Just in case the legacy of Abenomics wasn't clear enough (it should have been after we reported that its legacy is "Japan's Greatest "Misery" In 33 Years"), here is another confirmation that in the New Normal, only bad things happen when you forget to BTFD.
After years of obfuscation and, simply put, lies; TEPCO has admitted in a new report that more nuclear fuel had melted at the Fukushima nuclear reactor than previously stated. While this is dreadful news, it gets worse, as the report further confirms that despite Abe's promises and TEPCO's state-funded efforts to build ice-walls, it may miss an important deadline binding it to clean radioactive water stored inside the Fukushima nuclear plant. Bloomberg reports officials commenting "we are doing everything we can do," but it appears, that is not enough as tens of thousands of tons of toxic water are expected to remain at the site by the imposed deadline.
- So that's what Obama meant by "costs" - Italy Recession, German Orders Signal Euro-Area Struggle (BBG)
- Russia worries, weak German data weigh on Europe (Reuters)
- Hedge Funds Betting Against Banco Espírito Santo in Line for Big Gains (WSJ)
- Bankers Called Up for Ukraine War as Rolls-Royce for Sale (BBG)
- Double Punch for 'Inversion' Deals (WSJ)
- Statist Strongmen Putin-Xi See History’s Capitalism Clash (BBG)
- China bans beards, veils from Xinjiang city's buses (Reuters)
- BATS to Settle High-Speed Trading Case (WSJ)
- Second Ebola patient wheeled into Atlanta hospital for treatment (Reuters)
For seventy years, one of the critical foundations of American power has been the dollar’s standing as the world’s most important currency. For the last forty years, a pillar of dollar primacy has been the greenback’s dominant role in international energy markets. Today, China is leveraging its rise as an economic power - and as the most important incremental market for hydrocarbon exporters in the Persian Gulf and the former Soviet Union - to circumscribe dollar dominance in global energy, with potentially profound ramifications for America’s strategic position.
- Second Ebola patient to arrive in U.S. on Tuesday (Reuters)
- Ebola Drug Made From Tobacco Plant Saves U.S. Aid Workers (BBG)
- Egypt plans to dig new Suez Canal costing $4 billion (Reuters)
- Apple Buybacks Pay Most Ever as CEOs Spend $211 Billion (BBG)
- DeMark Says Sell China Stocks Now After World’s Best Gain (BBG)
- Investors Stung by Losses After Exiting Struggling Property Fund in China (WSJ)
- B.A. in BTFD: MIT May Consider Granting Degrees in Less Than Four Years (BBG)
- Too late, money's already been spent: GPIF Needs Overhaul Before Asset Changes, Shiozaki Says (BBG)
- Oh look, another "truce": Israel withdraws troops, 72-hour Gaza truce begins (Reuters)
It is unclear how much of this morning's momentum-busting weakness in futures is the result of China's horrendous Service PMI, which as we reported last night dropped to the lowest print on record at the contraction borderline, but whatever low volume levitation was launched by the market after Europe's close yesterday may have fizzled out if only until Europe close (there is no POMO today). Still, futures may have been helped by yet another batch of worse than expected European data, namely the final Eurozone PMI prints, which in turn sent the EURUSD to day lows and the offsetting carry favorite USDJPY to highs, helping offset futures weakness. Because in the New Normal there is nothing like a little bad macro data to goose the BTFATH algos...
At this point these soft-survery-based PMIs are becoming a running joke. Japanese macro surprise data has done nothing (and we mean nothing) but disappoint recently and currently stands at 3-month lows. So it makes perfect sense that July Japan Services PMI would print its first expansion since March. On the other hand, after exploding to 18-month highs in June, China Services PMI collapsed to a 2005 record low. As BofA warned previously, it is important to understand how crude these surveys are - these data get way too much air time. They give a timely, rough read on the economy, but should get little weight once hard data are released.
There is a war being conducted out there in the financial markets. A war between debtors and creditors, between governments and taxpayers, between banks and depositors, between the errors of the past and the hopes of the future. How can investors end up on the winning side ? History would seem to have the answers. We would argue today that central bank bubble-blowing has made the entire market high-risk, with a broad consensus that with interest rates at 300-year lows and bonds hysterically overpriced and facing the prospect of interest rate rises to boot, stocks are now "the only game in town". If history is any guide, the identity of the losers seems to be self-evident.
Unlike last week's economic report deluge, this week has virtually no A-grade updates of note, with the key events being Factory Orders (exp. 0.6%), ISM non-mfg (exp. 56.5), Trade balance (Exp. -$44.9 bn), Unit Labor Costs (1.2%) and Wholesale Inventories (0.7%).
- New War Risk on Russia Fringes Amid Armenia-Azeri Clashes (BBG)
- Palestinians accuse Israel of breaking seven-hour Gaza truce (Reuters)
- Argentine Default Sours Outlook for Peso as Talks Ordered (BBG)
- Espírito Santo Saga Entangles Swiss Company (WSJ)
- Booming African Lion Economies Gear Up to Emulate Asians (BBG)
- CME Profit Falls as Trading Volume Declines (WSJ)
- Why Recalled Cars Stay on the Road (WSJ)
- London Renters Win in Billionaire Backyard as Prices Soar (BBG)
- Junk-Debt Liquidity Concerns Bring Sales (WSJ)
- Rescuers race to find survivors after 400 die in China quake (AFP)
Dispassionate, non-conspiratorial rant , fact-based high level discussion of the sigificant drivers of the week ahead.
A day after Malaysian Airlines MH-17 was shot down on July 17 over east Ukraine (still to be determined by who thanks to epic amounts of fact-free propaganda) the new cold war between Russia and the US nearly heated up quite substantially, after a U.S. Air Force spy plane closely evaded an encounter with the Russian military on July 18 in what may potentially have escalated into a live fire tragedy that could have unleashed something far worse. According to CNN, the U.S. plane had been flying in international airspace, conducting an electronic eavesdropping mission on the Russian military, when the Russians took the unusual action of beginning to track it with land-based radar. The Russians then sent at least one fighter jet into the sky to intercept the aircraft, the U.S. official said Saturday.
"The greater-than-expected weakness in the consumption snapback signals significant downside risk to our forecast of 4.6% decline for Q2 real GDP (sequential annualized). While we expect lower imports, higher inventories, and other factors to support GDP to some extent, we see negative real GDP growth of around -6.5% as likely, based on the data currently available."
"By all measures, the U.S. stock market is currently frothy," warns Paul Singer, founder of $24.8 billion hedge fund firm Elliott Management, ominously concluding, "The apparent stability of the world financial system is superficial – financial asset prices are not real, the equilibrium is temporary, the lack of volatility is a trap, and when the whole thing goes haywire, there will truly be hell to pay."
Outlook of the foreign exchange market in the week ahead, with some observations about equities and bonds.