There are things going on with the financial markets currently that seem just a bit "out of balance." For example, asset prices are rising against a backdrop of global weakness, deflationary pressures and rising valuations. More importantly, there is a rising divergence between sentiment and hard data. While weather can't be blamed yet, it will likely be the main "excuse" in the months ahead as early record snowfall is already impacting economic production. However, it isn't just the manufacturing data that seems "out of whack."
Recovery, we have a problem... November's Flash US Manufacturing PMI printed a 10-month lows 54.7, missing expectation sof 56.3 by the most on record and tumbling for the third month in a row. The last 2 mnths have seen the biggest drop since June 2013 ands as Markit notes, suggests a further drop in GDP growth expectations of only 2.5% in Q4. Output is down for the 3rd straight month and Surprise!! Export market weakness is being blamed... as it seems the US cannot decouple from the rest of the world's slump after all and is - as we have explained numerous times - merely on a lagged cycle. We're gonna need more Fed-fueled subprime-auto-loan malarkey to keep this dream alive.
- Banks Had Unfair Advantage From Commodity Units (Bloomberg)
- Report Notes Deals Between Goldman, Deutsche and Others Drove Up Aluminum Prices (WSJ)
- Goldman, Morgan Stanley Commodity Heyday Gone as Units Faulted (BBG) - because when you can no longer manipulate, you move on...
- Lenders Shift to Help Struggling Student Borrowers (WSJ)
- Immigrants face major hurdles in signing up to new Obama plan (Reuters)
- Distressed Debt in China? Ain’t Seen Nothing Yet, Buyers Say (BBG)
- Banking culture breeds dishonesty, scientific study finds (Reuters)
- Amazon Robots Get Ready for Christmas (WSJ)
Global Slowdown Confirmed By PMIs Missing From Japan To China To Europe; USDJPY Nears 119 Then SlidesSubmitted by Tyler Durden on 11/20/2014 07:00 -0500
The continuation of the two major themes witnessed over the past month continued overnight: i) the USDJPY rout accelerated, with the Yen running to within 2 pips of 119 against the dollar as Albert Edwards' revised USDJPY target of 145 now appears just a matter of weeks not months (even though subsequent newsflow halted today's currency decimation and the Yen has since risen 100 pips , and ii) the global economic slowdown was once again validated by global PMIs missing expectations from Japan to China (as noted earlier) and as of this morning, to Europe, where the Manufacturing, Services and Composite PMI all missed across the board, driven by a particular weakness in France (Mfg PMI down from 48.5 to 47.6, below the 48.8 expected), but mostly Germany, after Europe's growth dynamo, which disappointed everyone after yesterday's rebound in the Zew sentiment print, printed a PMI of only 50.0, down from 51.4 a month ago, down from 52.7 a year ago, and below the 51.5 expected. And just as bad, Europe's composite PMI just tumbled to 51.4, the lowest print in 16 months!
Putting Things In Context ...
What happened in October is that an unadjusted response which indicated the weakest labor market in half a year, was magically transformed into almost the best print in the history of the Employment series.
US Services dropped modestly from the 58.9 in September to a final print at 57.1 in October - the lowest since April. This should be no surprise as for the last 5 years, H2 has seen a notable decline in the soft-survey-based data. Despite the plunge, employment remained solid even as the business outlook neared 2-year lows. As Markit notes, the survey "warns of a slowdown as move towards the end of the year," which is odd because the world and his pet rabbit said US was decoupling. For a change ISM Services actually agreed with Markit and printed 57.1, missing by the most since Feb 2014 with New Orders and Prices Paid down.
- From Yes We Can to Probably Not (BBG)
- How Mitch McConnell did it (Politico)
- Tough road ahead for Obama after Republicans seize Senate (Reuters)
- Election 2014: Who were the big winners and losers? (USA Today)
- GOP Senate Takeover Puts Fed on Hot Seat (WSJ), and other fables
- GOP Won by Recruiting the Right Candidates (WSJ)
- McCain could shake up U.S. defense in powerful new Senate role (Reuters)
- Investors Pulled Record Amount From Pimco’s Flagship Fund in October (WSJ)
- Taliban group threatens to attack India following border blast (Reuters)
- Oil Import Decline to U.S. Revealed by Louisiana as Truth (BBG)
While hardly a surprise, the spin for the latest round of overnight BOJ USDJPY-buying exuberance, which sent the pair higher by another 100 pips to a fresh 7 year high of 114.500 and just over 500 pips from the Albert Edwards "line in the sand" 120 and pushed US equity futures higher with it, has been the Republican sweep in the midterm elections which not only solidified GOP control of the House but also gave Republicans outright control of the Senate.
