The “faster rotating sanctions spiral with Russia” causes worst plunge in the history of the German consumer index.
"Germany will flirt with recession by Q4 of this year," warns Saxo Bank's Chief Economist Steen Jakobsen, adding that "the US is in worse shape than most people believe." It's important to underline, he notes, that major US investment houses, and certainly every single sales person we talk to, believe US is about to accelerate in growth not slow down. Jakobsen warns though that Q3 could be ok but the real damage will come in Q4 as the lead-lag factor of geopolitical risk, lack of reforms and excess global supply leads to low inflation. His conclusion, "it’s time to be defensive... very defensive."
If the big hope propelling both ES and S&P cash over 2,000 was the Ukraine-Russian talks, leading to some de-escalation and a thawing of Russian-German conditions, then it was clearly a dud. As the WSJ reports, "face-to-face talks between the Russian and Ukrainian presidents failed to produce a breakthrough for ending the conflict over eastern Ukraine, as Kiev released videos of captured Russian soldiers and rebels pushed toward a government-held city. The one-on-one session, which Ukraine's President Petro Poroshenko described as "tough and complex," ended early Wednesday after a day of talks on the crisis in the Belarusian capital of Minsk. Mr. Poroshenko said afterward that he would prepare a "road map" toward a possible cease-fire with the pro-Russia separatists." In other words, absolutely no progress. There was however escalation, when overnight the September Bund future rose as much as 36 ticks to 151.18, after Poland PM Tusk said “regular” Russian troops are operating in eastern Ukraine. And so we are back to square one, with concerns over Russia pushing European bonds to new record highs, in turn leading to more US Treasury buying, while a brand new rumor of more easing from the ECB, this time by Deutsche Bank, has propped up European equities, which like US futures are trading water around the critical 2000 level.
Last week’s Jackson Hole meeting helped to highlight a simple reality: unlike other parts of the world, the eurozone remains mired in a deflationary bust six years after the 2008 financial crisis. The only official solutions to this bust seem to be a) to print more money and b) to expand government debt. Nothing Mr Draghi said in his Jackson Hole speech changed this reality.
At this stage, the path of least resistance is for the eurozone, and especially France, to continue disappointing economically, for the euro to weaken, and for Europe to remain a source of, rather than a destination for, international capital.
A look at German politics and upcoming state elections.
Wondering why US and European stocks knee-jerked higher in the last hour - wonder no more. JPMorgan released a report stating they expect the ECB to ease next week, masking some policy changes next week to make TLTROs more attractive and even a slight disappointment in data may trigger sovereign QE (30% chance next week and 50% by year-end). Of course, the kicker in all of this discussion of QE is that the ECB is already doing it - willing to buy whetever bonds European banks buy via repo agreements (with no haircut) - and with yields already at record lows (or negative) in the face of record-high 'real' financing costs for non-financials, the exuberance appears misplaced.
It is unclear exactly why stock futures, bonds - with European peripheral yields hitting new record lows for the second day in a row - gold, oil and pretty much everything else is up this morning but it is safe to say the central banks are behind it, as is the "de-escalation" algo as a meeting between Russia and Ukraine begins today in Belarus' capital Minsk. Belarusian and Kazakhstani leaders will also be at the summit. Hopes of a significant progress on the peace talks were dampened following Merkel’s visit to Kiev over the weekend. The German Chancellor said that a big breakthrough is unlikely at today’s meeting. Russian FM Lavrov said that the discussion will focus on economic ties, the humanitarian crisis and prospects for a political resolution. On that note Lavrov also told reporters yesterday that Russia hopes to send a second humanitarian aid convoy to Ukraine this week. What he didn't say is that he would also send a cohort of Russian troops which supposedly were captured by overnight by the Ukraine army (more shortly).
With all of England on edge because the ISIS executioner of James Foley, known as "Jihadi John" sported a British accent, and who may or may not have been identified as Abdel-Majed Bary, although UK government sources have not yet officially revealed his identity, one person has decided it is time to not waste yet another crisis. The person: London mayor Boris Johnson who as the Guardian reports, has called for the presumption of innocence to be reversed in cases where Britons travel to Iraq or Syria and said he wants the jihadist who beheaded an American journalist to be killed in a bomb attack. If Johnson's proposal for a "swift and minor" law change passes, any Brit traveling to Iraq or Syria will automatically be branded a terrorist and suffer the appropriate consequences.
