iftttwall

Apparently China did not get the memo that the Fed’s apologists are furiously scrambling to packpedal on Yellen’s “6 month” guidance in virtually all media outlets. The is the only way to explain why Vice Minister of Finance Zhu Guangyao said overnight that “the U.S. Federal Reserve will begin boosting interest rates within six months after exiting “unconventional” monetary policy, and that will have a “significant impact” on the U.S. and world economy, as Market News International reported earlier. Zhu told China Development Forum this weekend “we believe a the Fed meeting this October, the exit of their quantiative easing will complete.” In other words while the spin for public and algo consumption is that the Fed will continue placating those long the stock market until everyone’s price target on the S&P 500 is hit and everyone can comfortably sell into an ever-present bid, China is already looking for the exits.

Understandably, Zhu Guangyao also indicated that China is uneasy about the impact of such a move. He should speak to the army of vacuum tubes which has no idea how to exist in a world in which the Fed isn’t injecting at least a few billions in reserves every month.

From Market News:

“The basic judgement, if there is no big accident, is that within six months after the Fed fully exits from its unconventional monetary policies, the Federal Reserve Bank will launch the process of raising interest rates and that will have a significant impact on the United States and the world economy as well,” he said.

 

“Based on the current progress, we believe at the Fed meeting this October, the exit of their quantitative easing will complete,” Zhu said at the China Development Forum at the weekend.

 

But Zhu’s comments — the most detailed from the top of the Chinese government since Yellen took over from Ben Bernanke last month — suggest that the authorities here are beginning to brace for an end to the extraordinary monetary accommodation of recent years. They come even as the Chinese government presses on with a sweeping reform program which has already plunged domestic financial markets into uncertainty.

 

The yuan fell sharply last week following the widening of the currency’s trading band to the U.S. dollar to 2% from 1% around the central parity. That was part of an ongoing move to deregulate the currency and interest rate regimes in order to better prepare the economy to handle swings in capital flows. The government also appears more willing to tolerate defaults as part of a long-delayed clean-up of the financial system.

But while the end of QE appears a given, at least until the market realizes there is no handover to an economy that is a moribund as it has ever been in the past five years, and the Fed has no choice but to  untaper and return with an “even more QE” vengeance (it certainly won’t be the first time – just recall the “end” of QE1, QE2, Op Twist, etc), a bigger question surrounds whether China, already sliding in credit contraction and suffering a plunging stock market with its housing sector also on the edge of a bubble bust, is about to take over from the Fed and proceed with its own stimulus program. The answer is no.

Bloomberg reports: “China used big fiscal stimulus in 2008 during the global financial crisis and this made the economy heat up quickly, Finance Minister Lou Jiwei says at a forum in Beijing, according to a transcript of his comments posted on Sina.com’s website.”

This year, however, China will focus on quality of growth this year according to Lou, which means no shotgun stimulus program. He added that China will pay more attention to the environment and won’t use  large-scale fiscal stimulus to spur investment in order to reduce overcapacity.

So with China caught in a deleveraging vortex, with the world used to Chinese “asset creation” in the range of $3.5 trillion each year, and with no endogenous credit creation to offset the phasing out of Fed QE, one wonders: will the next big surge in outside money come from the ECB, where outright QE is against the charter, or from the BOJ, where Abenomics has failed so miserably so far, that any additional surge in import food and energy prices may just lead to an outright recession. And it is in this context that we expect the stock “market” will surge to new all time highs again this coming week.

via Zero Hedge http://ift.tt/OOGrcu Tyler Durden

Second-term flexibility indeed…

 

 

Pres Obama at the wheel of a golf cart today at @AndrewsAirForce. (Radio pool photo by Wm McDonald @TalkRadioNews) http://ift.tt/1f7fQxP

— Mark Knoller (@markknoller) March 22, 2014

via Zero Hedge http://ift.tt/OOyZOy Tyler Durden

Well, my fellow Slope-a-Dopes, the time has finally come. The Idiot Savant has had more than enough.  BDI has unequivocally decided to prick Big Bad Ben Bernanke’s Bloviated Bubble Butt.  I have outlined below seven fine needles and six sharp scalpels that I shall use to slice and slay his sorry sagging ass:

1)  The extensive capital fight outflows, steaming out of the cratering Emerging Market economies, frightfully seeking a safe haven, have most certainly found their way into the U.S. equity markets, pumping the final bit of hot air into an already overly bullish bursting balloon.  Taper blow back begins.

