While Janet Yellen and her band of money printers work themselves into a tizzy over whether two buzz words - “considerable time” - should be dropped from their post-meeting word cloud, they might be better advised to just read the newspapers. This morning’s WSJ brings word that the lending boom which our monetary central planners are eager to stimulate is apparently off-to-the-races. Well, sort of. The item in question is a $122 billion globally syndicated loan to facilitate an M&A deal between the world’s two largest beer companies - AB InBev with a 20% global market share and SABMiller with 10%.
"So much for the ‘mini-stimulus’. The data on China’s economic performance in August released over the weekend were dismal, showing a significant and unexpected decline in growth. The boost from the government’s suite of supportive policies was always going to be temporary, but renewed weakness is appearing much sooner than expected. We had previously thought that policy could keep growth stable for a couple of quarters (see Fears For China’s Growth Postponed), but it only really worked for two months (May and June). So it looks as if the government has already lost its bet that it could keep GDP growth near its 7.5% target with only minimal intervention. With China transitioning out of its high investment phase, growth is on a downward trajectory. To alter that trajectory would require large scale monetary easing, but the government does not yet look inclined to support such a big shift in strategy. All of which points to more of the same: modest policy support and weaker growth."
It appears today's weakness in stocks (most notably high-beta momo) and bonds (HY credit weakness) was triggered by two "ma"s - grandma Yellen and grand-poohbah BABA's Ma. Hawkish FOMC concerns took the shine off HY credit (and stocks) but Treasury bonds rallied modestly (5Y -3bps, 10Y -2bps). However, high-beta momo stocks dragged Nasdaq and Russell lower as 'smart money' proclaimed this was making room for the Alibaba IPO (which raises the question - if there is so much pent-up demand money on the sidelines just dying to be lost in the stock market, then why were so many high-beta, high-growth, momo names being sold today, theoretically in order to make room for the BABA IPO?) The USDollar ended marginally higher (GBP weakness, EUR strength) but most commodities gained on the day (Copper down on China) with WTI back to $93. Stocks did have a mini-melt-up on absolutely no news whatsoever into the last hour but gave most back. The Russell 2000 is -0.5% in 2014.
A look at new arguments suggesting that globalization is fragmenting. Are they really new? Are they true?
Yuanification continues around the world. As The USA attempts to corral its allies in a 'broad coalition', an increasing number of people - including domestic economic policy advisors - are shifting away from the USD as primary reserve currency. However, the move by British Chancellor of the Exchequer George Osborne, announced Friday, is likely the most notable yet in the world's de-dollarization. As Xinhua reports, the British government intend to be the first nation (ex-China) to issue Renminbi denominated bond and to use the proceeds to finance the government's reserves of foreign currency. Osborne described this dialogue outcome as "a historic moment" and a statement of British confidence in the potential of the RMB to become "the main global reserves currency".
Even the most avid Bulls should grasp that market corrections of 10% to 20% are statistical features of all markets. Cranking markets full of financial cocaine so they never correct simply sets up the crash-and-burn destruction of the addict.
But but but... the survey all said record highs... Yet another piece of hard data hits the tape and disappoints. While Fed surveys point to an exuberant economy, Industrial Production fell 0.1% in August (missing +0.28% expectations) for its worst print since January's "weather"-related plunge. This comes on the heels of Chinese Industrial Production at its worst in 6 years... perhaps explaining why global GDP expectations continue to test cycle lows. US Capacity Utilization also dropped to 78.8% (lowest since Feb) and the weakness was all Manufacturing driven as production slumped 0.4% MoM - its worst since Jan. So who you gonna believe? Soft surveys? or Hard data?
- Snow is coming: OECD Cuts Economic Growth Forecasts (WSJ)
- World waits for white smoke from U.S. Fed (Reuters) - Understandable error: they meant "green"
- Scots Breakaway at 45% Odds as Economists Warn of Capital Flight (BBG)
- Ukraine President Poroshenko Faces Backlash Over EU Trade Deal Delay (WSJ)
- German Anti-Euro Party Advances in Merkel Homeland Voting (BBG)
- Clinton Hints at 2016 Run as Super-PAC Packs Iowa Steak Fry (BBG)
- Air France, Lufthansa Hit by Strikes in Fight for Future (BBG)
- U.S. sees Middle East help fighting IS, Britain cautious after beheading (Reuters)
- Ex-Billionaire Charged by Brazil With Financial Crimes (BBG)
What is the biggest risk for investors in China's e-commerce giant Alibaba? In one word: politics.
While USDJPY is not moving much, no clear news from Scotland (GBP is modestly weaker) and an opposition win in Sweden (Krone weaker) along with China's dismal data (and Securities Journal note that no rate cut is coming anytime soon from the PBOC) sparked some significant selling in US stock futures at the open (-13 points). Treasury futures are modestly higher as S&P future are stabilizing around -7 points for now extending losses from Friday as AUDJPY slides...
As the old saying goes - If you can't beat them, join them.
Former BP CEO Warns "Sanctions Will Bite West" As US Gives Majors 14 Days To Wind Down Russian ActivitiesSubmitted by Tyler Durden on 09/14/2014 16:04 -0400
while sanctions until this moment had been largely intended to specifically allow energy companies to continue their status quo in Russia, as of this Friday, it is precisely the E&Ps that are being targeted, as we noted on Friday, and as Reuters follows up today, reporting that some of the world's largest companies, namely Exxon, Anglo-Dutch Royal Dutch Shell, Norway's Statoil and Italian ENI, will have to be put their Russian projects on hold: to wit, the companies will have 14 days to wind-down activities. And yet Russia may once again have the last laugh: enter Tony Hayward, the infamous former CEO of BP (and current Chairman of Glencore) who may have been disgraced by his handling of the Macondo spill but his comments on how the Russian sanctions will play out, are spot on. As the FT reported moments ago, "US and EU sanctions against Moscow are in danger of turning round and biting the west by constraining global oil supply and pushing up prices in coming years, the former chief executive of BP has warned."
"Low Volatility Everywhere" - BIS Sounds Alarm Alert On Pervasive Complacency Masking Systemic ShocksSubmitted by Tyler Durden on 09/14/2014 12:14 -0400
"After the spell of volatility in early August, the search for yield – a dominant theme in financial markets since mid-2012 – returned in full force. Volatility fell back to exceptional lows across virtually all asset classes, and risk premia remained compressed. By fostering risk-taking and the search for yield, accommodative monetary policies thus continued to support elevated asset price valuations and exceptionally subdued volatility."
Forget the noise... it's time to back up the truck.
China may need to expand its goalseek template to include the other far more important measure of Chinese economic activity, such as Industrial production, retail sales, fixed investment, and even more importantly - such key output indicators as Cement, Steel and Electricity, because based on numbers released overnight, the Q2 Chinese recovery is now history (as the credit impulse of the most recent PBOC generosity has faded, something we have discussed in the past), and the economy has ground to the biggest crawl it has experienced since the Lehman crash. What's worse, and what we predicted would happen when we observed the collapse in Chinese commodity prices ten days ago, capex, i.e. fixed investment, grew at the slowest pace in the 21st century: the number of 16.5% was the lowest since 2001, and suggests that the commodity deflation problem is only going to get worse from here.