Category: zerohedge

The Fed’s Bill Dudley just unleashed the most cognitively dissonant statement of his career. That superlative is highlighted by theses two headlines:

• DUDLEY SAYS U.S. ECONOMY IS IN QUITE GOOD SHAPE
• DUDLEY: DON’T SEE NEGATIVE RATES HAVING ‘BIG CONSEQUENCE’

Try telling The BoJ’s Kuroda that!!

 

 

Nope – no consequence at all…

Yet again his comments confirm The Fed’s utter confusion…

Today:

• DUDLEY: MANY STEPS BEFORE FED WOULD CONSIDER NEGATIVE RATES 

 

Yesterday:

• YELLEN: FED LOOKING AT  NEGATIVE RATES AGAIN

via Zero Hedge http://ift.tt/1PRlGJB Tyler Durden

After starting out strongly this morning, with DB stock trading just shy of $17/share, European banks have seen some weakness in the past hour following a report from Reuters, in which sources were cited as saying that there is “firm support for a deposit rate cut within the European Central Bank’s Governing Council.” While a year ago this would have sent European stocks soaring, this is no longer the case as explained by none other than Deutsche Bank last weekend:

• Declining bond yields have been robustly associated with larger inflows into bonds at the expense of equities. Though a large over allocation to fixed income at the expense of equities already exists as a result of past Fed QEs and a lack of normalization of rates, further easing by the ECB and BOJ that lower bond yields globally will only exacerbate the over allocation to bonds;
• Asynchronous easing by the ECB and BOJ while the Fed is on hold risks speeding up the dollar’s up cycle, pushing oil prices lower and exacerbating credit concerns in the Energy, Metals and Mining sectors. It is notable that the ECB’s adoption of negative rates in mid-2014 which prompted the large move in the dollar and collapse in oil prices, marked the beginning of the now huge outflows from High Yield. These flows out of High Yield rotated into High Grade, ironically moving up not down the risk spectrum. The downside risk to oil prices is tempered somewhat by the fact that they look cheap and look to be already pricing in the next leg of dollar strength;
• Asynchronous easing by the ECB and BOJ that is reflected in the US dollar commensurately raises the trade-weighted RMB and increase the risk of a disorderly devaluation by China. The risk of further declines in the JPY is tempered by the fact that it is already very (-29%) cheap, but there is plenty of valuation room for the euro to fall.

This explicit warning is one additional factor why European banks have plunged by 30% in recent weeks, and as noted earlier, have suffered such an abysmal start to the year it makes 2008 seem tame by comparison.

This perhaps also explains why Reuters adds that while a rate hike is in the works, “appetite for more radical action is still limited, conversations with policymakers indicate a month before the March rate decision.”

Following DB’s line of logic, one can see why Mario Draghi should be concerned: any more unconventional easing could have an increasingly more dramatic impact on bank profitability as yield curves invert ever more.

And yet the ECB has to do something (hence the problem duly noted by DB this morning): “With long-term inflation expectations falling, the ECB will probably have to act and frame the rate cut as part of broader a package, with some measures involving changes to the bank’s flagship asset-purchase program, policymakers told Reuters.

But with no consensus yet about which further measures to take and Europe’s modest economic recovery still broadly on track, some of those spoken to cautioned against radical action. They noted, however, that their view could still change if recent market turmoil proved lasting, posing a risk to the real economy.

Turmoil resulting from the ECB’s radical actions.

More from Reuters:

ECB President Mario Draghi has said the bank would review and possibly recalibrate its stance in March to fight persistently low inflation. Markets now price at least two rate cuts, taking the deposit rate to -0.55 percent by the end of the year from -0.3 percent. 

“Doing nothing in March is very unlikely,” the governor of one of the euro zone’s 19 central banks told Reuters. “Monetary conditions have tightened, long term inflation expectations are falling and credibility is at stake. I think a deposit rate cut is fairly undisputed.”

And herein lies the rub: conditions have tightened in large part due to the ECB’s actions, which means Draghi’s credibility is not only at stake, but will be further reduced no matter what he does.

Finally, if NIRP is off the table, will the ECB do something else? Quite possible:

But based on the current outlook, including the increased market volatility, moving the deposit rate alone does not appear to be enough for some policymakers.

 

“The chance of a rate cut is high,” said another governor, who spoke on condition of anonymity. “It wouldn’t do enough and it would be a mistake to signal that we’re relying on conventional policies when we’re going to be in the unconventional sphere for years to come.”

 

“Quantitative easing is our key policy tool and I think any package needs to have a QE component,” the policymaker added.

