Tag: news

When China reported its economic data dump last night which was modestly better than expected (one has to marvel at China’s phenomenal ability to calculate its GDP just two weeks after the quarter ended – not even the Bureau of Economic Analysis is that fast), the investing community could finally exhale: after all, the biggest source of “global” instability for the Fed appears to have been neutralized.

But what was the reason for this seeming halt to China’s incipient hard landing? The answer was in the secondary data that was reported alongside the primary economic numbers: the March new loan and Total Social Financing report.

As the PBOC reported last night, Chinese banks made 1.37 trillion yuan ($211.23 billion) in new local-currency loans in March, well above analyst expectations, as the central bank scrambled to keep the economy engorged with new loans “to keep policy accomodative to underpin the slowing economy” as Reuters put it. This was up from February’s 726.6 billion yuan but off a record of 2.51 trillion yuan extended in January. Outstanding yuan loans grew 14.7 percent by month-end on an annual basis, versus expectations of 14.5 percent.

But it wasn’t the total loan tally that is the key figure tracking China’s credit largesse: for that one has to look at the total social financing, which in just the month of March rose to 2.34 trillion yuan, the equivalent of more than a third of a trillion in dollars!

And there is your answer, because if one adds up the Total Social Financing injected in the first quarter, one gets a stunning $1 trillion dollars in new credit, or $1,001,000,000,000 to be precise, shoved down China’s economic throat. As shown on the chart below, this was an all time high in dollar terms, and puts to rest any naive suggestion that China may be pursuing “debt reform.” Quite the contrary, China has once again resorted to the old “growth” model where GDP is to be saved at any cost, even if it means flooding the economy with record amount of debt.

And to put it all together, the PBOC also reported that the broad M2 money supply measure grew 13.4% in March from a year earlier, or precisely double the rate of growth of GDP. This means that it took two dollars in new loans to create one dollar of GDP growth.

With China’s debt/GDP already estimate at 350%, how much longer can China sustain this stunning debt (and by definition, deposit) growth continue?

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We were wrong: several minutes ago when we documented the collapse in the Gallup Economic confidence, we said that “we look forward to the UMich confidence report to beat expectations when it is released in just a few minutes.” Moments ago the official print came out and it was not pretty: sliding from 91 to 89.7, not only did the print miss expectations of a rebound to 92.0, but was the lowest print since September 2015, as well as the fourth consecutive drop.

The reason for the drop? Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation.

And as UMich calculates, “the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.” Hardly a glowing endorsement of the 2.7% quarterly GDP growth needed to hit the Fed’s optimistic forecast.

This is what the report said:

Consumer confidence continued its slow overall decline in early April, marking the fourth consecutive monthly decline. To be sure, the sizes of the recent losses have been quite small, with the Sentiment Index falling just 2.9 Index-points since December 2015, although it was down 6.2 Index-points from a year ago and 8.4 points below the peak in January 2015. None of these declines indicate an impending recession, although concerns have risen about the resilience of consumers in the months ahead.

 

Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation. These apprehensions should ease as the economy rebounds from its dismal start in the first quarter of 2016. Overall, the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.

Add to this the concern about rising gas prices that was voiced by Gallup and suddenly you have a very troubling picture of the US economy.

But perhaps most troubling for the Fed is that while 1 year inflation expectations remained unchanged at 2.7%, the 5 year forward forecast dropped from 2.7% to 2.5%, implying that whatever the Fed is doing to boost expectations of rising prices is not working.

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According to the latest Weekly Economic Confidence poll released by Gallup, Americans’ confidence in the US economy is getting worse. The poll asks people to rate the economy as of today, and whether or not the economy as a whole is getting better or worse.

It turns out that ordinary people are not as excited about the US economy as those who are cheerleading minimum wage job creation and market levels being close to all time highs, and certainly not as excited as that group of people called each month by either the Conference Board or UMich, the two far more closely tracked confidence indicators.

The Economic Confidence Index for the week ending April 10th came in at -14. Down from the prior week, and hitting a low not seen since the first week of November last year.

Digging a little deeper into the detail, Gallup reveals that people are viewing the economic outlook to be much worse than current conditions. While both components are getting worse, the economic outlook plummeted. The score of -22 reflects 37% of US adults saying the economy is “getting better”, while 59% say it’s “getting worse.“

This is how Gallup concludes:

Americans’ views of the national economy have been somewhat turbulent over the last several weeks, with confidence improving one week only to fall the following week. From a broad perspective, economic confidence so far this year has neither moved into a sustained period of positivity nor entered into a steady decline. Americans are confronted with presidential candidates using the economy as one of their talking points, mixed signals from national economic reports, volatility in the stock market and an apparent end of sub-$2 gas prices nationally — all of which may be affecting their economic assessments.