2)  The Fed has finally begun tapering in earnest, fearfully curtailing QE because they know that the extreme asset valuations it engenders are dangerous weapons of mass misallocated monetary destruction.  The teetering global economy is now facing the unintended consequences of economic disequilibrium that the Fed has unwittingly unleashed on the world, which is now disintegrating before us.

3)  As a consequence of the announced and scheduled diminishing QE, the 10 year yield has most certainly based. Moreover, after a monumental 30 year down trend, is now clearly working its way higher.  Each marginal increase off of these extremely low levels is huge in terms of a percentage move, and thus, the total costs of servicing the outstanding debt loads held both privately and publicly will quickly become a backbreaking burden on the U.S. economy.

4)  The outstanding U.S. public and private debt has never been larger in terms of overall USD exposure, the debilitating cost of carry on that tremendous debt has only been temporarily held at bay by a shortsighted FED which synthetically suppressed treasury rates in order to bail out its desperate TBTF private member mega banks.  That dubious degenerate policy has completely distorted the treasury bond yields and therefore the natural market cost of money has been eviscerated.  Clearly, this can no longer be sustained due to the gross misallocation of capital it has induced, which flows primarily into fixed non producing assets of all kinds in the FIRE economy, as well as the precious metals, gem stones, fine arts and collectibles markets, at the expense of genuine productive growth on the ground in the real economy..

5)  The the polyannish assumption that the FED will be able to continue blissfully containing the ever building rate pressures by simply jawboning the debt markets is laughable. The Fed is about to lose control of the United States bond market, by far the largest capital market in the world.  Don’t be fooled, they are not and never have been an absolute omnipotent force with complete control of a private economy that generates an annual GDP of $16 trillion.  To believe that seven ace academic anal asses sitting in on an FOMC meeting, tweaking financial levers on a whim, can exert absolute control over the massive forces which drive the globe economy is preposterous.

6)  China, the acknowledged engine of economic growth for the world, over the past two decades, is apparently in serious trouble. The misallocation of overly cheap finance capital has created such tremendous economic imbalances on the ground, in terms of monumentally excessive development, productive over capacity with massive stock piles of raw materials ( all non cash producing assets), has now morphed into a full blown credit crisis spawned by the perilous parasitic shadow lending phenomenon which rapciously over leveraged the final ferocious funding feeding frenzy.

8)  Despite brash statements and confident claims to the contrary, the EU & ECB have yet to solve the crippling monetary and fiscal structural problems that currently afflict their unfinished and imperfect union, which are distinctly intractable in its current form.  The Southern periphery nation states, now joined by La belle France are firmly entrenched in permanent recessions.  The latest unemployment data out of Paris is the worst since WW II.

9) The BRICS, which remain heavily dependent on commodity trade are now struggling.  Dr. Copper has demonstrably diagnosed their incapacitating illness. Additionally, an increasing number of bi-lateral trade agreements are now being established between the commodity producing nations, completely outside of the USD world reserve currency monetary hegemony, putting added pressure on the Petro-Dollar. The current natural gas impasse in Ukraine and probable retaliatory sanctions against Russia will undoubtedly serve to push Beijing and Moscow even further along those lines.  The Arab Spring has morphed into MENA mayhem, Syria is bleeding, Lybia is imploding, Iraq is self destructing, Egypt is a basket case, Saudi Arabia is afraid of Iran fomenting further Sunni Shia anarchy along its borders.  All of which could undermine the Petro-Dollar.

10)  The USD Index has been trending lower, barely holding onto the all important 80 level.  A clear breach of that critical level will put undue pressure on an economy which is 70% based on consumer consumption.  Consuming cluttering crap created by countless countries will become considerably costlier.

11)  The developed world is in the midst of a substantial consumer slow down.  This is particularly true in the middle and low end mass market sectors, which are the meat and potatoes of the largest consumer economy on the planet. The recent results at Walmart & Target highlight this unwelcome development.  It’s not the weather stupid!

12)  The freakish stock market sentiment boldly postulating that the wall street bull can never stumble again, because the global central bank reflation trade will always prop him up, is astoundingly foolhardy, you simply can not print your way to prosperity, same as it ever was.

13)  The fantastic social media gorilla glass gigabyte bubble will surely get the WhatsApp Snapchat Tweeter twits’ party started.  Please “Like” me, I’m a LinkedIn Pinterest head party animal!  In fact, the unsuspected unenlightened user-base unravelling may have already begun.  Friday’s bewitched Nasdaq action may be just the opening super social salvo.

 

The Joker red card’s the Fed and it’s fantastically foolish frenetic faux market.

via Zero Hedge http://ift.tt/1riVAlo Tim Knight from Slope of Hope

Submitted by Ben Hunt of Epsilon Theory

The secret of life is honesty and fair dealing. If you can fake that you’ve got it made.