So, in short, now that we know that banks have a revulsive reaction to more NIRP, the question is how they will react to news of more QE from a European Central Bank which has for the past year become increasingly collateral constrained. If an announcement of more QE by Draghi leads to further selling, then central banks are truly out of ammo and only monetary paradrops remain.

via Zero Hedge http://ift.tt/1oajP8r Tyler Durden

Having already warned of a “deflationary mindset,” today’s University of Michigan Confidence data suggests Americans are falling deeper into dis-inflation territory. Today’s headline tumble in confidence to 4-month lows, with “hope” dropping to 6-month lows is dominated by the plunge in 5-10 year inflation expectations to 2.4% (from 2.7%) – a 36-year record low.

 

 

Whatever you’re doing Janet – It’s not working!

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By EconMatters

Always stay calm while others are panicking – especially in financial markets. There is a lot of talking one`s book going on in the markets with incentives to create panic and hysteria in the financial markets with the media the willing accomplice in how the game is played. The world is rarely a worst case scenario – that should never be a baseline position. 

 

 

© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle

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After some stabilization into mid-2015, the ratio of business inventories-to-sales has surged as sales have disappointed and mal-investment-driven dreams have over-stocked. Business inventories rose 0.1% MoM in December (retail up 0.4%) and sales tumbled 0.6%.

Year-over-year, Inventories are now up 1.7% (led by retailers up 5.4%) while Sales are down 2.4% (led by Manufacturers down 5.1%)

Recession?

 

At 1.39x, the current ratio is flashing a warning that a deep de-stocking recession looms.

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

What NIRP communicates is: this sucker's going down, so sell everything and hoard your cash and precious metals.

The last hurrah of central banks is the negative interest rate policy–NIRP. The basic idea of NIRP is to punish savers so severely that households and businesses will be compelled to go blow whatever money they have on something–what the money is squandered on is of no importance to central banks.

All that matters is that people and enterprises are forced to spend whatever cash they have rather than "hoard" it, i.e. preserve and conserve their capital.

That this is certifiably insane is self-evident. If an economy depends on bringing future spending into the present by destroying savings, that economy is doomed regardless of NIRP, for eventually the cash runs out and spending declines anyway.

But NIRP will fail completely and totally due to another dynamic— one I addressed last month in Another Reason Why the Middle Class and the Velocity of Money Are in Terminal Decline. As correspondent Mike Fasano noted, negative interest rates force us to save even more, not less:

"People like me who have saved all their lives realize that they their savings (no matter how much) will never throw off enough money to allow retirement, unless I live off principal. This is especially so since one can reasonably expect social security to phased out, indexed out or dropped altogether. Accordingly, I realize that when I get to the point when I can no longer work, I'll be living off capital and not interest. This is an incentive to keep working and not to spend."

If banks start charging savers interest on their cash, savers will have to save even more income to offset the additional costs imposed by central banks on their savings.

A third dynamic dooms the insane negative interest rate policy: what does it say about the stability and health of the status quo if central banks are saying the only way to save the status quo is to force everyone to empty their piggy banks and spend every last dime of cash?

What exactly are we saving by destroying savings and capital? Isn't capital the foundation of capitalism? The answer is we are saving nothng but a rotten-to-the-core, parasitic, predatory banking system, coddled and enabled by corrupt central banks and states.

What NIRP says about central banks is that they have run out of options and are now in their own end zone, heaving the final desperate Hail Mary pass that has no hope of saving them from complete and total defeat.

NIRP also says the economy that needs NIRP is sick unto death and doomed to an implosion of impaired debt, over-leveraged risk-on bets and asset bubbles generated by stock buybacks and central bank purchases of risky assets.

The central bankers are delusional if they think NIRP will inspire confidence in investors, punters, households and enterprises. Rather, NIRP signals the failure of central bank policies and the end-game of credit expansion as the solution for all economic ills.

What NIRP communicates is: this sucker's going down, so sell everything and hoard your cash and precious metals. If that's what the central banks want households and enterprises to do, NIRP will be a rip-roaring success.

via Zero Hedge http://ift.tt/1oaarSk Tyler Durden

There was hardly a blemish in today’s retail sales report: the January numbers not only beat expectations across the board, including the all important control group which printed at 0.6% or the highest since May, but the December data was also revised notably higher. At first glance, great news for those who hope consumer spending is finally getting some traction from collapsing gasoline prices.

And yet, even a modestly deeper look below the strong retail sales headline numbers once again reveals just how this “across the board beat” was accomplished.

It was all in the seasonal adjustment, something which plagued the January non-farm payrolls report as well as numerous sellside analysts lamented.

