Shifting consumption from gasoline sales to retail sales does not create economic growth. It is just a "shift" in where the same dollars are spent. However, there has been much "hoopla" over the recent retail sales report for November that saw retail sales jump for the month by 0.7%. While on the surface this appears to be a strong retail sales report, a quick look below the surface quickly destroys that claim.
"Q4 GDP Below 2%, December Payrolls Under 200,000" Markit Warns As Service PMI Crashes To 10-Month LowSubmitted by Tyler Durden on 12/18/2014 09:54 -0500
"Another bumper month of non-farm payroll growth looks unlikely in December, with private sector payroll growth unlikely to breach the 200,000 mark," warns Markit after The US Services PMI plunged to 53.6, missing expectations of 56.3 by the most on record. This is the 6th straight month of declines. Job creation slumped to 8-month lows. The Composite (Services & Manufacturing) PMI plunged to its lowest level since October 2013. Still exuberant? Still hopeful? Here's Markit's summary, "A sharp slowing in service sector activity alongside a similar easing in the manufacturing sector takes the overall rate of economic expansion down to the weakest since October 2013. The extent of the slowdown suggests that economic growth in the fourth quarter could come in below 2%"
- Swiss National Bank Starts Negative Interest Rate of 0.25% to Stave Off Inflows (BBG)
- Putin Strikes Uncompromising Stance Over Crisis Gripping Russia (BBG)
- Sony cancels North Korea movie in apparent win for Pyongyang hackers (Reuters)
- U.S. Said Set to Blame North Korea for Sony Cyber Attack (BBG)
- China’s Short-Term Borrowing Costs Surge as Demand for Money Grows (WSJ)
- Russia Currency Market Bends But Doesn’t Break (BBG)
- Jeb Bush Puts Pressure on Chris Christie for 2016 (WSJ)
- From joy to outrage, Florida's Cuban-Americans greet new U.S. policy (Reuters)
- Russians Quit London Luxury Homes as Only Super-Rich Stay (BBG)
After drifting unchanged for much of the overnight session, US futures exploded higher shortly after the previously noted SNB's NIRP announcement, which took place at 2 am eastern, which made it explicit that yet another banks will herd the bouncing dead cats right into new all time stock market highs, and following the European open, were carried even higher as the global "risk-on" momentum ignition algos woke up, spiking all recently depressed assets higher, including energy as Brent rose almost 3% despite Saudi Arabia’s oil minister Ali al-Naimi once again saying "it is difficult if not impossible" for OPEC and his kingdom to reduce output.
But what about the massive cajillion-dollar tax cut for American manufacturers from the oil-drop? US Manufacturing PMI collapsed to 53.7 in December, missing expectations of a rebound to 55.2 by the most on record and falling to its lowest since January 2014 - the middle of the Polar Vortex. This is the 4th monthly drop in a row off the mid-year "yay recovery is here" record highs and 4th miss in a row as economists continue to 'price in' the hockey-stick. The employment sub-index dropped to its lowest since July and new orders collapsed to its lowest since January. This comes on the heels of Germany's 18-month lows for its Manufacturing PMI. No decoupling after all. As Markit noted about Germany, "the data are consistent with only marginal GDP growth in the fourth quarter at best," and we suspect the same is coming for USA soon, as they add "a cooling in the pace of expansion from unusually strong rates earlier in the year."
For those wondering if the CBR's intervention in the Russian FX market with its shocking emergency rate hike to 17% overnight calmed things, the answer is yes... for about two minutes. The USDRUB indeed tumbled nearly 10% to 59 and then promptly blew right back out, the Ruble crashing in panic selling and seemingly without any CBR market interventions, and at last check was freefalling through 72 74 76, and sending the Russian stock market plummeting by over 15%.
- Ruble Sinks to 80 a Dollar Defying Surprise Russia Rate Increase (BBG)
- Oil slumps near $59 for first time since 2009 on oversupply (Reuters)
- Oil sinks, Russian moves fail to quell nerves (Reuters)
- Fed Seen Looking Past Low Inflation to Drop ‘Considerable Time (BBG)
- Students Among Dead as Pakistan Gunmen Kill 126 at Army School (BBG)
- Repsol to buy Talisman Energy for $13 billion (Reuters)
- Indonesia’s Rupiah Erases Decline After Central Bank Intervenes (BBG)
- Anti-Islam Rally Grows as Immigrant Backlash Hits Europe (BBG)
- Saudi Arabia is playing chicken with its oil (Reuters)
For the 5th month in a row since the record-breaking June highs that proved the recovery narrative was working, US Services PMI dropped. At 56.2 (missing expectations of 56.5), this is the lowest in 7 months. As Markit notes, this is a problem, since "whereas the manufacturing slowdown was largely linked to weaker global demand and a renewed fall in export orders, moderating growth in the service sector is a sign of domestic demand weakening." This points to a significant slowdown in GDP growth to a mere 2.5% from a hopeful 3.9% in Q3.