US manufacturing both declined (PMI) and rose (ISM) in October as the divergence between the two soft-survey-based data streams is as ridiculous as it was in the second half of last year. ISM printed a cycle high 59.0 (highest since March 2011) smashing the 56.1 expectations (the biggest beat since July 2013). While the headline print was exuberant, New orders fell, as did new export orders. Construction spending fell for the 2nd month in a row, dropping 0.4% against expectations of a 0.7% rise.
But, but, but the US is the cleanest dirty short that has decoupled from the rest of the world and is the engine of global growth... right? Well with residential investment having plunged, and now manufacturing PMI slumping, we are going to need a better meme. US Manufacturing PMI printed 55.9 final for October, missing expectations fo 56.2 (for 5th month in a row), sliding to its lowest since July. Markit gingerly admits, "the latest figures indicate that the recovery has lost some intensity at the start of the fourth quarter." So, in summary, the US is decoupling from the rest of the world and US GDP is decoupling from both domestic housing and manufacturing?
- To salvage his presidency, Obama faces pressure to reboot - but will he? (Reuters)
- Pro-Russian separatist Zakharchenko wins Ukraine rebel vote (Reuters)
- Russia's Recognition of Ukrainian Separatist Election Is 'Incomprehensible,' Germany Says (Moscow Times)
- Man Running World’s Biggest Wealth Fund Tackles China Riddle (BBG)
- Russian Supply Underpins Global Oil Glut (WSJ)
- Argentina accuses Procter & Gamble of tax fraud, says suspends operations (Reuters)
- ECB Skips Fireworks for Day One of New Role as Supervisor (BBG)
- HSBC Hit by $1.7 Billion of Provisions (WSJ)
Lack Of Daily Central Bank Intervention Fails To Push Futures Solidly Higher, Yen Implosion ContinuesSubmitted by Tyler Durden on 11/03/2014 06:47 -0500
While it is unclear whether it is due to the rare event that no central bank stepped in overnight with a massive liquidity injection or because the USDJPY tracking algo hasn't been activated (moments ago Abe's deathwish for the Japanese economy made some more progress with the USDJPY hitting new mult-year highs just shy of 113.6, on its way to 120 and a completely devastated Japanese economy), but European equities have traded in the red from the get-go, with investor sentiment cautious as a result of a disappointing the Chinese manufacturing report. More specifically, Chinese Manufacturing PMI printed a 5-month low (50.8 vs. Exp. 51.2 (Prev. 51.1)), with new orders down to 51.6 from 52.2, new export orders at 49.9 from 50.2 in September. Furthermore, this morning’s batch of Eurozone PMIs have failed to impress with both the Eurozone and German readings falling short of expectations (51.4 vs Exp. 51.8, Last 51.8), with France still residing in contractionary territory (48.5, vs Exp and Last 47.3).
Despite plunging consumer spending, Chicago PMI surged to 66.2 (against expectations of 60.0), its highest in 12 months. This is above even the highest economist estimate and is a 4-sigma beat... having been at one-year lows just 3 months ago.
Following misses in yesterday's Markit Service PMI, Existing Home Sales and the Dallas Fed report, and today's Durable Goods numbers, we just made it a pentafecta for misses in US econ data, when the just released August Case-Shiller data for August confirmed once again that US housing is rapidly slowing down, when the Top 20 Composite Index (Seasonally Adjusted) posted another decline in August, its fourth in a row, declining by -0.15% and missing expectations of a modest 0.2% rebound (following last month's -0.5%) decline. The best summary of the situation came from S&P's David Blitzer: "The deceleration in home prices continues... The Sun Belt region reported its worst annual returns since 2012, led by weakness in all three California cities -- Los Angeles, San Francisco and San Diego." But who cares what the birth (and death) place of every housing bubble is doing, right?