Today, by yet another Obama executive order [19], overworked Federal workers get a day off. "All executive branch departments and agencies of the Federal Government shall be closed and their employees excused from duty on Friday, December 26, 2014, the day after Christmas Day,” the order says. Exceptions may be made “for reasons of national security, defense, or other public need." Which means that the US crack anti-hacker teams will be busy working all day, because weeks after the infamous Sony "hack" led to a surge in the popularity of and revenue from a badly made, C-grade movie, yesterday both the Xbox and Playstation (which is also owned by Sony) networks were taken offline with hackers once again taking credit [20]. One would think in the aftermath of its shocking hack, Sony would take measures to prevent such events from occurring, but apparently not: perhaps it is everyone's patriotic duty to buy a Playstation next so the evil "hacking terrorists" don't win?
One group of Federal workers that is definitely not taking the day off, is the trading desk located on the 9th floor of the New York Fed [21], responsible for such things as preserving the "fair" value of the bond and the stock market and avoiding any sharp downward moves. Because if there is one thing on the "national security" agenda that must be avoided at all costs, it is a drop in the S&P in today's trading session - after all now is when the official Santa rally begins and judging by the futures, which after a steep selloff in the last minute of trading on Wednesday have restored all their losses and then some, we may finally hit Goldman's year end target of 2100... for 2015.
Said Federal workers were aided overnight by the latest easing out of China where as reported yesterday [22], the PBOC lowered the non-bank deposit reserve rate to zero (making China just the latest country to join the rank of fractional unreserved banking). And while Asia, which did not celebrate the day off, was largely flat, the Shanghai stock exchange soared for the second day in a row on the back of hope that even more easing policy is on deck, surging 2.77%, or 85.06 points, to 3,157.60. The close marked the highest since November 8, 2010 when the Shanghai index ended at 3,159.51 points.
Meanwhile, last night in Japan, the government reported an onslaught of economic data that was absolutely abysmal.
First, the nation's industrial output suffered a surprise drop in November, turning down after two months of rises. Industrial production declined 0.6% mom in November, contrary to market consensus for growth in production. This also represented a significant undershoot versus the production outlook released last month for an increase of 2.3%. Manufacturer shipments were -1.4% mom, the first contraction in three months. As a result, the inventory ratio rose 4.0% mom. The government maintained its assessment that production fluctuates directionlessly.
[23]
Then there was Japanese consumer inflation which continued to slow in November, dealing another challenge to Tokyo and the Japanese central bank's battle to conquer years of deflation. November national core CPI slowed to +0.7% yoy (excl. VAT impact). The November core national CPI came in at +2.7% yoy, slowing by 0.2 pp from +2.9% in October, in line with our expectations. Factoring out the Bank of Japan’s calculation of a +2.0 pp boost from the consumption tax hike, the core national CPI works out to +0.7%. The November headline CPI came in at +2.4% yoy (+0.3% excluding the tax hike impact), slowing by 0.5 pp from +2.9% (+0.8%) in October. The core core CPI, excluding food and energy, was +2.1% yoy in November (+0.4% excluding the tax hike impact), a slowdown of 0.1 pp from October. The main contributor to the slowdown in the headline CPI was energy prices (gasoline, etc.), but accommodation and home leisure & learning products (TVs, etc.) also contributed to the slowdown, among others.
[24]
Then there was the Japanese consumer who clearly needs even moar Krugman, if only to accelerate the demise: real consumer spending dropped 2.5% yoy in November. While this was less than the 4.0% fall in October, this still marked the eighth straight month that real consumer spending has dropped yoy since the consumption tax hike. Real consumer spending on housing continued to slump, by -20.3% yoy, dragging overall spending by -1.42%, chiefly on a slide in repair/maintenance-related items. Utilities also declined -5.7% yoy, pushing down overall spending by -0.43pp. Among utility spending, those on electricity declined -7.2% yoy. Furniture/household goods fell 4.5% (contribution: -0.16%) on an ongoing decline in spending on household durables such as air conditioners. Spending on culture/leisure declined -2.0% yoy (contribution: -0.20% points).
Real disposable income of workers’ households in November slid 3.9% yoy, declining further from a -2.4% yoy decline in October. On a seasonally adjusted basis, real disposable income came in at -1.3% (October: +3.1%). The continuous yoy decline in real income and its instability is restraining household spending.
[25]
Finally, there was the one issue that is at the crux of the entire failed Keynesian dogma: nominal and real wages. We will have more to say about this, but in a nutshell, total cash wages and overtime pay decline yoy for the first time in 9 months and 20 months, respectively. More impotantly, real wages (nominal wages less the CPI inflation) came in at -4.3% yoy (October: -3.0%), as the extent of the decline widened in step with the fall in nominal wages. This was the largest decline since the 4.8% recorded in December 1998. That's right: Abenomics is now responsible for the biggest drop in Japanese wages on record.
So how did all this economic devastation impact the Nikkei? It was up by 10 points, or 0.06%, to 17,818, of course.
In energy markets, oil prices rose modestly as dealers reacted to a surprise Islamist attack on Libya's main oil terminals that left 22 soldiers dead. [26] Since fresh clashes between government forces and the jihadists erupted on December 13, Libya's oil production has dropped to nearly 350,000 barrels per day compared with 800,000 previously, according to industry experts. Production in Libya, a member of the Opec oil-producing cartel, has only just started to rise following a prolonged disruption due to civil unrest.
Summarizing it all, here is Bloomberg's overnight headline summary:
- Treasuries head for second straight weekly loss amid stronger-than-forecast eco data, 2014’s last coupon auctions; trading likely to be slow today with London closed, New Year’s holiday next week.
- Saudi Arabia’s 2015 budget is probably assuming an oil price of $80/bbl and will be seen as a sign of confidence in the market, according to a former economic adviser to the country’s government
- Japan’s inflation slowed for a fourth month in November, and industrial production and retail sales unexpectedly dropped, pointing to further weakness in an economy Prime Minister Abe is trying to revive from recession
- China’s benchmark money-market rate dropped the most this week since April after cash locked up to buy new shares returned to the banking system
- Credit Suisse was ordered to face a lawsuit by New York’s attorney general accusing the bank of fraud in sales of MBS before the recession; suit demands as much as $10b in damages
- Envoys to Ukraine peace talks are discussing an exchange of prisoners before the New Year, according to a separatist leader, as Russia criticized the country for having “NATO ambitions”
- Obama drew the short straw in a lawsuit by 25 states seeking to block efforts to loosen immigration restrictions: The judge who will decide the case has previously assailed him in that arena for turning “a blind eye to criminal conduct”
- At least seven New Yorkers have been charged with making threats against police officers since the Dec. 20 killing of two patrolmen shot in their squad car in Brooklyn, a police spokeswoman said
- Hong Kongers who thought Christmas came a day early have returned about half of HK$15m that rained down on a city street from a passing security van
- Sovereign yields mixed. Asian stocks higher; Europe closed. U.S. equity-index futures rise. Brent crude and gold higher, copper little changed
There is nothing on the US economic calendar today, and with virtually nobody actually left trading, perhaps the Fed can just advise what today's S&P 500 closing print will be a few milliseconds after 9:30 am so the algos can get a few billion stuffed quotes in, and so non-vacuum tube based traders can go home early.