- Fall of the Bond King: How Gross Lost Empire as Pimco Cracked (BBG)
- Hong Kong 'Occupy' leaders surrender as pro-democracy protests appear to wither (Reuters)
- Ashton Carter, Ex-Pentagon No. 2, Emerges as Obama Favorite for Defense Secretary (WSJ)
- Oil, the Ruble and Putin Are All Headed for 63. A Russian Joke -- for the Moment (BBG)
- New U.S. oil and gas well November permits tumble nearly 40 percent (Reuters)
- Swedish government on brink of collapse (AJ)
- China says Britain has no moral responsibility for Hong Kong (Reuters)
- Indian Labs Deleted Test Results for U.S. Drugs, Documents Show (BBG)
Today's Market-Boosting Disappointing Economic News Brought To Your Courtesy Of Euroarea's Service PMIsSubmitted by Tyler Durden on 12/03/2014 07:11 -0500
Those wondering why European stocks are higher but off earlier highs, the answer is simple: the latest Service ISM was bad but it wasn't a complete disaster. And while RanSquawk notes that "the particularly disappointing slew of Eurozone Service PMI’s from France and Spain capped any potential upside seen across the European indices" stocks are clearly green on hopes Europe's ongoing economic devastation accelerates enough for the ECB to finally start buying Stoxx 600 and various other penny stocks. This is what happened, in Goldman's words: the November Euro area final composite PMI came in at 51.1, 0.3pt below the flash (and Consensus) estimate. Relative to October, the composite PMI fell by 0.9pt. The weaker final composite PMI was driven by flash/final downward revisions to the German manufacturing PMI and the French services PMI. Today’s data also showed some improvement in the Italian services PMI, and a deterioration in its Spanish counterpart.
For the 3rd month in a row, US Manufacturing PMI dropped from 4-year highs to 10-month lows. At 54.8, missing expectations of 55.0 (and down from 55.9) for the 5th month of the last 6 as extrapolated hopes fade into the usual cyclical un-decoupled collapse into year-end (but ignore NRF data). Sadly for the bullish decoupling meme, Markit notes, "the principal cause of the slowdown is a renewed downturn in export orders, which fell for the first time since January." So, amid all of this doom, ISM then beat expectations, printing 58.7 vs 58.0 expectations (down slightly from October's 59.0 print) led by - rather ironically - new export orders surging... US data has gone full China.
Following last week's holiday-shortened week, which was supposed to be quiet and peaceful and was anything but thanks to OPEC's shocking announcement and a historic plunge in crude prices, we have yet another busy week of macroeconomic reports to look forward to.
- Moody’s Downgrades Japan’s Credit Rating (WSJ)
- China Factory Gauge Drops as Shutdowns Add to Slowdown (BBG)
- Euro zone factory growth stalls in November as new orders sink (Reuters)
- Espírito Santo Faces Money-Laundering Investigations (WSJ)
- Oil at $40 Possible as Market Transforms Caracas to Iran (BBG)
- Hong Kong warns protesters not to return after clashes close government HQ (Reuters)
- Bond Secrets Decoded 9,539 Miles From Wall Street in Lot (BBG)
- Ruble Rally Turns to Rout as Fortunes Tied to Sinking Oil (BBG)
- Loans Made in Blink as Banks, Funds Vie for LendingClub Clients (BBG)
"The time to liquidate a given position is now seven times as long as in 2008, reflecting much smaller trade sizes in fixed income markets. In part the current liquidity illusion is a product of the risk asymmetries implied by the zero lower bound on interest rates, excess reserves in the system, and perceived central bank reaction functions. However, interest rates in advanced economies won’t remain this low forever. Once the process of normalization begins, or perhaps if market perceptions shift, and it is expected to begin, a re-pricing can be expected. The orderliness of that transition is an open question."
As we noted here, despite record high stock prices and talking-heads imploring investors to believe CEOs are confident, they are not (consider the clear indication of a lack of economic confidence from tumbling capex and soaring buybacks), That is further confirmed today as Markit's survey of over 6000 firms showed optimism falling sharply in October, dropping to the lowest seen since the survey began five years ago. Hiring and investment plans were also at or near post-crisis lows, while price expectations deteriorated further. More worrying, perhaps, is the US is not decoupled whatsoever, with future expectations of US business activity at the lowest since the financial crisis.