Markit

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Economic Composite Index Suggests Restocking Cycle Is Over





While economic indicators make "very poor bedfellows" for managing portfolios, they do provide some indication as to the relative risk of owning assets that are ultimately tied to economic cycles. Despite commentary to the contrary as of late, economic cycles have not been repealed, and the current economy is likely running on borrowed time. It is important to notice, that despite the "hype" of the mainstream media about the economic recovery, activity never rose past previous peaks in this cycle.

 
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China Manufacturing PMI Suggests "Sluggish Domestic Activity & Uncertain Export Demand"





Modestly higher than the 'contractionary' 49.7 print in Janauary, February's Markit (flash) China Manufacturing PMI printed at 50.1 (beating expectations of a drop to 49.5). However, before global investors pop the proverbial champagne corks of global recovery, we note that employment's drop accelerated, New Export Orders contracted the most since June 2013, and prices continued to fall. Of course, HSBC is careful to note that "more policy easing is still warranted" because they believe, "domestic economic activity is likely to remain sluggish and external demand looks uncertain." For now Chinese stocks are holding losses after the lunar new year and the Yuan has weakened further near 30 month lows - once again testing the upper 2% fix band.

 
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Services PMI Surge "Puts June Rate Hike Firmly Back On Table"





Worst. Case. Scenario. Markit US Services (flash) PMI printed an impressive 57.0 (smashing 54.5 expectations), well up from January's 54.2 as combined with the Manufacturing (soft survey data) suggests, according to Markit, that GDP is growuing around 3.0% annualised. Of course both these 'surveys' print positive amid one of the biggest declines and series of misses in US macro data of the last few years. As Markit notes, “The Fed will no doubt be encouraged by the resilience of the economy...and increasingly minded to start the process of normalising monetary policy in June."

 
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Frontrunning: February 24





  • Yellen faces Senate grilling on Fed rate policy, transparency (Reuters)
  • Big Banks Face Scrutiny Over Pricing of Metals (WSJ)
  • Greece makes more concessions to euro zone, Germany sets vote (Reuters)
  • Time for another executive order: Longer Lives Hit Companies With Pension Plans Hard (WSJ)
  • The Syria invasion "false flag" approaches: Islamic State in Syria abducts at least 90 from Christian villages (Reuters)
  • Why Lenders Love the $2.5 Million Home Loan (BBG)
  • Reuters journalist Maria Golovnina dies in Pakistan aged 34 (Reuters)
  • Qatar’s Ties to Militants Strain Alliance (WSJ)
 
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With Greece Swept Under The Rug, Focus Turns To Janet Yellen's Congressional Testimony





There was an expectation that today's receipt by the Troika of the revised Greek "reform proposal" would send risk and the EUR higher, which is probably precisely why nothing has happened so far, and US equity futures are unchanged ahead of what the HFT algos' new attention focus is today, namely Yellen's semi-annual testimony to Congress. As a result, the only thing that has seen notable strength this morning is the USD, which has surged to 119.50 against the Yen, and briefly pushed the EURUSD under 1.1300. which also means that WTI has also gone nowhere overnight and remains under $50. One wonders just what OPEC "rumor" those long crude will leak today.

 
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Manufacturing PMI Signals "US Economy Has Entered A Slower Growth Phase"; Employment, New Orders Tumble





Having hovered at its lowest level in 12 months in January, February's Markit US Manufacturing PMI printed 54.3 (modestly above expectations of 53.6). Under the covers it is a very different story with New orders dropping to their lowest level since Jan 2014 and employment falling. While the headline will likely steal the day (though initial equity reactions are negative), as Markit concludes, "the rate of economic growth remains well down on last year."

 
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Stocks Coiled To Soar On Any Positive Greek News





With the new and revised (until it is re-revised again to some future date), Greek D-Day set for today's third in the past 2 weeks Eurogroup meeting, every favorable headline serves as a springboard for ES-buying algos, while every negative headline is promptly ignored. And since this is Europe's style trial ballooning, there have been many of both with just these two hitting in the last hour:

  • GREECE, EURO ZONE NEAR DEAL ON PACKAGE, REUTERS CITES UNIDENTIFIED GREEK OFFICIAL
  • GREECE DID NOT GO FAR ENOUGH IN THEIR LATEST PROPOSAL: GREEK GVOERNMENT SPOKESMAN

Guess which one pushed ES into the green?