 

Americans’ cautiousness in their assessments of the economy may not be far off from those of economic leaders, however. Federal Reserve Board Chair Janet Yellen has been slow to raise interest rates, with some economists arguing Yellen has been overly cautious and has underestimated the economy’s actual strength. Yellen’s critics say the slow pace of raising rates will put the Fed at a disadvantage, with the possibility of increased inflation as the economy reaches its employment targets.

The disconnect in sentiment between everyday people and financial pundits must just be the result of a communications issue. And of course, we look forward to the UMich confidence report to beat expectations when it is released in just a few minutes.

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The US economy has never – ever – seen Industrial Production drop YoY for seven months in a row without being in a recession. Down 2.0% YoY in March, the weakest since December and down 0.6% MoM (weakest since Feb 2015) the decline in factory output is driven a 1.6% plunge in vehicle production (2.8% collapse in motor vehicles specifcally) in March.

As The Fed details,

Manufacturing output decreased 0.3 percent in March. The production of durables moved down 0.4 percent. The largest declines, about 1 1/2 percent, were registered both by motor vehicles and parts and by electrical equipment, appliances, and components. Several industries posted increases, with the largest, nearly 1 percent, for computer and electronic products. After increasing 0.9 percent in January and decreasing 0.5 percent in February, the output of nondurable manufacturing edged down in March, as gains in the production of petroleum and coal products and of chemicals nearly offset declines for most other industries. The output of other manufacturing (publishing and logging) fell almost 1 percent. 

It really should be no surprise that Auto production is hitting the wall, as we have been discussing, inventories are extreme…price and sales weakness is occurring amid a mal-investment-driven excess inventory-to-sales at levels only seen once before in 24 years…

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Less than six months after we pointed out that the BoJ owns 52% of the entire Japanese ETF market, Reuters reports that the Kuroda’s Peter Pan fairy tale, aka the Bank of Japan, is thinking about buying even more. The BoJ is said to be currently buying $30 billion of ETF’s a year under its current policy, however since the Nikkei is down over 10% this year, that figure is apparently not enough to keep the market propped up.

Here’s how the BoJ’s holdings in the Japanese ETF market looked visually in recent months:

“Increasing ETF buying in huge amounts, combined with a modest increase in bond buying and an interest rate cut, could be the only way left to surprise markets,” said a former BOJ executive who retains close contact with incumbent policymakers.

The reason for the BOJ’s desperation shift to monopolizing the equity market next is that as we have warned since 2014, it is running out of bonds to purchase: “the BOJ’s huge bond purchases are also drying up market liquidity, which further limits the scope for a large increase.”

“They are crossing off a list of things that aren’t possible, and the only thing that’s left is buying ETFs,” said Richard Jerram, economist at Bank of Singapore.

Japan’s ETF market is just 15.8 trillion yen, of which the BOJ already holds about half, but ETFs can be easily cobbled together by brokerages, so there is scope for plenty more, given Japan’s TOPIX stock market weighs in at 500 trillion yen.

Recall that the Bank of Japan’s purchasing of ETF’s does in fact lift the market, but questions remain around how much losses the bank will incur after the euphoria wares off, and how they can ever exit their position without collapsing prices.

“The BoJ will not easily be able to retract this liquidity in the future without destabilizing markets“, said Andrew Meredith, co-managing director at Tyton Capital Advisors

What “retraction”? The BOJ will never be able to “retract” as at this point this is the all in gamble; Kuroda knows very well that should the Nikkei drop a few more percent, he and Abe are out. Even the BOJ itself realizes this:

There are doubts raised within the BOJ, too, but those voices are in retreat as Kuroda stretches the limits of monetary policy, and dissenters to his radical money-printing policies are being replaced by supporters, the sources say.

 

“I don’t think worries about an exit are high on the list of the BOJ’s priorities,” said another source familiar with the BOJ’s thinking.

Worse, increasingly every BOJ proposal is being seen as a joke by even the “serious” members of the analyst community.

Jerram at Bank of Singapore said he was not convinced buying ETFs would help much with the BOJ’s principal goals, however, as there wasn’t a clear transmission into economic performance.

 

“They do something for the sake of doing something, and people see through that pretty quickly,” he said.

With the only tangible success of NIRP being that the BoJ has broken the money market, it will now embark on a journey to push on the string from the other direction, ultimately from the boardroom.

As we said back in October, “buying individual issues would allow the BoJ to effectively control corporate management teams on the way to dictating decisions about wage hikes and capex. In other words, when Abenomics fails, the BoJ will simply take over the boardroom and mandate higher pay in an effort to fix this.”

Which brings up another question: why is it that central banks have no qualms about reporting their purchases f ETFs but, with the exception of the SNB, are yet when it comes to purchases of single name stocks (or, gasp, crude oil) during key inflection points, it is still considered a taboo? After all, there are no markets left that are isolated from central bank intervention anymore.