These are my principles, and if you don’t like them … well, I’ve got others.

I’m not crazy about reality, but it’s still the only place to get a decent meal.

A child of five could understand this. Send someone to fetch a child of five.

Room service? Send up a larger room

“Surely You Can’t Be Serious”

In periods of great global stress, like after a World War or a Great Depression, it’s not only our politics and economics that are thrown for a loop, but also our art and entertainment. New art, and comedy in particular, that rejects or makes fun of the ancien regime after some enormous crisis is as old as Aristophanes. This art is subversive, often masking its contempt with “low comedy” like puns and slapstick, and no one in the past century was better at this than Groucho Marx. I’ve lately found myself thinking of Fed communications as a form of performance art … some sort of Dada-ist comedy routine where Groucho might stick his head out from behind a curtain and photobomb the press conference … and never more so than on Thursday . If only it were so.

Yellen’s press conference was a disaster. Why? Because she said too much. Because on the one hand she took away the insane linkage between monetary policy and the unemployment rate – an ill-conceived and counter-productive misreading of market game-playing that I wrote about ad nauseam last summer, here and here – but on the other hand she gave a specific timing target for raising rates after QE is all tapered out. Combine this with the three-times-in-a-row pattern of cutting monthly QE purchases by $10 billion per meeting, and now even Jon Hilsenrath is projecting specific calendar dates for raising rates.

I mean, you really can’t make this stuff up. Did the Fed learn nothing from last summer? This isn’t an academic exercise, where statements are qualified and softened by exhaustive footnotes and asides so that no one is ever wrong. The market is a beast, not the review committee for the Quarterly Journal of Economics. Of course the market is going to leap at and devour a statement like Yellen’s 6 months comment, and you’d think that the Fed Chair would know that.

All together now, one more time with feeling: ambiguity is good; transparency is bad. You might think that transparency would be helpful in “shaping market expectations” the way you like, but you would be wrong. That’s not how the game is played. Can I nominate Bill Belichick for the Fed, at least as far as press conferences are concerned?

And I’m very sympathetic to Kocherlakota’s dissent … if you ARE going to take a stand with an explicit linkage to unemployment rates, then you can’t just say “oh, never mind that” less than a year later and expect that whatever new standards you set out for rate-setting are going to be particularly effective in molding expectations. It’s not a matter of credibility, per se. That’s a very specific word with a very specific meaning in game theory, and the simple truth is that the Fed will always be credible enough to be an effective game player. The problem is actually that the Fed is too credible, and that Yellen’s remark about raising rates within 6 months of stopping QE3 takes on far more import than was intended.

Sigh. Look, maybe I’m over-reacting here. Maybe we are all so freaking exhausted by the constant use of communication as policy, by the unceasing effort of the Fed and its media intermediaries to play the market, by the Orwellian nature of a monetary policy apparatus where everything is spoken for effect, that we will all just go about our business and slog along. And I’m sure we will see lots of back-tracking over the next few weeks, lots of data-dependence talk, lots of “Yellen really didn’t say anything new”, yada yada yada. But my fear is that we’ve set the stage for, if not an inflection point in the path of the stock market, then another rate shock similar to but smaller than last summer’s … an aftershock, in geological terms.

What am I looking for to see how this plays out? I think we are now even more strongly in a good-news-is-bad-news (and vice-versa) world. If we start seeing some strong economic data come out over the next few weeks and months, then I think the market – particularly the bond market and emerging markets – could get pretty squirrelly. Not that US stocks would be immune from this. Remember, the modern day Goldilocks environment for stocks has nothing to do with a happy medium between growth and inflation, but everything to do with growth being weak enough to  keep an accommodative Fed in play. Strong growth data would augment a Common Knowledge structure that the Fed is on track to raise rates sooner and more rather than later and less, and that’s no fun for anyone. Then again, if global growth data remains weak – and you really can’t look at what’s coming out of China, Europe, or Japan and think that the global growth story is anything but weak – that creates enough uncertainty about the Fed’s path (not to mention the cover for political and economic Powers That Be to wage a full-scale media war to keep monetary policy in QE la-la land forever) to support the markets. Sounds a lot like Freedonia to me. Rufus T. Firefly for President?

via Zero Hedge http://ift.tt/1jrn3fp Tyler Durden

This is the last full week of what has been a surprising quarter. Among the largest surprises in the foreign exchange market has been the strength of the Japanese yen.  It begins the week up above 3% from the end of last year.  That the Canadian dollar is the weakest of the majors, off 5.3%, is somewhat surprising, but understandable given the shift in the central bank’s bias (forward guidance?) from neutral to dovish.  On the other hand, sterling is the second weakest.  Many did not expect that sterling would slip0.5%, despite the likelihood that the BOE is the first of the major central banks to hike rates (next year, likely before the UK election).

