Following yet another quiet overnight session, futures have surprised many walking into work today as the traditional overnight levitation is strangely missing. The reason for that may be the lack of the traditional for 2013 lift in various funding currency pairs, with both the USDJPY and the EURUSD lower. While there was no major macro news, the former may have been dragged lower by various comments from the German BDI industry federation chief who said he is worried about the devaluation race stemming from Japan's central bank policy echoing Merkel's comparable sentiment and revealing that the EURUSD may have topped out, while the latter was pushed lower following today's 7 day ECB MRO, which saw some €124.1 billion allotted at a 0.75% yield. This was largely in line with expectations, with Barclays seeing some €135.4 billion maturing, while BNP had expected modestly more, or some €150 billion. The MRO is the first such operation, with tomorrow's 3 month refinancing operation likely to give a better glimpse of the bank's post-LTRO repayment funding needs. Whether it is this, or the market finally demanding some action out of central banks which, except for the Fed, have been in constant promise mode, or just a random walk, is unknown, but for now the carry funded nominal devaluation of risk may have topped out.
It's going to be a week of being bombarded with data and earnings from all angles. This week will see the first reading of US Q4 GDP as well as the first FOMC statement, Payrolls and ISM print of the year. In Europe we will get a handful of confidence indicators in the earlier part of the week but the main highlight will be the Spanish and Italian manufacturing PMIs on Friday. The coming week could see further sizeable moves in FX, mainly because investors – and policymakers – have become a lot more focused on currency markets. Finally, a few potentially interesting policy speeches are scheduled in the upcoming week. In Japan, Prime Minister Abe will likely talk in parliament about his economic policy, which could contain more comments on the BoJ and the Yen. In Germany, Buba President Weidmann will talk at the car manufacturers association and the recent sharp move in EUR/JPY may well be a subject given the competition between German and Japanese brands. Interestingly, Mr. Weidmann already mentioned the BoJ in a recent speech about global pressures on central bank independence.
While the overnight session has been relatively quiet, the overarching theme has been a simple one: currency warfare, as more of the world wakes up to what the BOJ is doing and doesn't like it. The latest entrants in global warfare: Taiwan, whose central bank overnight said it would step in the FX market if needed, then Thailand, whose currency was weakened on market adjustment according to Prasarn, and of course South Korea, where the BOK said that global currency war spreads protectionism. Last but not least was China which brought out the big guns after the PBOC deputy governor Yi Gang "warned on currency wars." To wit: "Quantitative easing for developed economies is generating some uncertainties in financial markets in terms of capital flows,” Yi, who is also head of China’s foreign-exchange regulator, told reporters. “Competitive devaluation is one aspect of it. If everyone is doing super QE, which currency will depreciate?” “A currency war, a series of tit-for-tat competitive devaluations, would trigger trade protection measures that would damage global trade and therefore growth globally,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank. “That would not be good for any country with a stake in the global economy.” Which brings us to the fundamental question - if everyone eases, has anyone eased? And is there such a thing as a free lunch when central banks simply finance global deficits while eating their soaring stock market cake too? The answer, of course, is no, but we will cross that bridge soon enough.
Today is Tim Geithner's last day as Treasury Secretary. Below are some quotes from various exit interviews and recaps conducted with the former NY Fed president. We provide our succinct annotations to some of his answers.
On January 22, 2012, candidate François Hollande called banks the “enemy.” Now you’d think he is being tutored by Jamie Dimon.
We have discussed Dallas Fed's Richard Fisher's money-where-his-mouth-is perspective on the world before and the (sadly) non-voting member is among UBS' Art Cashin's most respected and candid of the FOMC. A glance through the transcripts that Art highlights below should both make readers sick at the constant pollyanna-ish nature of Fisher's comrades and perhaps more confident that his insights will be listened to more astutely 'the next time' as he noted at the time "No amount of rewriting of history will exonerate us". Once again, after reading these transcripts, do we really believe that central bankers are omnipotent? or incompetent?
“Here we go again”
“Repression” is what Dallas Fed President Richard Fisher called “the injustice of being held hostage to large financial institutions”
Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).
The Bernank is beginning to wind down his "non-bailout" of Europe. On 12/14/2011 the Chairsatan himself reportedly told Senator Corker that he had no intentions of furthering the US's involvement in the European Crisis. Coincidently , a few weeks later CNBC interviewed Gerald O'Driscoll who is a previous Dallas Fed Vice President, after he released an Op-ed in the WSJ calling out the FED's European bailout. O'Driscoll is dead on with his claims and his suspicions about Bernanke's reasoning behind going through the FED market arm to lend USD to the ECB.
- Egypt protests continue in crisis over Mursi powers (Reuters)
- Greece hires Deutsche, Morgan Stanley to run Greek voluntary debt buy back, sources say (Kathimerini)
- Executives' Good Luck in Trading Own Stock (WSJ)
- Hollande Presents Mittal Nationalization Among Site Options (Bloomberg)
- Eurozone states face losses on Greek debt (FT)
- Spain's rescued banks to shrink, slash jobs (Reuters)
- EU Approves Spanish Banks' Restructuring Plans (WSJ)
- At SAC, Portfolio Managers Are Treated Like Stocks (BBG)
- China considers easing family planning rules (Reuters)
- European Court to Rule Over ECB’s Secret Greek File (BusinessWeek)
- And another top tick indicator: Asia Funds Buy London Offices in Bet Volatility Is Past (Bloomberg)
- Harvard Doctor Turns Felon After Lure of Insider Trading (BBG)
- Zucker Is Lead Candidate to Head CNN (WSJ) - it's not true until CNN misreports it
- Iran "will press on with enrichment:" nuclear chief (Reuters)
- OECD slashes 2013 growth forecast (FT)
- Fiscal Cliff Compromise Elusive as Congress Returns (Bloomberg)
- China’s PBOC Chief Search Spurs Focus on Finance Regulators (Bloomberg)
- Elected, but Still Campaigning (WSJ)
- Pentagon Readies Options for Afghanistan Force After 2014 (Bloomberg)
- Greece Wins Easier Debt Terms as EU Hails Rescue Formula (Bloomberg)
- Monti presses Cameron for EU referendum (FT)
- Welcome, Mr Carney – Britain needs you (FT)
- Argentina seeks halt to $1.3bn debt order (FT)
- Asean chief warns on South China Sea disputes (FT)
- South Korea Tightens FX Rules to Temper Won Surge (WSJ)
Reasons to be bullish.
Many economists are suggesting that the second estimate of Q3 GDP, which showed an initial estimate of 2.0% annualized growth, will be revised sharply upward to 2.8%. The problem is that the surge in demand isn't materializing at the manufacturing level. The month-over-month data has begun to show signs of deterioration as of late which doesn't support the idea of a sharp rebound in economic activity in recent months. The headwinds to economic growth are gaining strength as the tailwinds from stimulus related support programs fade. This has been witnessed not only in the manufacturing reports, such as the CFNAI and Dallas Fed Region surveys where forward expectations were sharply reduced, but also in many of the corporate earnings and guidance's this quarter.
UPDATE: Release shows a plunge in Capacity Utilization and Production to their lowest in a year, Inventories surged to 3 month highs, Shipments dropped, Capex fell and Finished Goods dropped to its lowest in two years!
It seems the Thanksgiving week has wreaked havoc with governmental timepieces. The Dallas Fed manufacturing headline data was just released 15 minutes early and has dropped back into negative territory with the largest miss in four months, due we are sure to Sandy in some way.