back." Fast forward to today when GM reports Q4 revenues of $40.5 billion which missed expectations of $40.9 billion, and EPS of $0.67 vs the $0.87 expected. Additionally, GM's global market share just dropped to 11.4% - matching the lowest in the past year. So much for the superb sales. As for Europe? Well, as the chart below shows, Europe just posted its weakest quarter in the past year. And don't count on much growth either: CapEx was down to $7.5 billion in 2013, from $8.1 billion in 2012, even as the company's total free cash flow declined from $4.3 billion last year to just $3.7 billion.
No sooner had the ECB statement been released with its disappointing lack of unsterlizied QE or negative rate promises than European stocks mini-flash-crashed. Most notable was Germany's DAX which collapsed over 200 points only and was promptly halted in the futures markets. Only to magically re-appear after the halt almost unchanged...
For once, the vast majority of economists was correct, with 62 of 66 predicting accurately what the ECB would do today: nothing. At least so far - moments ago Mario Draghi's central bank just announced no cuts across all three major rates.