The investment climate is being shaped by four forces:
1. De-synchronized business cycle with the US ahead of the pack
2. The prospects of sovereign bond purchases by the ECB, amid political uncertainty sparked by Geece's snap election
3. The continued drop in energy prices is a stimuluative writ large but poses challenges for oil producers and the leveraged eco-system that has been built on the premise of high oil prices forever.
Less drilling will not only lead to a loss of jobs for oil workers, but the services that pop up around drilling sites – restaurants, bars, construction, and more – are feeling the slowdown as well. States like Texas, North Dakota, Oklahoma, and Louisiana have seen their economies boom over the last few years as oil production surged. But the sector is now deflating, leaving gashes in employment rolls and state budgets. With such extensive dependence on oil for prosperity in these states, the pain will mount if oil prices stay low.
I do not think it is an exaggeration to say that we gold advocates have gone all in. We have made one argument for gold...
The American people are feeling really good right about now. For example, Gallup’s economic confidence index has hit the highest level that we have seen since the last recession. In addition, nearly half of all Americans believe that 2015 will be a better year than 2014 was, and only about 10 percent believe that it will be a worse year. And a lot of people are generally feeling quite good about the people that have been leading our nation. Unfortunately, when things seem to be going well common sense tends to go out the window. Sadly, what we are experiencing right now is so similar to what we witnessed in 2007 and early 2008. The stock market had been on a great run, people were flipping houses like crazy and most people were convinced that the party would never end. But then it did end – very painfully.
Who could have possibly anticipated that the one state that contributed the most high-paying jobs during the "recovery" on the back of the shale miracle, is facing recession (as JPM predicted)? Certainly not economists, who have correctly predicted exactly zero of the last 20 economic recessions, and whose lowest estimate for today's Dallas Fed manufacturing outlook survey was 5.0 (with 12.5 on the high side, and a 9.0 consensus mean). Moments ago we got the official number and it was a doozy, plunging from 10.5 to just 4.1, the lowest print since the Polar Vortex swept away economic activity across the US and when the Dallas Fed printed a tiny 0.3.The drop of 6.4 from the November print was also the largest slide in economic activity since October 2013.
- European Stocks Drop as Greece’s ASE Tumbles After Vote Results (BBG)
- AirAsia Stock Drops Most Since 2011 After Flight Vanishes (BBG)
- Libya's NOC says firefighters had managed to extinguish the blaze at three of 6 burning oil tanks (BBG)
- Bomber kills 11 Shi'ite pilgrims north of Baghdad (Reuters)
- Hillary Clinton Faces Uphill Fight for White, Rural Vote (WSJ)
- Yen’s Slump Seen Longest Since Gold Standard Ended (BBG)
- The 94% Plunge That Shows Abenomics Losing Global Investors (BBG)
- Sony's 'The Interview' makes $18 million in opening weekend (Reuters)
As noted earlier, following the failed vote Greek banks are cratering, with many entering a bear market as of the last price update, such as Eurobank Ergasias -23%, Piraeus Bank -21%, National Bank of Greece down 18%, Alpha Bank 17% lower. While in the past this would have been enough to send European shares limit down and peripheral bonds bidless, algos have forgotten their programmed kneejerk reaction since Greece has been off the front page for so long. As a result, Europe is down but not nearly where it would have been had today's vote taken place a couple of years ago. Then again, with the USDJPY far more important than what Greece may or may not do, all that will take for the Santa rally to resume, if only in the US, is for "someone" to buy a few yards of Dollar-Yen, push the pair to 121, and all shall be well once more.
Just two months after the OECD cut its global growth outlook, overnight the Organisation for Economic Co-operation and Development cut it again, taking down its US, Chinese, Japanese but mostly, Eurozone forecasts. In the report it said: "The Economic Outlook draws attention to a global economy stuck in low gear, with growth in trade and investment under-performing historic averages and diverging demand patterns across countries and regions, both in advanced and emerging economies. “We are far from being on the road to a healthy recovery. There is a growing risk of stagnation in the euro zone that could have impacts worldwide, while Japan has fallen into a technical recession,” OECD Secretary-General Angel Gurria said. “Furthermore, diverging monetary policies could lead to greater financial volatility for emerging economies, many of which have accumulated high levels of debt.” And sure enough, the OECD's prescription: more Eurozone QE. As a result, futures in the US are in fresh all time high territory ignoring any potential spillover from last night's Ferguson protests, just 30 points from Goldman's latest 2015 S&P target, Stoxx is up 0.5%, while bond yields are lower as frontrunning of central bank bond purchases resumes. Oil is a fraction higher due to a note suggesting the Saudi's are preparing for a bigger supply cut than expected, although as the note says "it is unclear if the cut sticks."
