Last month was all ponies and unicorns as hope was extrapolated that a 19-month high in the Dallas Fed meant this time was different and not entirely cyclical as we have pointed out again and again. Once again it seems the government-budget-based hope has collapsed as even optimism for the future dropped to its lowest in 4 months. This is the biggest miss of expectations on six months and the lowest print in 5 months. Reflecting the margin pressures that we discussed previously, prices received dropped dramatically as price paid soared.
"There's no alternative in making monetary policy but to communicate as clearly as possible, and that's what we tried to do," is how Bernanke defended the Fed's actions over the last six months. But, as the WSJ's Jon Hilsenrath rather snarkily explains, the Fed's 'communications strategy' was a stumbling effort to let the public know what was going on as their efforts to telegraph strategy left investors confused at key points about where it was heading, and some misread Mr. Bernanke's intentions about the bond-buying program and interest rates.
At 12.8, the Dallas Fed manufacturing survey printed at its highest since Feb 2012 - handily beating the 5.6 expectation. Driven by a surge in production and Capacity Utilization, the headline - as they all seem to do - shows some worrying sub-index movements. New Orders expanded at a slower pace for the 3rd month in a row, volume of shipments fell to a 4 month low, and employment-related indices were all weak (wages fell, number of employees fell, and average workweek fell). Even the outlook (six months ahead) fell back from last month's level.
11 of the 15 sub-indices for the Dallas Fed manufacturing outlook fell month-over-month with new orders, production, and finished goods notably weak. Of course, the modest headline beat will be all we hear about as the US economy makes 'progress'; but under the surface there is an even more concerning factor. While the number of employees rose modestly, the average employee workweek collapsed at its fastest pace in 2 years (and the last 2 months have dropped the most in 3 years) as it seems the Obamacare-effect smashes the workweek back to its lowest since October 2009.
A quiet week to send off August ahead of a deluge of key data next week and as the fateful Septembr 18 FOMC announcement approaches. Still, quite a few macro events to keep track of.
When “QE Infinity” Turns Into A Pipedream: Hot Money Evaporates, Rout Follows – See Emerging MarketsSubmitted by testosteronepit on 08/21/2013 12:27 -0400
The Fed and other central banks have accomplished a huge feat: a worldwide tsunami of hot money. Which is now receding.
France is the odd duck on the Continent. It is neither a petulant member of the Southern European financial disasters nor a member of the Northern European banner of austerity nations. France, as we discussed here and here, is the swing country in Europe. It waives about with the wind depending upon the subject. The bonds of France trade just behind those of Germany. While we are sure the portfolio managers on the Continent require diversification. Where the market is pricing French bonds now may turn out to be a rather serious mistake in judgment.
The good, if fake, Chinese "data" releases continued for a second day in row, dominating the overnight headlines with a barrage that included CPI, PPI, retail sales, industrial production, fixed investment, money growth, car sales, and much more (summary recap below). Needless to say, all the data was just "good enough" or better than expected. Yet judging by both the Chinese market (which is barely up, following the drop on yesterday's "surge" in made up trade data) and the US futures, not even algos are dumb enough to fall for the goalseek function in China_economy.xls. Either that, or traders are taking the "rebound" in the Chinese economy as a further indication that the Taper (which will take place in September), will take place in September. And since global risk sentiment continues to be driven by the USDJPY, the Yen pushing to overnight highs is not helping the "China is bullish" narrative.
Evans, who is one of twelve Federal Reserve Presidents, believes that the economic indicators “are actually really better” and this signals a new, more firmer indication from the Fed that tapering is going to happen.
If the Fed drop the ball and move too quickly they could endanger the fragile economic recovery, on the other hand if they move too slowly they could stoke inflation in the near term.
Dallas Fed's Fisher: "We Own A Significant Slice Of Critical Markets. This Is Something Of A Gordian Knot"Submitted by Tyler Durden on 08/05/2013 11:56 -0400
"This is a delicate moment. The Fed has created a monetary Gordian Knot. Whereas before, our portfolio consisted primarily of instantly tradable short-term Treasury paper, now we hold almost none; our portfolio consists primarily of longer-term Treasuries and MBS. Without delving into the various details and adjustments that could be made (such as considerations of assets readily available for purchase by the Fed), we now hold roughly 20 percent of the stock and continue to buy more than 25 percent of the gross issuance of Treasury notes and bonds. Further, we hold more than 25 percent of MBS outstanding and continue to take down more than 30 percent of gross new MBS issuance. Also, our current rate of MBS purchases far outpaces the net monthly supply of MBS. The point is: We own a significant slice of these critical markets. This is, indeed, something of a Gordian Knot."
"Financial markets may have become too acustomed to what some have depicted as a Fed put," Dallas Fed's Fisher warns, causing "serious misallocations of capital."
- *FED'S FISHER SAYS U.S. INVESTORS CAN'T RELY ON A FED 'PUT'
- *FED'S FISHER RECOMMENDS TAPERING STARTING 'THIS FALL'
- *FISHER: FED MUST AVOID 'MARKET HAVOC' IN BOND-PURCHASE TAPERING
Once again, the non-voting 'feral hog' caller is a voice of some reason amid the calls for moar...
Compared to last week's macro-event juggernaut, this week will be an absolute bore, although with a bevy of Fed speakers on deck - both good and bad cops - there will be more than enough catalysts to preserve the "upward channel" scramble in the S&P and the zero volume levitation to new all time daily highs despite the lack of daily bad news. Speaking of Fed speakers, we have Fisher today, Evans’ tomorrow followed by both Plosser and Pianalto on Wednesday. The key overnight data point was the continuation of July PMIs out of Europe, this time focusing on the service industry. As Goldman summarizes, the Final Euro area Composite PMI for July came in at 50.5, marginally above the Flash reading and consensus expectations (50.4). Relative to the June final reading, this was a sold 1.8pt increase, and building on consecutive increases in the past three months, the July Euro area PMI stands 4.0pts above the March print. Solid increases were observed across all of the EMU4 in July, most notably Italy. The July reading is the highest Euro area PMI level observed since July 2011.
Last week: “A culture of dangerous greed and excessive risk-taking has taken root in the banking world.” Now: a quixotic moment for those senators from both sides of the aisle
Ben Bernanke blames fiscal policies out of Washington. However, it is starting to look more and more like Fed policy is equally to blame for the lackluster U.S. GDP growth.