 
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"We're Gonna Need A 4th Arrow" Japanese Manufacturing PMI Misses, Slips To 7 Month Lows





It would appear that monetizing more than 100% of your debt and constant daily reassurances that everything is awesome are not enough to create real world economic growth. Japanese manufacturing PMI slipped to 51.5 in February (missing expectations of 52.2), its lowest since July 2014 as New Orders & Employment slowed. Perhaps most worrying for the deflation-death match Abe is wagering, Output prices tumbled. Japanese stocks don't care of course, having entirely decoupled from JPY when The BoJ scared the FX carry markets with its 'hawkish' bias and 5-4 vote.

 
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Now On The Endangered Species List: Bond Traders





The bond market may have gotten so fragmented in recent months that even Bloomberg was amazed at how little trading volume it necessary to make a price impact, the amount of bond traders (and certainly salesmen), and certainly their bonuses, appeared to only go up. "Appeared" being the key word, however, because as Bloomberg reports, "the average number of dealers providing prices for European corporate bonds dropped to a low of 3.2 per trade last month, down from 8.8 in 2009, according to data compiled by Morgan Stanley."

 
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How The ISM Beat Expectations: It Assumed January Weather Was Worse Than The Polar Vortex





Earlier today, when the Markit PMI and the ISM non-manufacturing data disagreed violently over a key aspect of the economy, namely that according to the first, the all important, forward-looking New Orders had dropped to the lowest since the great financial crisis, while according to the latter, they rebounded modestly in January, we decided to go straight to the source: the unadjusted data which does not incorporate any gratuitous seasonal adjustments (which for the ISM, were just adjusted as part of its annual revision spectacle).  This is what we found.

 
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Services PMI Worst New Order Growth Since Financial Crisis, ISM Weakest Employment Since Feb 2014





Markit Services PMI rose modestly but hovered at one-year lows at 54.2 in January suggesting, as Markit notes, "the near-halving in the pace of economic growth in the fourth quarter of 2014," as companies struggle with new orders seeing the smallest increase since the financial crisis over six years ago. This comes on the heels of Decembers big miss in ISM Services, which rose - like PMI - very modestly to 56.7 (from a revised 56.5) with prices-paid tumbling to its lowest sinceJuly 2009 and employment lowest since Feb 2014. That said, it wouldn't be a Baffle with BS economy if the two releases, which are supposed to at least agree on the direction of the move, did not report two diametrically opposite trends, with the ISM reporting that while Employment tumbled from 55.7 to 51.6, New Orders actually rose from 56.5 to 56.7. Markit? The other way around, with New Orders dropping from 53.4 to 52.3 as Employment rose from 51.5 to 52.3!

 
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Frontrunning: February 4





  • Arab World Unites to Condemn ‘Barbaric’ Death of Jordanian Pilot (BBG)
  • Jordan hangs two Iraqi militants in response to pilot's death (Reuters)
  • As Oil Prices Climb, Some Harbor Doubts (WSJ)
  • Taiwan plane cartwheels into river after take-off, killing at least 19 (Reuters)
  • Seven dead as commuter train hits car near New York City (Reuters)
  • Apollo’s 600% Profit on Oil Company Leaves Rivals Behind (BBG)
  • Greece's rock-star finance minister Yanis Varoufakis defies ECB's drachma threats  (Telegraph)
 
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Market Wrap: Equity Futures Subdued On Oil, Energy Profit Taking Following Latest Crude Inventory Surge





Following the torrid surge in crude in the past 4 days, overnight oil price have taken a step back - if only until the "newer normal" 2:30pm ramp into the Nymex close -  with both Brent and WTI down nearly 3%, with yesterday's latest API inventory data showing another massive crude build when it was released after the close, which in turn is pressuing futures modestly if decidedly, and not even the surprise PBOC RRR-cut (which many had seen as likely if only in advance of the liquidity sapping Chinese New Year) which hit the tape an hour ago managed to push ES into the green, at least for now. Curiously, not even the now standard low volume levitation in the USDJPY in recent trading has had any impact on US futures, which appear to have found a new correlation regime for the time being, one which tracks what oil does more than any other asset class.

 
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US Manufacturing "Remains In Low Gear" - Hovers Near One-Year Lows





Having fallen 4 months in a row in December to its lowest since last January, one could have been forgiuven for expecting the ubiquitous hope-driven bounce we so often see in soft-survey-based data and sure enough, Markit's US Manufacturing PMI eked out a very small (53.9 vs 53.7 previous) rise in January - hovering at practically one-year lows. On the heels of China's disappointment, it appears the cleanest dirty short of America is not decoupling too much (if at all). This is not the "crisis has passed", "economy is strong" narrative-confirming data that Obama and The Fed would have everyone believe and as markit notes, “Manufacturing remains in a lower gear compared to that seen last summer... adding to the suspicion that the pace of economic expansion in the first quarter could even fall below the 2.6% rate seen in the final quarter of last year."

 
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