The thing about seasonally adjusted retail sales is that while they are supposed to smooth out month-to-month changes in any given data series, they should be virtually identical to the non-seasonally adjusted retail sales on a annual, year-over-year basis. After all the same “seasonal” adjustment that was applicable this January, was applicable last January, the Januarybefore it, and so on, unless of course, something changed.

To the best of our knowledge nothing changed, even though while seasonally adjusted sales rose modestly by $800 million to $449.9 billion, on an unadjusted basis retail sales actually dropped by $112.7 billion with a “B.”

And indeed, when looking at the annual change in headline retail sales data we find that, as expected, the seasonally-adjusted (blue) and unadjusted (red)retail sales series are almost identical…

… but not quite.

If one zooms in on the most recent data, one finds something surprising: a substantial rebound in SA retail sales, which according to the Dept. of Commerce rose 3.4% – the best print since January 2015 – while unadjusted retail sales rose by just 1.4% – the worst montly print since August, and hardly inspiring confidence that what is happening on a seasonally adjusted basis is indicative of what is really happening.

 

To isolate the problem we decided to look at only the annual (YoY) change in January data. The chart below shows the surprising finding: while virtually every January in the prior 5 years saw an almost identical change in the SA and NSA data, this January, there was a major disconnect: in fact on an NSA basis, January retail sales were mathced for the lowest increase since the financial crisis at 1.4%, a far cry from the far more respectable and adjusted 3.4%.

 

To show just how much of an outlier January 2016 was compared to January in prior years, here is the seasonal “adjustment ratio” for the month of January for every year since 2010 to 2016, by which we define the ratio of “seasonally adjusted” to “unadjusted” retail sales. Spotting the outlier should be easy enough.

 

 

In other words, any “strong” rebound in January retail sales was all in the seasonal adjustment factor.

We wonder if Yellen’s “dot plot” will likewise come in unadjusted and seasonally adjusted flavors from now on to reflect both the actual underlying U.S. economy and the economy the Fed would like to see when observed through the filter of the government’s politically biased Arima-X-12 seasonal adjustment model?

via Zero Hedge http://ift.tt/1SlIOSw Tyler Durden

The writing has been on the wall for quite a while and indeed it was just three days ago when we reported that the EU was mulling a two-year Schengen suspension amid the wave of Mid-East asylum seekers streaming into Western Europe, but now it looks to be official.

Or at least semi-official.

According to AP, who cites documents, the EU is set to restrict passport-free travel and allow member countries to “unilaterally put up border controls.”

• EU SAID POISED TO RESTRICT PASSPORT-FREE TRAVEL

Here’s the story: 

Documents seen by The Associated Press show that European Union countries are poised to restrict passport-free travel by invoking an emergency rule for two years due to the migration crisis.

 

Each of the 26 countries in the open-travel Schengen Area is allowed to unilaterally put up border controls for a maximum of six months. That limit can be extended for up to two years if a member nation is found to be failing to protect its borders.

 

The documents show that EU policymakers are poised to declare that Greece is failing to sufficiently protect its border. Some 2,000 people are still arriving daily on Greek islands in smugglers’ boats from Turkey.

 

A European official showed the documents to the AP on condition of anonymity because the documents are confidential.

Meanwhile, Austria says it will likely close its borders altogether in the months ahead. “Most probably in the coming months our maximum number will be reached, so Austria will have to stop the migrants at its border,” Austrian Foreign Minister Sebastian Kurz said on Friday. As regular readers are no doubt aware, Austria has had its fair share of migrant “issues” and is already so exasperated that the government is willing to pay refugees €500 to go back where they came from.

In other words, we may be writing the obituary for the European dream in fairly short order because you can bet a number of countries will go full-Viktor Orban now that Brussels has finally buckled under the pressure.

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Via Dana Lyons' Tumblr,

The correction in the equity markets has brought the S&P 500 down close to a confluence of key technical levels.

People ask us all the time what we view as the important “levels” in the stock market, e.g., “what is our target level for the Dow?” or “what level will put an end to the correction?”. To be honest, while we do have our areas on the various charts that we view as significant, we are less focused on price levels than we are on the behavior of various market indicators and investors. Levels can be helpful, but sometimes prices overshoot what they “should” and sometimes they don’t quite make it “there”. That’s why we rely on a set of indicators based on market internals, momentum, investor positioning, etc. to help guide our investment posture, i.e., aggressive, defensive, etc.

That said, as I mentioned, we do view certain levels on a chart as significant if prices do happen to reach, or breach, them. And since A) people are most interested in the S&P 500 and B) that index is approaching some potentially key levels, we thought we would present it as our Chart Of The Day.