 

In the equity market, Japan also surprises, with the Nikkei off 12.7%.  This is among the worst Q1 equity performances among global stock markets. There are two markets that are down around the same magnitude, the Hong Kong Enterprise Index, which tracks Chinese companies listing on the Hang Seng, is off 12.8% while Russia’s MICEX is off 13.1%.

 

In the bond market, the rally in US Treasuries was unexpected. Under the weight of reduced Federal Reserve demand, Treasury yields were expected to have risen to find new clearing prices. Instead, going into the last week of the quarter, the US 10-year yield is off  about 15 bp.  This goes a long way toward explaining the decline in global yields.  Perhaps, though the magnitude of the decline in the peripheral bond yields is also surprising.  Yields in Italy and Spain continued to fall, with 10-year yields off 70-80 bp, while similar yields in Portugal and Greece fell 173 and 158 bp respectively.

 

We see ten events this week that investors will have to navigate.

 

1.  There has been no attempt (yet) by Fed officials to guide the market away from the implication of Yellen’s definition of “considerable period” that the first rate hike is possible in Q2 15. Like Yellen herself, there has been some attempt to downplay the “dot plot” of forecasts, but the Fed cannot have it both ways.  Either the “dot plot” is part of the Fed’s forward guidance/transparency or it is not.  Investors may be particularly sensitive to Fed officials comments on these issues in the days ahead.

 

2.  The longer the Fed waits, the more difficult its task.  The spring thaw is likely to produce somewhat better economic data, even though it was not the only headwind the economy faced. This will likely be evident with the bounce in durable goods orders for February, helped by Boeing orders and a rebound in the auto sector.   February personal consumption expenditures will be reported later in the week.  The remarkable thing is how steady US consumption has growth, and largely without credit cards.  The 3, 6, and 12-month averages converge at 0.3%, which is the February expectation, as well.  Economists may solidify Q1 GDP forecasts, which looks to be tracking around 1.6%-1.8%

 

3.  The Fed also draws attention at mid-week with the second part of the stress tests, which are essentially a review of the banks’ capital plans.  Between dividend payments and stock buyback programs, large US banks want to return $77 bln to shareholders this year. Embarrassingly, the Fed had to revise the results of the first part of the stress tests within 24 hours of the initial release, and the adjustment was mostly minor covering half of the thirty financial institutions it reviewed.   Nevertheless, the revisions underscore the focus on Bank of America. The revisions show its Tier 1 capital would fall below 6% under conditions of  a deep recession, which is still above the regulatory requirement, but the second lowest behind Zions Bancorp, the only institution to have failed the first round.

 

4.  This week’s flash PMI and money supply data from the euro area will shape expectations for the early April ECB meeting.  After the ECB let the March meeting go by without taking fresh action, many participants gave up on the idea entirely, and this helped the euro rise to approach $1.40 for the first time since July 2011.  What is expected to be the second consecutive decline in the manufacturing PMI is likely to underscore Draghi’s pointed remarks that the strength of the euro weighing on growth.  The service sector, which is less sensitive to the euro’s fluctuation, is expected to continue to hold up better.   Separately, money supply growth is expected to stabilize, but at 1.3% expected February print (up from 1.0% in December), it is hardly sufficient fuel for a stronger economic recovery.  Lending to households and businesses likely to continue to fall, though the pace may lessen a little, an outright improvement still seems some time off.  

 

5.  The economic highlight from the UK will be CPI and retail sales.    Headline CPI is expected to have slowed to 1.7% in February from 1.9% in January.  This would the lowest print since October 2009.  Few investors seem to appreciate the magnitude of the decline in UK inflation.  It was at 2.9% last June.  Retail sales in February, on the other hand, likely picked up after the out-sized 1.5% decline in January.  Sales are expected to have risen by 0.5%, including auto sales, and 0.3% without.  Nevertheless, the year-over-year pace is expected to moderate sharply to 2.4% from 4.3% including auto sales (2.9% from 4.8% without).  

