Green Shoots

Q1 GDP growth in the US was simply abysmal - its worst in 3 years - but that does not matter as hope springs eternal that Spring is sprung and it's all green shoots from here. However... that's not what we are seeing in personal spending data (biggest miss in over 4 years in April) and now Bloomberg's Orange Book which implicitly tracks CEO Confidence via their comments has dropped back to the year's lows - not what we are being told by the talking-heads who promulgate the hockey-stick faith in our central planners.

Today's FOMC announcement may be one of the more anticlimatic (if long-winded) in a long time: consensus largely expects the taper to continue by another $10 billion, and the Fed will, erroneously, suggest that the economy is growing at a "modest" pace (if only one ignores such things as a complete collapse in US GDP growth due to harsh weather: who knew that all it takes to stop a $17 trillion juggernaut economy was cold winter weather), but it doesn't mean there can't be surprises. Courtesy of Bloomberg, here is a list of the key things to look for in today's statement.

• Headline of the day goes to... Cold weather seen temporarily slowing U.S. economy (Reuters)
• Americans Want to Pull Back From World Stage, Poll Finds (WSJ)
• U.S. Plans to Charge BNP Over Sanctions (WSJ)
• What about Jay Carney: Putin Threat to Retaliate for Sanctions Carries Risks (BBG)
• Fed expected to take further step toward ending bond buying (Reuters)
• A Fed-Watcher’s Guide to FOMC Day: Steady Taper, Green Shoots (BBG)
• Alstom accepts 10 billion euro GE bid for its energy unit (Reuters)
• BOJ projects inflation exceeding 2 percent, keeps bullish view intact (Reuters)

Despite the total collapse (flattening) in the Treasury yield curve in the last 2 days, Citi's FX Technicals group is convinced that we have seen a turn in fixed income that will see significantly higher yields in the years ahead and notably higher yields by this yearend also. Furthermore, they believe this will initially come from the belief in a continued taper, and the curve will initially steepen (2’s versus 5’s and 2’s versus 10’s). This normalization, they add, will be a good thing - QE encourages misallocation of capital and poor business decisions which has a negative feedback loop into the economy - but add (as long as yields do not go too far too fast like last year).

• Mediterranean 'Ballistic Targets' Were Part of Israeli Test – Defense Ministry (RIA)
• Microsoft to Buy Nokia’s Devices Unit for $7.2 Billion (BBG)
• Long-Term Jobless Left Out of Recovery (WSJ)
• Swiss banks apologize for assisting tax cheats (Reuters)
• As Obama pushes to punish Syria, lawmakers fear deep U.S. involvement (Reuters)
• India Looking to Expand Rupee-Payment System (WSJ)
• Citigroup Dialing Back Its 'Alternative' Holdings (WSJ)
• Libya Seeks New Solutions to Oil Crisis (WSJ)
• Lenovo Chief Yang Shares Bonus With Workers a Second Year (BBG)

Obama: "...the economy is far stronger now than it was four and a half years ago"

...as long as one ignores the reality of the following chart...

Just when the jawboning from Europe is reaching its climax that Portugal is fixed again, Greece is fixed, and the core is showing green shoots from the near-depression, Germany (the corest of the core) comes out with its worst exports data since 2009. While imports remained stable - suggesting domestic demand is sustained for now - YoY export growth collapsed 3.2%, the worst tumble since November 2009 "illustrating that Germany's economy still has difficulties shifting into higher gear." The details are a horror-story. Exports to the euro-zone, where 40% of Germany's exports are sent, fell by a stunning 9.6% (while exports to the rest of the world dropped 1.6%). To add to the misery for the 'things are getting better' crowd, Germany's industrial production data missed expectations are dropped back into the negative YoY following the 'hope' inspiring positive YoY print in April that signaled all-is-well. Of course, none of that matters, the DAX is up a stunning 2.4% today on the back of this dismal-is-great data. So much for those green shoots...

Despite the jump in French PMI (though still in contractionary region), the number of French Jobseekers rose once again (up 11.5% year-over-year) to a new all-time record. As the nation struggles with near Depression-era activity, it seems the green shoots that Draghi's jawboning once again provided today remain a long way off in real-world land.