Of the 15 sub-indices under the Dallas Fed Manufacturing survey, only 4 improved in November with New orders tumbling, and wages, number of employees, and average workweek all sliding notably. So, with that in mind, thanks to a surge in 'hope'-based business activity outlook 6 months forward (from 13.3 to 18.3), the Dallas Fed printed 10.5 (against expectations of 9.0) and unchanged from October's 10.5. The number of employees shrank to its lowest in 6 months.
Another day, another case of central banks, not one but two this time, dictating "price" action.
The question that remains to be answered is whether the economy and the financial markets are strong enough to stand on their own this time? The last two times that QE has ended the economy slid towards negative growth and the markets suffered rather severe correction...
Following misses in yesterday's Markit Service PMI, Existing Home Sales and the Dallas Fed report, and today's Durable Goods numbers, we just made it a pentafecta for misses in US econ data, when the just released August Case-Shiller data for August confirmed once again that US housing is rapidly slowing down, when the Top 20 Composite Index (Seasonally Adjusted) posted another decline in August, its fourth in a row, declining by -0.15% and missing expectations of a modest 0.2% rebound (following last month's -0.5%) decline. The best summary of the situation came from S&P's David Blitzer: "The deceleration in home prices continues... The Sun Belt region reported its worst annual returns since 2012, led by weakness in all three California cities -- Los Angeles, San Francisco and San Diego." But who cares what the birth (and death) place of every housing bubble is doing, right?
If yesterday's markets closed broadly unchanged following all the excitement from the latest "buy the rumor, sell the news" European stress test coupled with a quadruple whammy of macroeconomic misses across the globe, then today's overnight trading session has been far more muted with no major reports, and if the highlight was Kuroda's broken, and erroneous, record then the catalyst that pushed the Nikkei lower by 0.4% was a Bloomberg article this morning mentioning that lower oil prices could mean the BoJ is forced to "tone down or abandon its outlook for inflation." This comes before the Bank of Japan meeting on Friday where the focus will likely be on whether Kuroda says he is fully committed to keeping current monetary policy open ended and whether or not he outlines a target for the BoJ’s asset balance by the end of 2015; some such as Morgan Stanely even believe the BOJ may announce an expansion of its QE program even if most don't, considering the soaring import cost inflation that is ravaging the nation and is pushing Abe's rating dangerously low. Ironically it was the USDJPY levitation after the Japanese session, which launched just as Europe opened, moving the USDJPY from 107.80 to 108.10, that has managed to push equity futures up 0.5% on the usual: nothing.
Despite the best efforts of ECB QE rumor-mongering, US equities could do no better than end unch (though Trannies are no rallying on lower oil prices). The early tumble on a quadruple whammy of bad macro data (misses for Service PMI, Dallas Fed, Pending Home Sales and IFO) was ramped into the European close and beyond after Reuters dropped a QE-headline. The initial jump in stocks was ignored by bonds but once they recoupled, bonds, stocks, and JPY moved in sync for the rest of the day on low volumes and extremely low liquidity.Treasuries rallied from overnight weakness to close very modestly lower in yield. Early weakness in oil (under $80) was rapidly recovered as despite USD weakness (-0.2% on the day), gold, silver, and oil ended down modestly (and copper higher after the cornering news). VIX continues its path of ignoring recent equity exuberance ending the day modestly higher.
- White House questions new Ebola rules, nurse plans to sue (Reuters)
- States stand firm on Ebola quarantines despite White House pressure (Reuters)
- Rousseff Naming Brazil Finance Minister Key to Regain Trust (BBG)
- Ukraine leader wins pro-West mandate but wary of Russia (Reuters)
- Single Firm Holds More Than 50% of Copper in LME Warehouses (WSJ)
- Treasury Liquidity Squeeze Seen as Dealer Shut Off Machine (BBG)
- CVS follows Rite-Aid, shuts off Apple Pay (USAToday)
- Oil Speculators Bet Wrong as Rebound Proves Fleeting (BBG)
- Draghi Sets Stimulus Pace as ECB Reveals Covered-Bond Purchases (BBG)
- German Ifo Business Confidence Drops for Sixth Month (BBG)