It has been a deja vu session of that day nearly a month ago when the Banco Espirito Santo (BES) problems were first revealed, sending European stocks and US futures, however briefly, plunging. Since then things have only gotten worse for the insolvent Portuguese megabank, and overnight BES, all three of its holdco now bankrupt, reported an epic loss despite which it will not get a bailout but instead must raise capital on its own. The result has been a record drop in both the bonds (down some 20 points earlier) and the stock (despite a shorting ban instituted last night), which crashed as much as 40% before stabilizing at new all time lows around €0.25, in the process wiping out recent investments by such "smart money" as Baupost, Goldman and DE Shaw. The result is a European financial sector that is struggling in the red, while adding to its pain are some large cap names such as Adidas which also tumbled after issuing a profit warning relating to "developments" in Russia. Then there was European inflation which printed at 0.4%, below the expected 0.5%, and the lowest in pretty much ever, and certainly since the ECB commenced its latest fight with "deflation", which so far is not going well. The European cherry on top was Greece, whose dead cat bounce is now over, after May retail sales crashed 8.5%, after rising 3.8% in April.
If Venezuela is the case study of a country in the late stages of transition into a socialist utopia, then France is the clear runner up. The most recent case in point, aside from the already sliding French economy, whose recent contraction can be best seen be deteriorating PMI data which hints at the dreaded "triple dip" recession, nowhere is the economic collapse in France more evident than in its housing market which as even Bloomberg admits, citing industry participants, is now "in total meltdown." Pierre-Andre de Chalendar, chief executive officer of Saint-Gobain, summarized the current dire situation best: "Current figures are worrying and will be disastrous if nothing is done; clients of the building sector are sounding the alarm bell.”
The following are six of the most prevalent economic myths that appear time and again in the mainstream media...
- Fed Decision-Day Guide: QE Tapering to Inflation Debate (BBG)
- Obama says strains over Ukraine not leading to new Cold War with Russia (Reuters)
- Siemens to BP Prepare for Downward Russia Business Spiral (BBG)
- Paying Ransoms, Europe Bankrolls Qaeda Terror (NYT)
- Argentina Banks Preparing Bid to Help Argentina Avoid Default (WSJ)
- Obama Weighs Fewer Deportations of Illegal Immigrants Living in U.S. (WSJ)
- India Warships Off Japan Show Rising Lure as China Counterweight (BBG)
- Hong Kong Popping Housing Bubbles London Can’t Handle (BBG)
- Carnage at U.N. school as Israel pounds Gaza refugee camp (Reuters)
This week's US data onslaught begins today, with the ADP private payroll report first on deck (Exp. 230K, down from 281K), followed by the number of the day, Q2 GDP, which after Q1's abysmal -2.9%, is expected to increase 3%. Anything less and in the first half the US economy will have contracted, something the purists could claim is equivalent to a recession. The whisper numbers are to the downside since consumption and trade never caught up and the only variable is inventory as well as Obamacare, whose impact was $40 billion "contribution" in Q1 was entirely eliminated and instead led to a deduction, something we expect will be reversed into Q2. Following the backward looking GDP (which will be ignored by the sellside penguins if it is bad and praised if good) at 2:00 pm Yellen Capital LLC comes out with a correction on her call to short social networking stocks, as well as admit once again that the "data-driven" Fed really has no idea what it is doing and how it will tighten, but that tightening is imminent and another $10 billion taper to QE will take place ahead of a full phase out in October. Joking aside, the Fed is expected not to do much if anything, which may be just the right time for Yellen to inject an aggressively hawkish note considering her inflation "noise" refuses to go away.
Imperial Washington is truly running amuck in its insensible confrontation with Vladimir Putin. The latest round of new sanctions is a counter-productive joke. But it is the larger narrative that is so blatantly offensive - that is, the notion that a sovereign state is being wantonly violated by an aggressive neighbor arming “terrorists” inside its borders. Once again, the American Warfare State has confected a false narrative to justify policies and missions that have nothing to do with the safety and security of the citizens of Lincoln NE and Wooster MA. Unfortunately, false narratives are what the Warfare State does.
American Intelligence Officers Who Battled the Soviet Union for Decades Slam the Flimsy "Intelligence" Against RussiaSubmitted by George Washington on 07/29/2014 17:17 -0400
Senior U.S. Intelligence Officers: Obama Should Release Ukraine Evidence
Aggressive buying of gold and particularly silver by Russia will likely lead to defaults on the COMEX gold and silver futures exchanges and potentially an international monetary crisis. As sanctions, economic war and currency wars intensify we expect Russian and Russian ally buying of gold and selling of dollars to intensify ...
