Asia has badly lagged U.S. and European stock markets this year and over the past 12 months. We explain why it's happened and why it may continue.
New highs will become a daily headline feature it seems until we actually have a down day.
Thursday, Jobless Claims fell (340K vs 347K previous), Productivity (-1.9% vs -2% previous) and Costs (4.6% vs 4.5% previous) were very poor reports, and the Trade Deficit grew (-$44.45B vs -$38B). Lastly, Consumer Credit expanded to $16.2 billion from $14.6 billion primarily on student loans (in a bubble) and auto loans (subprime auto loans booming).
And the Stock Rally Is Due to Money-Printing
Checkmate, Fed. You’re spending over $100 million per day to create a grand illusion. Stocks are hitting new all time highs, but none of us are any richer for it.
Despite the improvements in equity markets, Credit Suisse's global risk appetite indices are flashing warning signals. Their equity risk model points to weakness (most notably - Emerging Market underperformance relative to Developed Markets) and their credit risk appetite model maintains its 'sell' signal (which is what we are seeing in the broad credit markets). Finally, their bond risk model suggests a confirming signal getting long US duration.
Unlike the session before, there has been little actionable news overnight, with the euphoria from the record high DJIA still translating into a buying panic, and forcing algos to buy futures because other algos are buying futures, and so on, simply because nothing says cheap like all time high prices (and forward multiples that are higher than 2007 levels). The one event so far was the Europe's second Q4 GDP estimate which came in as expected at -0.6%, the fifth consecutive decline in a row. More notable was that Q4 exports tumbled by 0.9% which was the biggest fall since Q1 2009. And while the news has served to keep the EURUSD in line and subdued ahead of tomorrow's ECB conference, the stock market buying panic has moved to European stocks which continue to ignore fundamentals, and are soaring, taking peripheral bond yields lower with them, despite ongoing lack of any clarity what happens in Italy as Bersani is ready to propose a government to parliament which is certain not to pass. But in a world in which fundamentals and reality have lost all significance, and in which only momentum and hope matter, we expect that risk will continue being bid in line with central bank balance sheet expansion until this tired 4 year old last recourse plan no longer works.
After exposing the stock market manipulative arsenal that is High Frequency Trading, quote stuffing, flash trading, packet churning, layering, sub-pennying, liquidity, latency and dark pool arbitrage, NBBO and Reg NMS exemptions, "hide-not-sliding", collocation, and much, much more for four years, or so long even Credit Suisse joined the chorus we started in April of 2009, we are glad to learn that finally, with a ridiculous Rip Van Winklesian delay, but better late than never, "the FBI has teamed up with securities regulators to tackle the potential threat of market manipulation posed by new computer trading methods that have taken operations beyond the scope of traditional policing." In other words, the SEC has finally realized it can no longer pretend it is not co-opted, but because it has no clue where to even start with HFT, has asked the help of the Feds. Which in itself is hardly reason for optimism, but if there is one thing Hans Gruber has taught us, it is that when the Feds get involved, the first thing they do is cut the power, and in this algo-based market that will end some 99% of all daily manipulative practices we have all grown to love and look forward to every single day.
- As ZH has been saying for months... Draghi Will Need to Push the Euro Down Some More (WSJ) ... but careful with "redenomination risk"
- Senate Report Said to Fault JPMorgan (NYT)
- EU Opens Way for Easier Budgets After Backlash (BBG)
- China Moves to Temper Growth - Property Bubble Is a Key Concern (WSJ)
- China bets on consumer-led growth to cure social ills (Reuters)
- Italian president mulls new technocrat government (Reuters)
- Grillo says MPS won't back technocrats (ANSA)
- The Russians will be angry: Euro Chiefs Won’t Rule Out Cyprus Depositor Losses (BBG)
- China Bankers Earn Less Than New York Peers as Pay Dives (BBG)
- Investors click out of Apple into Google (FT)
- Community colleges' cash crunch threatens Obama's retraining plan (Reuters)
- Alwaleed challenges Forbes over his billions - Calculation of $20bn net worth is flawed, says Saudi prince (FT)
- Guy Hands Dips Into Own Pockets to Fund Bonuses at Terra Firma (BBG)
- North Korea to scrap armistice if South and U.S. continue drills (Reuters)
As investors (and the risk asset markets they inhabit) have recovered from their deep trough of panic, Credit Suisse believes the recovery has followed a somewhat predictable pattern back to euphoria. The trouble is, based on the last 3 'panic' scenarios of 1982, 2002, and 2008, the current wall-of-worry has been scaled to now euphoric levels, and the equity market looks to be at an important inflection point.
Gold is trading flat today near a one and a half week high hit yesterday as Federal Reserve Chairman Ben Bernanke defended the U.S. ultra loose monetary policy.
The selloff in gold ETFs in February underscores the weakness in gold sentiment among retail investors that has been prominent recently.
This week's events show that the Chinese government realises that its stimulus efforts have got out of hand and its economy is in trouble.
Think Americans are the only people in the world toiling under a gargantuan debtload, which at last check was a massive $55.3 trillion, or about $175K per person? Think again. Meet Sherry Sheng, a 29-year-old Shanghai policewoman, who bought herself a 4,000 yuan ($642) black fur jacket, splurging for the last time before she starts paying off the mortgage on her first home.
Sherry is what is known as a Chinese "housing slave."
- Office Depot Agrees to Buy Officemax for $13.50/Shr in Stock
- Bulgarian Government Resigns Amid Protests (WSJ)
- Rome will burn, regardless of Italian election result (Reuters)
- Abe Says No Need for Foreign Bond Buys Under New BOJ Chief (BBG)
- Rhetoric Turns Harsh as Budget Cuts Loom (WSJ)
- Muddy Waters Secret China Weapon Is on SEC Website (BBG)
- Business Loans Flood the Market (WSJ)
- Staples May Be Winner in Office Depot-OfficeMax Merger (BBG)
- Fortescue Won't Pay Dividend, Profit Falls (WSJ)
- Key Euribor rate on hold after rate cut talk tempered (Reuters)
- FBI Probes Trading in Heinz Options (WSJ)
- Spain Said to Impose Yield Ceiling on Bond Sales by Regions (BBG)
- BOK’s Kim Signals No Rate Cut Needed Now as Outlook Improves (BBG)
Volume was nothing to cheer about after a long weekend, but it seemed the forced buy-ins and stop-runs remain as stocks pushed on to new highs even as the USD ended unchanged from Friday's close and Treasury yields up 2-3bps. A 1.2% rally in S&P futures from Friday's lows as Copper and Silver were slammed lower (former on China 'tightening' and latter on equity short-covering margin unwinds we suspect). In general risk-assets were not playing along with stocks' exuberance but as the after noon played on and stocks saw at most a 1 pt reversal, so bonds pushed higher in yields - recoupling risk and stocks towards the close. VIX led the way - testing Friday's decoupled lows around 12.08%. Credit markets remain underperformers but tracked stocks higher on the day. Oil prices - seemingly the only thing that could potentially foil the current rally - pushed around 1% higher from Friday's close, as Gold fell back modestly to $1605. AAPL ended the day unch - with a huge volume spike at the close, as homebuilders suffered post-NAHB. VIX closed at its lowest since April 2007; S&P 500 futures had their biggest open-to-close rise of the year.