For a country that laments the imposition of draconian "austerity" measures, now allegedly in their third year, which have so far seen government revenues slide, while spending rises, Spain sure has a problem with figuring out how it is supposed to work. Yet while the world was shocked back in December 2011 when Spain quietly announced its budget deficit would jump from 6% to 8.5%, before finally settling on 8.9% of GDP, today's announcement that the 2012 Spanish deficit was a whopping 10.2% of 2012 GDP hardly caused any commotion. Apologists will quickly say that this budget gap was boosted by the 3.2% increase due to setting up the bad bank, and rolling bank bailouts, and of course they will be right: just as all those economists were right to say that when one excludes all the negatives, US Q4 GDP was in fact positive. Or, indeed, as Goldman said to ignore this week's negative initial claims and new housing starts data: after all they too were negative. In fact, when one excludes all the negative trading days in 2013, the stock market has not had a down day yet. As for Spain, too bad the country can't have its broke bank cake and eat the budget surplus that would result "if only" things were different.
The great unrecovery just accelerated with more great unrotation out of stocks following today's February Philly Fed which just plunged from -5.8 to -12.5 on expectations of a positive print of +1. This was the worst print in 8 months, the biggest miss in 9 months, and the biggest two month drop in the New Orders index which crashed to -7.8 in 18 months. Even the attempts at spin were weak: "The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a reading ?5.8 in January to ?12.5 this month (see Chart). The demand for manufactured goods also showed slight declines this month: The new orders index declined from a reading of ?4.3 in January to ?7.8 in February. Despite negative readings for general activity and new orders, the shipments index showed improvement: The index remained positive and edged slightly higher to 2.4. The percentage of firms reporting increased shipments (25 percent) was slightly greater than the percentage reporting declines (22 percent)." But fear not: optimism abounds - after all, that's all there is: "The survey’s future indicators suggest that firms expect recent declines to be temporary." Oddly enough survey participants have been hoping for a brighter future for 4 years now. Expect the sellside penguins to say that this number too should be ignored, just like the initial claims earlier, and the new housing starts yesterday. After all one should ignore all data that does not fit the goalseeked script of a centrally-mandated "recovery."
This day one month ago, our chart of the day was the spread between adjusted and unadjusted Housing Starts number, which as we showed back then, had a very curious surge in starts on a seasonally adjusted basis at some 103K, even as unadjusted starts dropped. Today, housing starts are finally return back to reality, as the adjusted number printed at 890K, below expectations of a 920K number, with the prior pushed even higher from 954K to 973K. Yet as last month, it was the unadjusted number that was indicative of reality, and at 58.5K housing starts, this was the weakest actual, un-SAARed number since March 2012, when it was 58.0K. Only difference: back in March 2012, the Adjusted Starts number was 706K, or 184K less than today. Today's unadjusted number is also lower than it was in June 2011 when it printed 60.5K, and when the adjusted print was, drumroll, 615K or 275K less than today! Thank you seasonal adjustments.
Rajoy Summarizes Overnight (And Recurring) Sentiment: "There Are No Green Shoots, There Is No Spring"Submitted by Tyler Durden on 02/20/2013 08:12 -0400
In the aftermath of yesterday's surge in German hopium measured by the ZEW Economic Survey which took out all expectations to the upside, it was inevitable that the other double-dipping country, France, telegraphed some optimism despite a contracting economy and would follow suit with a big confidence beat, and sure enough the French INSEE reported that February business sentiment rose from 87 to 90, on expectations of an unchanged number. And the subsequent prompt smash of investor expectations in Switzerland, where the ZEW soared from -6.9 to +10.0 tells us that something is very wrong in the Alpine country if it too is trying so hard to distract from the here and now. And while one can manipulate future optimism metrics to infinity, it is reality that is proving far more troublesome for Europe, as could be seen by the Italian Industrial Orders print which crashed -15.3% Y/Y on expectations of a smooth -9.5% drop, down from -6.7% previously. Since industrial orders are a proxy for future demand, a critical issue as Italy enters 2013 after six consecutive quarters of economic contraction and with no relief on the horizon, it is only fitting that Italy should shock the world with an off the chart confidence beat next.
With the end of Asia's lunar new year celebration and the return of the US and Canadian markets after yesterday's holiday, there is full liquidity in the global capital markets for the first time in over a week. The currencies are mixed, with the yen, sterling and the Australian dollar posting modest gains, while the euro, Swiss franc and Canadian dollar have heavier tones.
The Chinese yuan has weakened for the second day after returning from the extended holiday and is near 2-month lows. After reversing lower yesterday, the Shanghai Composite led the regional bourses lower with a 1.9% decline. The Composite is approaching its 20-day moving average (~2365) which it has not traded below since early December. European equity markets are higher and the Dow Jones Stoxx 600 is up a little more than 0.5% led by consumer goods and basic materials. Of the main industrial sectors, only telecom is lower. European bond markets, core as well as periphery are lower.
Broadly speaking, we identify five factors that will shape foreign exchange rates in coming days.