Overnight markets have been a continuation of the relative peace observed yesterday before the onslaught of key data later in the week, with the biggest mover standing out as the USDJPY, which briefly touched 102 before sliding lower then recouping losses. This sent the Nikkei 225 up 0.57% despite absolutely atrocious Japanese household spending data, coupled with a major deterioration in employment: at this rate if Abenomics doesn't fix the economy it just may destroy it. Aside from that the last 24 hours could be summed as having a lot of noise but not a lot of excitement. This was best illustrated by the S&P500’s (+0.03%) performance which was the second smallest gain YTD. And while the SHCOMP is starting to fade its recent euphoria and China was up only 0.24%, Europe continues to cower in the shade of Russian sanctions as both German Bund yields rose to record highs, and Portugal's BES tumbled by 10% once again to 1 week lows. Today Europe is expected to formally reveal its latest Russian sanctions, which should in turn push Europe's already teetering economy back over the edge.
Thanks to a 5-word text message to his father, a Bloomberg reporter was taken hostage by Ukrainian soldiers at a checkpoint near Donetsk. What ensued is both frightening and fascinating...
- The market in one sentence: Buying on Dips Pays Most in Five Years as Stocks Rebound (BBG)
- Europe subdued, Russia shares tumble on new sanctions (Reuters)
- Chinese Data Don’t Add Up (WSJ)
- Argentine Default Drama Nears Critical Stage (WSJ)
- Global Pressure Mounts on Israel to End Gaza Fighting (BBG)
- Ukraine troops advance as experts renew attempt to reach crash site (Reuters)
- Prospects Brighten for Republicans to Reclaim a Senate Majority (WSJ)
- Europe’s banking union faces legal challenge in Germany (FT)
- Investors Bet on China's Large Property Developers (WSJ)
- Hague court orders Russia to pay over $50 billion in Yukos case (Reuters)
There has been little in term of tier 1 data releases to drive the price action so far in the overnight session which means participants focused on the upcoming US related risk events including the Fed, Q2 GDP and July Payrolls. This, combined with WSJ article by Fed’s Fisher who opined that the FOMC should consider tapering the reinvestment of maturing securities and begin shrinking the Fed’s balance sheet (note that Fisher’s opinion piece is written based on a speech he gave on July 16th) meant that USTs came under pressure overnight in Asia and in Europe this morning. There has been little notable equity futures action (for now: the USDJPY algo team gave it a good ramp attempt just before Europe open, and will repeat just around the US open despite Standard Chartered major cut to its USDJPY forecast from 110 to 106 overnight), although we expect that to change since today is the day when Tuesday frontrunning takes place with full force. We expect equities to completely ignore the ongoing deterioration in Ukraine and the imminent release of EU's own sanctions against Russia, as well as what is now shaping up as an Argentina default on July 30.
When it comes to the rise of Eurasia as the ascendent axis set to oppose US global hegemony, conventional wisdom focuses on the roles of China and Russia. However, the changing geopolitical landscape is certainly far more nuanced than merely the "west" versus the BRICS, and as the following infographic from SCMP shows, China has been quietly working to recreate one of the most legendary trade routes, "the Silk Road", linking Africa to the Middle East (Iraq and Iran) to India, to Indonesia and all culminating in Beijing, while at the same time the reverse leg of the route goes to Kazakhstan, Moscow and ultimately, Germany. The purpose: "to enhance political and economic ties with southeast Asia and beyond."
Within the European economic context Germany has been a star performer in recent years, outgrowing in GDP terms its Eurozone peer group as a whole in all but one year since 2006 (complete with a magnificent football/soccer team). This was quite a reversal of fortune from the ten years prior, when Germany consistently lagged in wealth creation. Together with its size and unwavering historical commitment to the EU project, this has created the expectation in political and even financial circles that if Europe faces another major economic crisis Germany will have no choice but to support the most vulnerable member states, possibly even relenting to the mutualisation of the Eurozone's debts. While this is a very complex topic, the following graph puts the odds in favor of one outcome: the next time push comes to shove in a big way, Germany will likely say NEIN!
Recall what we said earlier today: the proxy war Ukraine conflict, just like that in Syria preceding it, "is all about energy." Recall also the following chart showing Ukraine's shale gas deposits, keeping in mind that the Dnieper-Donets basin accounts for approximately 90 per cent of Ukrainian production. Finally, recall our story from May that Joe Biden's son, Hunter, just joined the board of the largest Ukraine gas producer Burisma Holdings. Now put it all together and you will like figure out what will happen next.