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.
A new data base decomposes OECD trade flows to discern the value added actually being done. Bottom line is that when this important economic concept is used, the bilateral US trade deficit with China appears considerably smaller than conventional approaches. And to anticipate potential criticism, it does not mean that one time series is lying...
It was shaping up to be another bloodbathed session, with the futures down 10 points around the time Shanghai started crashing for the second night in a row, and threatening to take out key SPX support levels, when the previously noted rumor of an imminent PBOC liquidity injection appeared ex machina and sent the Shanghai composite soaring by 5% to barely unchanged, but more importantly for the all important US wealth effect, the Emini moved nearly 20 points higher from the overnight lows triggering momentum ignition algos that had no idea why they are buying only knowing others are buying. The rumor was promptly squashed when the PBOC did indeed take the mic, but contrary to expectations, announced that liquidity was quite "ample" and no new measures were forthcoming. However, by then the upward momentum was all that mattered and the fact that the underlying catalyst was a lie, was promptly forgotten. End result: futures now at the highs for absolutely no reason.
A harbinger of things to come in other markets
This was one helluva week. Nevertheless current markets are still hooked on QE.
Hawkish Dallas Fed head Richard Fisher was relatively outspoken following a speech this morning in Toronto as some insightful truthiness leaked out. As Money News reports, Fisher exclaimed, "we cannot live in fear that gee whiz the market is going to be unhappy that we are not giving them more monetary cocaine," adding that, "only time will reveal the efficacy of current policy and whether the risks that I and more experienced observers like Paul Volcker fret over are as substantial as we surmise, or whether we have made much ado about nothing."
Not exactly a ringing endorsement of his hodgepodge of old ideas and new contradictions.
- National Security Advisor Tom Donilon resigning, to be replaced by Susan Rice - Obama announcement to follow
- Japan's Abe targets income gains in growth strategy (Reuters), Abe unveils ‘third arrow’ reforms (FT) - generates market laughter and stock crash
- Amazon set to sell $800m in ads (FT) - personal tracking cookie data is valuable
- 60 percent of Americans say the country is on the wrong track (BBG) and yet have rarely been more optimistic
- Jefferson County, Creditors Reach Deal to End Bankruptcy (BBG)
- Turks clash with police despite deputy PM's apology (Reuters)
- Rural US shrinks as young flee for the cities (FT)
- Australia holds steady on rate but may ease later (MW)
- The Wonk With the Ear of Chinese President Xi Jinping (WSJ)
- Syrian army captures strategic border town of Qusair (Reuters)
QE Halt Would Be 'Too Violent' for Market: Fed's Fisher
While notably 'not' the Fed's opinion, Dallas Fed head Richard Fisher provided more than a few compellingly truthy comments in this excellent discussion with CNBC's Rick Santelli. It is fiscal policy that is holding us back, he warns, "we have a massive fog here," and despite the extremely accommodation monetary policy, we are not seeing the transmission to job creation." The "conditions of total uncertainty," mean the politicians are holding us back; but it is when Santelli asks him about the Fed's exit that things get a little uncomfortable, "no central bank anywhere on the planet has the experience of successfully navigating a return home from the place in which we now find ourselves." When pressed he exposes the flaw (much to the chagrin of Kuroda and Bernanke we suspect), "somewhere we have to have practical limits as to where we can build the balance sheet. We're moving in the direction of a $4 trillion balance sheet. We know we can't go on forever."
The weakness in economic data (not to be confused with the centrally-planned anachronism known as the "markets") started overnight when despite a surge in Japanese consumer spending (up 5.2% on expectations of 1.6%, the most in nine years) by those with access to the stock market and mostly of the "richer" variety, did not quite jive with a miss in retail sales, which actually missed estimates of dropping "only" -0.8%, instead declining -1.4%. As the FT reported what we said five months ago, "Four-fifths of Japanese households have never held any securities, and 88 per cent have never invested in a mutual fund, according to a survey last year by the Japan Securities Dealers Association." In other words any transient strength will be on the back of the Japanese "1%" - those where the "wealth effect" has had an impact and whose stock gains have offset the impact of non-core inflation. In other words, once the Yen's impact on the Nikkei225 tapers off (which means the USDJPY stops soaring), that will be it for even the transitory effects of Abenomics. Confirming this was Japanese Industrial production which also missed, rising by only 0.2%, on expectations of a 0.4% increase. But the biggest news of the night was European inflation data: the April Eurozone CPI reading at 1.2% on expectations of a 1.6% number, and down from 1.7%, which has now pretty much convinced all the analysts that a 25 bps cut in the ECB refi rate, if not deposit, is now merely a formality and will be announced following a unanimous decision.
With 40 minutes to go, as the world's media focused intently on all-time new highs in the S&P 500 - following a 20 point rip off pre-market lows, seemingly encouraged by the worst miss in Dallas Fed ever - it seems interest in actually participating is lagging significantly. Today's volume pro-rata on the NYSE and in S&P futures is among the lowest non-holiday day in months. There has been no 'rotation' as Treasuries are modestly bid. VIX is not participating in the surge at all. And the 'shorts' have started to outperform on the day (following the squeze earlier).
If this doesn't send the S&P to new all time highs nothing will. Moments ago the Dallas Fed reported its April General Business Activity report and in short it was the biggest miss to expectations on record, plummeting from 7.4 to -15.6, on expectations of a 5.0 print and the lowest since July 2012. It was also the biggest one month drop on record. Since all of this will be attributed to balmy spring weather in New Zealand, extra rainfall in the Russian Steppes, the US sequester, evil European fauxterity, Cyprus deposit confiscation, and of course, Bush, there is no point in commenting on this disaster at all. And why comment: judging by the market's response which is now at the day's highs, it is not as if anyone even pretends any data matters. The only hope now for those expecting a 20,000 on the DJIA is that the ISM due out soon, will print at 0 and everything will be permanently fixed. In other news the daily prayer to praise St. Bernanke begins at 11 am when POMO ends. Please orient yourself to face the Marriner Eccles building when bowing down.
- Obama to report to his bosses today: Obama Meets With Blankfein, Dimon and Moynihan Today (BBG)
- 2007 is here all over again: Seeking Relief, Banks Shift Risk to Murkier Corners (NYT)
- Kuroda Calls BOJ Inflation Target 'Flexible' (WSJ)
- Lagarde warns over three-speed world (FT)
- N. Korea’s Retro Propaganda Calls U.S. Boiled Pumpkin (BBG)
- Luxembourg To Ease Bank Secrecy Rule, Share Data In 2015 (BBG)
- Bank of Korea Keeps Policy Steady (WSJ)
- BOE Stimulus Dilemma Persists as Inflation Seen Higher (BBG)
- EU Sounds Alarm on Spain (WSJ)
- Qatar gives Egypt $3bn aid package (FT)
- RBNZ Says Deposit Insurance May Increase Risk of Bank Failure (BBG)
- Plosser Calls for Reducing QE Pace Citing Gains in Labor Market (BBG)
- Obama budget aims to kick start deficit-reduction talks (Reuters)