Despite 'market-based' appearances (CAC near price highs and OATs near low spreads), the reality in France is dismal and growing more dismal. As we have explained in great detail (here and here most recently) France's economic fortunes are depression-like and today's Jobseeker data merely goes to confirm this. The total number of Gallic Jobseekers rose to 3.26 million, the highest ever on record and is accelerating at its fastest YoY rate in over three years. This month's gain of 39,800 was far above the 30,000 expectation but have no fear as Mr. Hollande promises to do whatever it takes. Interestingly, just as in the US, it is the young (under-25 +10,800) and middle-aged (25-49 +21,400) demographic that is suffering the most while the over-50 population saw only modest rises in joblessness. No green shoots here for the EU political elite to proclaim the crisis is behind us...

Surging nominal imports and a miss for exports just about sums up perfectly just how the reality of Abenomics is crushing the real economy as the market goes from strength to strength on the hope that recovery is just around the corner. For the 28th month in a row Japan trade deficit has dropped YoY and its 12-month average is now at its worst ever. Energy costs are driving up imports (and adjusted for the devaluation in the JPY, the data is simply horrendous. Of course, there are green shoots - CPI is not deflating as fast as it was... and 'some' inflation expectations are rising (though as we noted here that is simply due to the tax expectations). Contrary to expectations held by some in the bond market, the BOJ did not comment on the sharp fluctuation in JGB yields since April as a result of monetary relaxation - on the basis, we assume, that if they don't mention it, it never happened. The result post a nothing-burger of 'more uncertainty' from the BoJ, the Nikkei keeps screaming higher, JPY rallied then fell back, and JGBs are sliding higher in yield.

As the IMF delivers its first 'health check' on Greece since 2009, the beleaguered nation's finance minister proudly proclaims, "the worst is over," and the country had reached its economic trough. However, while the finance minister appears unaware of the people living in caves, the record youth unemployment (that is rising still), and the accelerating non-performing loans (no green shoots there), the IMF remains a little less confident, "Greece's debt remains much too high". As the Sydney Morning Herald reports, Stournaras added that ''in May 2014, the loan installments will come to an end and the country has to be in a position where it can go on its own to the markets.'' We can't wait (with GGBs under 10% yield to see which greater fool snaps up those beauties). The IMF is a little less sanguine warning Greece of its "insufficient structural reforms," and worries of the "socially painful recession." The last jab, in line with the new normal 'template' (that is not a template but really is), "very little progress has been made in tackling Greece’s notorious tax evasion," as the IMF demands, "the rich and self-employed are simply not paying their fair share."

So far, 91 companies have reported 1Q results (28% of total S&P 500 market capitalization). 37% of companies reporting have beaten earnings estimates (below the historical average of 47%) and 13% have missed estimates (vs. average of 15%). The average EPS surprise has been 3.4%, below the 4.8% historical average. Excluding Financials, there are similar positive surprises (37%) and similar negative surprises (13%). Excluding Financials and Utilities, 21% of companies reporting have beaten sales estimates (below the historical average of 38%) and 24% have missed estimates (vs. average of 18%). The average revenue surprise has been -0.1%, below the 1.3% historical average. In short, things are not going according to plan - though we assume this just means the Q4-fantasy-hockey-stick explosion of revenues, earnings, and margins will just get bigger.

Now is the time to think about how you would live your life if your real value was appreciated and fairly compensated.

A sign of "economic and political turmoil"

The circus continues. For this evening's entertainment, the country's Deputy PM Taro Aso explains the "excessive JPY gain has been corrected," upon which USDJPY instantly strengthens 40 pips reversing all the post-US0-close JPY weakness. Of course, the market reaction was evidently enough for him to swallow his words and 'retract' his comments mere moments later. At the same time, the BOJ declares:

*BOJ MEMBERS AGREED JAPAN'S ECONOMY STOPPED WEAKENING

While their optimism is welcome, facts (as they often do) stand tall in the face of their rhetoric as Japan's Macro index and manufacturing new orders (to name just two recent data points) do not even show second-derivative green shoots. And for the third and final act of this evening's early debacle, 30Y JGB yields have slammed 9bps higher (as JGB Futures prices look set for another halt).