Dallas Fed

Your one stop summary for all the major bullish and bearish events in the past week.

After yesterday's economic data drought, today brings the flood as we get new home sales and Case-Shiller prices, consumer confidence and the Richmond Fed index. We also get a small POMO as part of QE Lite and also two bill and one note auctions, sucking a combined $73 billion in capital out of the market.

Despite frantic efforts to reach an agreement to raise the US debt ceiling, no concrete measures emerged during the weekend, which allied with Moody's downgrade of Greece's sovereign rating by three notches today, promoted risk-aversion in the market. European equities traded under pressure, weighed upon by financials, which in turn provided support to Bunds, whereas the Eurozone peripheral 10-year government bond yield spreads widened across the board. Particular widening was observed in the Belgian/German spread leading up to the bond auctions from Belgium, however the spread narrowed somewhat after they went through successfully. Elsewhere, CHF and JPY emerged as major beneficiaries of the risk-averse trade, whereas commodity-linked currencies traded lower. Moving into the North American open, the economic calendar remains thin, however Chicago Fed National Activity and Dallas Fed Manufacturing reports are scheduled for later in the session. Also, Texas Instruments, and Anadarko Petroleum are among some of the companies reporting their corporate earnings today.

Stocks dumping, dollar at all time lows against a plethora of FX pairs, while gold (and silver) is sticky as superglue and remains just a few dollars away from its all time nominal highs, and just short of $1,600, which we expect will be taken out as soon as the world realizes that the Greek 2 Year spread to Bunds is now over 30% and that Europe is not fixed. Perhaps Bernanke would like to take another stab at that whole "is gold money" question...

With several economic items on the docket, the key event today is the start of Ben Bernanke's Humphrey Hawkins semi-annual report on the monetary policy to Congress (tomorrow an identical one will be delivered to the corrupt, brain dead zombies in the Senate). Look for select key words such as "QE3", "Ponzi", "Catastrophe", "Pray", and, of course, "Get tu da choppa"

The collapse in the manufacturing base continues: the Dallas Fed general business activity index just printed at a whopping -17.5 on expectations of -3.2,  number that was supposed to be a gain from before, and yet another confirmation that Wall Steet is populated by a bunch of illiterate lemmings. From the report: "Perceptions of general business conditions were mixed in June. The general business activity index pushed further negative, falling from –7.4 to –17.5. Twenty-eight percent of respondents said activity weakened this month, the highest share in nine months. However, the company outlook index rose from 3.2 to 7.2, suggesting manufacturers were more optimistic about their firms’ prospects for the near future." Ah, back to consuming hopium. We wonder how many of these manfucturers were optimistic back in Q1 when the the index was printing in the 20 range only to see a near-historic collapse. We are now certain the ISM will pring sub-50, with a print as low as 46 most certainly possibly.

• Uncertainty persisted over the outcome of Greece’s 5-Year austerity package vote in the Parliament on Wednesday as lawmakers continued to switch sides
• French Finance Minister Lagarde said that the government has a first draft for a deal with French banks on a Greek debt rollover
• According to ING, Fitch could downgrade Italy after Moody’s placed the country’s sovereign rating on watch negative earlier this month
• According to the Bank for International Settlements, global interest rates must rise to avoid high inflation becoming entrenched

European holiday, blank US economic data docket and just two speeches from a few Fed officials today:

• 9:30: Richmond Fed President Jeffrey Lacker on “Manufacturing in the New Southern Economy”. Event will include media Q&A.
• 11:00: POMO buying $4 - $5 billion in bonds due 08/15/2018 - 05/15/2021; $55 billion left in remaining 13 POMOs.
• 19:00: Dallas Fed President Richard Fisher on “Federal Reserve Functions and Economic Update”. Mr. Fisher is a voting member of the FOMC this year.
• The Bank of Japan Policy Board began a two-day meeting last night. The Bank will maintain its bias towards easing, but further measures to provide liquidity -- if any -- will probably be confined to the areas that directly felt the impacts of the earthquake and tsunami.