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Janet – you have a problem. Following the all-clear from China, soaring stock prices, and ‘stability’ in oil, Chicago Fed business conditions just hit a 17-month high. In other words, The Fed is gonna need some bigger ‘turmoil’ excuses or defending “no rate hikes” is going to look a whole lot more political than their independence would suggest.

Everything is awesome in Chicago too…

As The Chicago Fed notes:

Business activity expanded for New York manufacturing firms for the first time in over a year, according to the April 2016 survey. After remaining in negative territory for seven months, the general business conditions index rose to a reading slightly above zero last month, and climbed nine more points to reach 9.6 in April. Thirty-one percent of respondents reported that conditions had improved over the month, while 22 percent reported that conditions had worsened. After a steep gain last month, the new orders index edged up two points to 11.1, pointing to an increase in orders. The shipments index edged lower but, at 10.2, still signaled a modest increase in shipments. The unfilled orders and delivery time indexes both came in close to zero. The inventories index was -4.8, indicating that inventory levels were slightly lower.

 

The prices paid index rose sixteen points to 19.2, suggesting that input prices increased at a significantly faster pace than last month. The prices received index, up nine points to 2.9, showed a small increase in selling prices. The index for number of employees edged up to 2.0, indicating that employment levels remained fairly steady, and the average workweek index was unchanged at 2.0, a sign that hours worked remained largely the same.

Sp surging prices, better jobs, no global turmoil – what are you waiting for Janet?

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Several weeks ago, a German comedian Jan Böhmermann, landed in hot water after releasing a satirical “video poem” about the Turkish president which aired in ZDF Neo Royale program on March 31, and accuses Erdogan of repressing Turkey’s national and religious minorities, as well as of being a pedophile.

The video, which incidentally was less funny than the author had intended, can be seen in the clip below.

Most were slighly amused by it, but not the target of the clip’s satire, and a few days ago the Turkish president submitted a criminal complaint against the 35 year old German comedian for libel.

While the video fell under the protective cloak of the right to artistic freedom, press freedom and freedom of opinion, Böhmermann dubbed his poem an act of “abusive criticism” Reuters reported.

Ironically, even former Greek Finance Minister Yanis Varoufakis, who has borne the brunt of Böhmermann’s jokes himself, spoke out in support of the comedian, tweeting that “Europe first lost its soul [agreement with Turkey on refugees], now it is losing its humor.”

Europe first lost its soul (agreement with Turkey on refugees), now it is losing its humour. Hands off @janboehm! https://t.co/w6bTJjp0QG

— Yanis Varoufakis (@yanisvaroufakis) April 11, 2016

And while some said that this could land the humorist, already under investigation over attacking foreign representatives, in more trouble free speech watchers said that the likelihood of Merkel succumbing to Turkish pressure was low.

However, they were wrong, and earlier today Angela Merkel authorised the Turkish demand for criminal proceedings against a German TV comedian over a crude satirical poem about President Recep Tayyip Erdogan in a bitter row over free speech.

“The government will give its authorisation in the case at hand,” Merkel told reporters, adding that it was up to the courts to decide on his guilt or innocence.

However, perhaps to soften criticism of folding to Erdogan demands, Merkel also announced that Germany would by 2018 scrap the rarely-enforced section 103 of the criminal code — insulting organs or representatives of foreign states — under which the comic, Jan Boehmermann, has been accused, as a result of the embarrassing affair.  A section 103 probe can only go forward with the approval of the federal government.

Ankara this month filed a formal request for a criminal inquiry to be launched in Germany against the popular Boehmermann, who accused Erdogan of having sex with goats and sheep while gleefully admitting he was flouting Germany’s legal limits on free expression.

Merkel – who had previously labelled the poem “deliberately insulting” — had pledged Turkey’s request would be “very carefully” examined, even as she underlined the German constitution’s guarantees of “freedom of expression, academia and of course the arts”.

As AFP reports, on Friday she said her government, after heated internal debate, had concluded that only the judiciary should decide whether Boehmermann had committed a criminal offence.

“In a state under the rule of law, it is not a matter for the government but rather for state prosecutors and courts to weigh personal rights issues and other concerns affecting press and artistic freedom,” she said.

Merkel stressed that Berlin’s decision did not amount to a “prejudgement” on his legal culpability and that “prosecutors and courts” would have the last word. In an ironic twist, German law also allows Erdogan to demand the court verdict be broadcast, if he wins.

And while we respect Merkel’s justification for what will be seen as another crushing blow to European free speech, we wonder how a comparable criminal complaint by Putin against a German comedian would have fared (and there are certainly more than enough media jokes for him to pick) with the chancellor. And then we remember that it is not Russia that is the critical threshold for millions of Syrian refugees which can be unleashed upon Europe at a moment’s notice, but Turkey, and promptly remember who has all the leverage.

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