One thing of note that we have mentioned several times before is that, of all the securities and indices, etc. that one wants to chart technically, the S&P 500 is one of the most unreliable. We have found that typically, the degree of adherence to technical levels is inversely correlated to the number of participants trading it. That is, the more people attempting to technically trade a price series, the less apt it is to conform to traditional technical analysis.

This is not a scientific conclusion but rather an observation of ours. But it does make sense because A) the more competition there is, the more difficult it will be to win, and B) the more participants there are watching the same thing, the more likely it will be that HFT’s, computers or large institutions will be “gaming” that “thing”. And perhaps no instrument has more eyes on it than the S&P 500. That means it is a relatively difficult thing to successfully trade based on traditional technical analysis. Yet, for some reason, everybody feels the need to be involved with it.

With all that said, here are some levels of potential importance, in our view, that are fast approaching based on the S&P 500′s current selloff. Again, the levels are not as precisely aligned as they are on some indices (e.g., the Value Line Geometric Composite), because there are too many eyeballs on it. However, the following 5 significant levels are generally within the same vicinity between 1748-1790, making it a key confluence of potential support.

 

 

? 23.6% Fibonacci Retracement of 2009-2015 Rally ~1790

? 38.2% Fibonacci Retracement of 2011-2015 Rally ~ 1748

? 61.8% Fibonacci Retracement of 2013 Breakout-2015 Rally ~1780

? 1000-Day Moving Average ~1774

? Post-2009 Up Trendline ~1760

 

You may be thinking that, if the S&P 500 reaches these levels, it will mean that the January 20 low will have been breached. How could the index be expected to hold any nearby levels then? Remember that there are tons of folks watching for a break of that January low as a bearish signal. While we are not saying a breach of the low would be a positive, remember that there is a ton of money watching the “watchers” with the goal of manipulating their traditional expectations. That may be less than clear so just remember, if you’re trading the S&P 500 or any other heavily traded instrument, do not be surprised by the unexpected.

Will these levels pan out as support? Will they even be reached? We have no idea. That’s why we focus on other metrics to inform our investment decisions. However, we would expect this confluence of levels to at least offer an attempt at support.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.

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There was much at stake in today’s retail sales report, because had the Census reported another miss in the headline, ex auto and control group data, it would have made the Fed’s job of maintain the illusion of a recovery into a rate hike cycle virtually impossible. Luckily for Yellen, the numbers came out and they were were beats across the board.

• Retail sales rose to $449.904b in January, up from $449.1b in December
• Retail sales rose 0.2%, higher than the estimated 0.1% rise
• Retail sales less autos rose 0.1% in Jan., also better than the 0.0% estimate
• Retail sales ex-auto dealers, building materials and gasoline stations rose 0.4% in Jan., better than the 0.3% estimate

Finally, the ‘control group’ rose 0.6% in Jan., well above the 0.3% estimate, and most notably the highest increase since May. Adding to the optimistic results was that every data point was revised higher.

 

Several charts breaking down the retail sales data:

The breakdown by segment showed an increase in virtually all categories except gasoline stations (due to continued deflation in gas prices), a 0.5% drop in home furniture sales, a -2.1% decline in sporting goods sales, and a -0.5% decline in food service and drinking places.

Some more details from Reuters:

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, moderated in the fourth quarter. That, together with weak export growth because of a strong dollar, efforts by businesses to sell inventory and cuts in capital goods spending by energy firms, restrained GDP growth to a 0.7 percent annual pace. Consumer spending is being supported by a strengthening labor market, which is starting to lift wages.

 

Still, households remain cautious about boosting spending, against the backdrop of an uncertain global economic outlook and a sustained decline in oil prices, which have sparked a broad stock market sell-off.

 

Overall retail sales rose 0.2 percent in January as cheaper gasoline undercut receipts at service stations and harsh winter weather weighed on spending at restaurants and bars. Retail sales increased by an upwardly revised 0.2 percent in December, up from the previously reported 0.1 percent gain.

 

Sales at service stations fell 3.1 percent after decreasing 0.5 percent in December. Auto sales advanced 0.6 percent after rising 0.5 percent in December.

 

Receipts at clothing stores gained 0.2 percent. Sales at online retailers jumped 1.6 percent, but receipts at sporting goods and hobby stores fell 2.1 percent. Sales at electronics and appliance outlets edged up 0.1 percent.

So while the question several days ago was whether bad news is good news for stocks (it wasn’t), today the question flips to whether good news for the economy will be good news for stocks, with the risk of course being that a strong economic data point validates the Fed’s rate hike trajectory and reduces the market’s hopes of a Fed “relent.”

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