Absolutely nothing on the US economic docket today means stocks will fluctuate based on liesflow out of Europe, and Greece. Since today's 13th consecutive protest in Athens is expected to commence at around noon, it should be in full swing by the time NYSE circuit breakers are turned off around 2:30 pm EDT.

Analysts expects today's Jobless claims to decline from last week's soon to be upwardly revised 434,000 to 420,000. We believe that there is a risk the number will be worse than expected due to ongoing layoffs in the auto sector as the "Japan" effect refuses to go away. If this does not happen, rain, flooding, drought, snow and UV lamp exposure will be blamed, not necessarily in that order. But not the economy. Never the economy. We also get existing home sales and the Philly Fed index.

ADP, the non-manufacturing ISM, and the first policy speech from the new president of the San Francisco Fed. Also a bunch of other non-dissenting yet hawkish, and extremely hypocritical Fed presidents are speaking elsewhere warning how dangerous the printer's policy is even as they vote for its with every FOMC meeting.

Yesterday it was the Dallas Fed confirming our assumption that the US economy in Q2 has hit stalled speed. Today, it is the Richmond Fed which plunged compared to expectations and the March print of 20, instead dropping to 10, and indicative of a major slowdown in the manufacturing sector. From the index: "In April, the seasonally adjusted composite index of manufacturing activity – our broadest measure of manufacturing – fell ten points to 10 from March’s reading of 20. Among the index’s components, shipments decreased seventeen points to 6, new orders dropped ten points to finish at 10, and the jobs index eased two points to 14....All broad indicators – including shipments, new orders and employment – continued to grow but at a rate below March’s pace. Other indicators were mixed. Fifth District contacts reported that capacity utilization continued to grow more slowly, while backlogs turned slightly negative. Vendor delivery times edged higher and raw materials inventories grew at a somewhat higher rate." Now "Below March's pace" means trending Q2 GDP is now at or below 2%. But that's fine: somehow the economy will really hockeystick in Q3. And if not, there is QE3, 4 and 5. And the kicker, as usual, Prices Paid jumped as Prices Received plunged: which is always bullish for (collapsing) margins. Elsewhere the CON board called 7 Wall Street CEOs w

And following the continuing plunge in new homes for sale reported earlier, we get the second validation of the theory that the Q2 GDP is about to get the rug pulled from underneath it. The April Dallas manufacturing number came precisely at the borderline we expected earlier would mean an outright downgrade of Q2 economic data by Goldman, or 10.5%. Of note: The production index, a key measure of state manufacturing conditions, moved down from 24 to 8, suggesting slower growth in output." We thing the proper word is "plunged." This is as expected considering our long held assumption that the Japanese economic collapse is already impacting the US. In addition to production, other indicators that saw a collapse were volume of shipments, down 10.9 and the average employee workweeks, which tumbled by over 13. But at least Bernanke is getting his hyperinflation wet dream on: average wages increased by 4. Probably the most important index: prices paid, barely budged, printing at 56.6 compared to 57.2 last month. We are confident that Hatzius will have some very unpleasant words when commenting on this latest contractionary data point. As for the respondents, they confirmed that the bulk of the broader inflation is about to hit, as manufacturers can no longer internalize plunging margins. To wit: "From a cost
standpoint, commodity prices continue to increase, negatively impacting
material and delivery costs. As a result, we are in the process of
taking a price increase to the market, which should occur in May" and "Our sales are up,
but our cost of goods sold and the cost of diesel are keeping our
margins at record lows" and, FTW: "Rapidly increasing costs and fuel costs have
shocked the consumer away from any nonmandatory spending." Pretty much says it all.

New home sales expected to rebound from record lows. Dallas Fed at 10:30 should confirm the Q2 economic contraction (expect Goldman to downgrade Q2 GDP if Dallas Fed comes under 10). After a one day absence, POMO is back, though today all Primary Dealer proceeds will likely go to fund margin calls.

Homebuilder sentiment and a few speeches from Fed officials. In general week to be quiet as market begins holiday wind-down.