Heading into the North American open, the bulk of the morning’s price action has been provided by news that Ukrainian President Poroshenko said that he reached an agreement with Russia's Putin on a "permanent cease fire" in Eastern Ukraine's Donbass region. This saw an immediate spike higher in European equities with the DAX future rallying and breaking above its 100DMA seen at 9644.50, thus extending earlier gains that stemmed from the strong performance in Asia-Pacific equities, while the e-mini S&P once again printed a fresh record high. However, these moves staged a partial reversal amid comments from Russia’s Putin that he denied that such an agreement had been reached as Russia is not a party to the Ukraine conflict. In stock specific news, Russian exposed Raiffeisen Bank outperforms Europe (+7%) in reaction to the geopolitical developments, while Hugo Boss have underperformed throughout the session following a share placement which came in at the lower end (-5.3%).
And for tonight's menu of disastrous Japanese economic data, we have (drum roll please)... Auto sales. Overall auto sales fell 9.1% YoY to 333,471 - the lowest in 3 years. Minicars dropped a stunning 15.1% YoY according to the Japanese auto dealers association. The response - rather obvious by now - to this terrible news... a 35 pip vertial ramp in USDJPY which can mean only one thing - the Nikkei 225 rallied 150 points... On a side note, following disappointing PMIs, China fixed the Yuan at 4-month lows.
While weather may affect the economy, the recent contraction has little to do with winter’s bitter cold; the US economy is far too diverse and complex. Instead, we are witnessing the ongoing effects of failed monetary and fiscal policies. As the Wickersham Commission noted years ago, “These laws [of economics] cannot be destroyed by governments, but often in the course of human history governments have been destroyed by them.”
There is an ongoing belief that the current financial market trends will continue to head only higher. This is a dangerous concept that is only seen near peaks of cyclical bull market cycles.The problem for most investors is that by they time they recognize the change in the underlying dynamics, it will be too late to be proactive. This is where the real damage occurs as emotionally driven, reactive, behaviors dominate logical investment processes.
Overview of the technical conditions of the major markets.
In the first seven months of 2014, Goldman notes that equity, fixed income, and FX markets were most intently focused on the labor market with a number of the largest moves occurring due to employment reports and jobless claims. The equity market responded to a mix of economic, monetary policy, and geopolitical news. The fixed income market focused on employment reports, although other factors also resulted in large one-day moves. The dollar, although less volatile than usual, did move on both US economic developments and news out of Europe.
Dispassionate, non-conspiratorial rant , fact-based high level discussion of the sigificant drivers of the week ahead.
Before you jump on the Bull market bandwagon of "don't fight the Fed," perhaps you should take a look at the quality of the debt the Fed has enabled and the diminishing returns on all that debt.
Which appears more likely - a straight-line extension of the past two years' rise in stocks, or another "impossible" decline to complete the megaphone pattern?
An overview of the major events next week within the context of the capital markets, which could be at inflection points.
A look at the price action in the major currencies, US Treasuries and the S&P 500.
Beige Book summary:
- "Optimistic" or "Optimism": 24
- "Pessimism": 1
Dispassionate overview of the price action in the foreign exchange market in the context of the funamental developments.
Opinions about the U.S. economy boil down to two views: 1) the recovery is now self-sustaining, meaning that the Federal Reserve can taper and end its unprecedented interventions without hurting growth, or 2) the current uptick in auto sales, new jobs, housing sales, etc. is as good as it gets, and the weak recovery unravels from here. The reality is that nothing has been done to address the structural rot at the heart of the U.S. economy. You keep shoving in the same inputs, and you guarantee the same output: another crash of credit bubbles and all the malinvestments enabled by monetary heroin.
- Obama Decries Big Bonuses at Bank Trading Desks as Risky (BBG)
- India central bank seeks to swap gold to improve reserves quality (Reuters)
- There goes Q3 GDP: Arthur Strengthens to Become First Atlantic Hurricane (BBG)
- Airports Serving U.S. Tighten Checks on Stealth-Bomb Threat (BBG)
- Fear, cash shortages hinder fight against Ebola outbreak (Reuters)
- Brent Declines as Libya Rebels Say Ports Are Open (BBG)
- Shiites Train for Battle in Iraqi Holy City (WSJ)
- Dimon’s Cancer Has 90% Cure Rate With Demanding Therapy (BBG)
- Goldman says client data leaked, wants Google to delete email (Reuters)
- ECB Watchers in the Dark Look to Draghi for Illumination (BBG)