2012 Q4 GDP has been weak in G3 and indeed Europe more broadly, (however it has generally surprised to the upside in Asia), consequently, the momentum of business sentiment will be key to watch. The Euro area flash PMI, German Ifo and the Philadelphia Fed survey are released this week (the China flash PMI will be released on Feb 25). The consensus expects a further small rise in the Euro area services and manufacturing readings. The week also brings a batch of central bank commentary, where the focus will be on references to currency strength; these include the RBA minutes followed by testimony, a speech by RBNZ governor Wheeler, Bank of Thailand policy decision and Bank of England minutes. The Federal Reserve will release the minutes from the last meeting and they may contain important clues on the bias of the Committee with respect to how long it expects the current QE program to last. Additionally, the Committee may have discussed the potential merits of outcome-based guidance for balance sheet policy, which may be reflected in the minutes.
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
“Those are my principles,” Marx said. “And if you don't like them... well, I have others.”
The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief was that the Government, and Fed's, interventions would ignite the housing market creating an self-perpetuating recovery in the economy - it did not turn out that way. Today, these repeated intrusions are having a diminished rate of return and the risk now is that interest rates rise shutting potential homebuyers out of the market. It is likely that in 2013 housing will begin to stabilize at historically low levels and the economic contribution will remain fairly weak. The downside risk to that view is the impact of higher taxes, stagnant wage growth, re-defaults of the 6-million modifications and workouts, elevated defaults of underwater homeowners and a slowdown of speculative investment due to reduced profit margins. While many hopes have been pinned on the 2012 stimulus fueled, China investing, and supply-deprived housing recovery as "the" driver of economic growth in 2013 - the data suggest that may be quite a bit of wishful thinking.
Q: Can a ZIRP-driven bull market in US equities exist, side-by-side, with an economic rebound and a bullish outlook on HPA? A: "No"
China’s monthly data dump was the main macro update overnight, which however with ongoing mockery of the Chinese data "goalseeking" and distribution methodologies, most recently by the likes of Goldman, UBS and ANZ, had purely political window dressing purposes for the new Chinese politburo. Sure enough, that all the data came precisely Goldilocks +1 was enough to put a smile on everyone's face. To wit - Q4 GDP growth came in just higher than consensus (+7.9%yoy v +7.8%). On a full year basis the economy grew by 7.8%, also a tad above expectations. Then we got industrial production, also just higher than expected (+10.3% v +10.2%) and retail sales - just higher as well (+15.2% v +15.1%). Much more important than meaningless, jiggered numbers, was the announcement from the PBOC that in light of the entire world going "open-ended" on easing, China - which now can't afford to lower rates for fears of rampant inflation together with importing everyone else's hot money - announced it will start short-term liquidity operations as additional tool for controlling liquidity, engaging in a reverse repo on a daily basis, which will have a maturity of less than 7 days. This way the central bank will be able to reacted almost instantly to any inflationary spikes across the economy, as it too has no choice but to ease although not by the conventional inflation targeting methods now used by everyone else.
The US dollar is trading firmly. The official verbal commentary this week by Europe's Juncker and Japan's Amari were more disruptive noise a true signal. These mis-directional cues whipsawed short-term participants and served to obscure what was really happening. One of the most important take aways, it seems, from this week's action is the narrowing of the breadth of the dollar's decline. It is really limited to only the euro...
No commentary necessary.
- Obama's Gun Curbs Face a Slog in Congress (BBG)
- Euro Area Seen Stalling as Draghi’s Pessimism Shared (BBG)
- China Begins to Lose Edge as World's Factory Floor (WSJ)
- EU Car Sales Slump (WSJ)
- Fed Concerned About Overheated Markets Amid Record Bond-Buying (BBG)
- Australia Posts Worst Back-to-Back Job Growth Since ’97 (BBG)
- Abe Currency Policy Stokes Gaffe Risk as Amari Roils Yen (BBG)
- Japan Opposition Party Won’t Back BOJ Officials for Governor (BBG)
- Fed Reports Point to Subdued Economic Growth (WSJ)
- China Set to Exit Slowdown by Boosting Infrastructure (BBG)
- Greece not out of woods, must stick to reforms: finance minister (Reuters)
- Russian Rate Debate Flares Up as Cabinet Seeks Growth (BBG)
Same overnight pattern, different day. After a late day ramp in the US market, followed by a selloff in the futures after hours, taking the ES to trading session lows, we get the European trading crew which day after day sends the EURUSD soaring as Europe opens, pushing futures to unchanged or even green and easily negating the key news event of the day, in this case the full grounding of the entire global Boeing fleet which will once again weigh on the stock and DJIA. In the meantime, the big rotation behind the scenes in FX land continues, with the ongoing and very sudden pounding of the Swiss Franc taking the EURCHF to 1.2450, or the highest, since 2011. Same with the USDJPY which after another attempt to fall, rallies on more of the same regurgitated rumors. Not to mention the EURUSD of course, which as mentioned above has surged some 100 pips since the European open. In other words the overnight beating of the USD is enough to push the US stock market high enough in nominal terms, avoiding that there is no incremental cash flow. Then again, who needs cash flow when you have "multiple expansion."