Key highlights in the coming week: US Durable Goods, Michigan Conf., Services PMI, PCE, and CPI in Euro area and Japan. Broken down by day: Monday - US Services PMI, New Home Sales (Consensus 4.7%); Singapore CPI; Tuesday - US Durable Goods (consensus 7.5%) and Consumer Confidence; Wednesday - Germany GfK Consumer Confidence; Thursday - US GDP 2Q (2nd est., expect 3.70%, below consensus) and Personal Consumption; Euro area Confidence; CPI in Germany and Spain; Friday - US Michigan Conf. (consensus 80.1), PCE (consensus 0.10%), Chicago PMI; Core CPI in Euro area and Japan (consensus 2.30%). Additionally, with a long weekend in the US coming up, expect volumes into the close of the week to slump below even recent near-record lows observed recently as the CYNKing of the S&P 500 goes into overdrive.
Earlier this morning, those expecting an out of control European deflationary tumble got one step closer to their goal when French President Francois Hollande asked his prime minister, who only assumed the post a few short months ago in March, to form a new government, following what Reuters reported was him "looking to impose his will on the cabinet after rebel leftist ministers had called for an economic policy U-turn" spearheaded by economy minister Arnaud Montebourg demanding an end to French "austerity." The Guardian is somewhat more direct and to the point: "France has entered uncharted political waters after the prime minister, Manuel Valls, presented his government's resignation amid a political crisis triggered by his maverick economy minister who called for an end to austerity policies imposed by Germany."
It's been one of those days. First, the CME broke for 4 hours due to what some suggested were HFT connectivity issues, then Russia announced it would send a second humanitarian convoy into Ukraine (a big risk off move the first time it was announced, now not even an algo stirred), then Germany reported that the IFO Business Confidence/Climate dropped for the fourth consecutive month to 106.3 from 108.0, below the 107.0 expected, with the IFO chief economist stating that German GDP expectations are likely to be cut to 1.5% from 2.0% later in the year, and finally the French government collapsed due to disagreement over policy between finance minister Valls and economy minister Montebourg. All in all, a typical day in Europe's slow-motion implosion. So why are Spanish and Italian bank stocks soaring and European bond yields reaching new record highs? Simple: following Draghi's speech on Friday at Jackson Hole, which at initial read was hardly as dovish as many had expected, the FT and various other media outlets promptly changed the narrative and made it seem as if the ECB head was about to unleash QE.
Dispassionate overview of the week ahead, with thoughts about September.
A "Yes" vote for Scottish independence represents a "high risk" event according to Citi's Michael Saunders. With the so-called 'neverendum' now less than a month away, Citi continues to highlight three particular concerns if Scotland does vote for independence: Scotland’s relatively weak fiscal position, Scotland’s large banking system and uncertainties over the currency arrangements of an independent Scotland. The Scottish Government seems to be seeking a policy of "sterlingisation" - which even their economic advisors judge "is not likely to be a long-term solution." For now a "no" vote is most likely, however, even if the Scottish referendum does not pass, the UK political landscape is likely to remain in a state of flux.
Iceland's Bardarbunga Volcano Begins To Erupt, Ash Cloud Imminent After Aviation Warning Raised To "Red"Submitted by Tyler Durden on 08/23/2014 11:07 -0400
Moments ago Iceland's meteorological service reported that the island's Bardarbunga volcano, having been closely observed by volcano-watchers for the past month due to heightened seismic activity, has begun to erupt which means in addition to Russia's trade war, Europe now has another volcanic eruption to blame its latest GDP contraction on. As the local Met office summarizes, a "small" eruption of lava has occurred to the northeast of the volcano leading the Icelandic National Broadcasting Service to declare that "all air traffic is now prohibited in a large radius around the volcano."
If you’re a girl and you’re old and you’re grey and you’re the size of a hobbit, who’s going to get angry at you? If your predecessor had all the qualities anyone could look for in a garden gnome, and his predecessor was known mainly as a forward drooling incoherent oracle, how bad could it get? Think they select Fed heads them on purpose for how well they would fit into the Shire? Janet Yellen has a serious problem: the story no longer fits.