 

6.  As Japan’s fiscal year winds down, Japanese inflation has stabilized; much as BOJ’s Kuroda had warned investors.  The February national CPI report is expected to show core inflation, which in Japan, excludes fresh food, unchanged at 1.3%.  Tokyo’s core inflation measure for March is expected to be unchanged at 0.9%.  The impression one is left with is that the bulk of the rise in Japanese inflation is due to the yen’s weakness, which, as we noted above, stabilized in Q1. The economic environment, arguably, will change again with the retail sales tax hike on April 1. The key policy issue now is how long will it take officials to determine the impact of the tax hike and respond if necessary. 

 

7.  HSBC’s flash manufacturing PMI for China will be released early in Beijing on March 24.  The consensus calls for a slight improvement to 48.7 from 48.5.  The real point is that it remains below the 50 boom/bust level.   The fact of the matter is that the Chinese economy has been slowing since 2011 (and the peak in the MSCI Emerging Market Equity Index around the same time is not simply coincidental).  It may slow more as the government tries to manage a squeezing out of some excess.  Officials we speak with seem cognizant of the risks.  Consider what China announced last week that may mitigate some of those risks.  It indicated it would expedite some already planned infrastructure projects.  This is seen to help support the economy.  It will allow some banks to issue preferred shares.  This permits another source of funding that can help ease bank’s reliance on short-term funding and loosen the reliance on shadow banking activity. Chinese officials also indicated easing some funding restrictions for property developers.  

 

8.  Pressure on the yuan may continue.   With the CNY6.20 level convincingly breached last week, which some reports had played up as a key level of speculative positioning, the next important chart point is seen in the CNY6.25-CNY6.26 area, which corresponds to the highs seen in December 2012 and February 2013.  Above there and the dollar could have potential toward CNY6.30-CNY6.35.   The yuan has weakened about 3.2%.  It is far too early to take some pundits claims of a new currency war seriously.  Moreover, the relatively low amount of value-added incurred in yuan related costs suggest such a small move will not impact trade flows.  The purpose of the squeeze is not meant to address China’s international competitiveness, but rather the moral hazard and excessive speculation, primarily by domestic economic agents.   That said; the yuan’s weakness must be included in any list of the surprises that have befuddled investors in Q1.  

 

9.  The threat by Kiev politicians to cut Crimea’s water and/or electricity off (Ukraine supplies Crimea with estimated 90% of its water and 80% of its electricity), is a dangerous provocation. Russia is amassing troops on the Ukrainian border.  No US president, going back to General Eisenhower directly used military force to try to repel Soviet or Russian forces.  It was not done in Hungary, Czechoslovakia, or more recently, Georgia.   The sanctions being implemented now are the strongest since the end of the Cold War.  There is scope for additional escalation, and there is little doubt that the “Russian issue” will dominate Obama’s trip to Europe and the G7 meeting. There may be a multiplier effect of sorts in terms of the sanctions as businesses may choose to refrain from dealing with Russian enterprises, especially state-owned or directed, as the case may be, for fear of additional sanctions.  We quickly suspected that lion’s share of the $105 bln drop Treasury holdings in the Federal Reserve’s custody holdings in the week ending March 12 was likely due to Russia shifting its reserve holdings out of the US for fear that the Crimean referendum and annexation could result in the US freezing those assets.  However, the $32 bln rise in custody holdings the following week, even with the settlement of US Treasury auctions is more mysterious. There is some suggestion that the reserves that were transferred out went to another central bank, who then used the Federal Reserve as a sub-custodian with a part of its new mandate. That said, the Federal Reserve and the US Treasury Department know who is doing what.  

 

10.  While politics may always be local, this weekend’s French municipal elections (run-offs next weekend) may be looked upon for insight into the May EU parliamentary elections.  In this light, the success of a rejuvenated National Front will be watched very closely.  It is little wonder that the euro zone finance ministers pushed hard to reach an agreement on the Single Resolution Mechanism (at least three months late) with the current EU parliament is that an agreement with the next parliament may be more difficult.  If France is unwilling or unable to articulate and defend the interests of the debtors, the new EU parliament (and resulting new EU Commission) might be the check on Germany and the interests of the creditors.  From a local lens, this will be the first voter response to the Hollande government.  Even though the Socialists may manage to hold on to Paris, in a campaign that seemed to lack any meaningful substance, it is likely to get solidly trounced.  Hollande will likely respond with a cabinet reshuffle.   As Hollande tacks right, it will be interesting to watch what happens to Montebourg, the controversial industry minister:  keep him close as a bone to the left-base or replace him as an olive-branch to industry, which he has alienated.  

via Zero Hedge http://ift.tt/1gXZls7 Marc To Market

This is the last full week of what has been a surprising quarter. Among the largest surprises in the foreign exchange market has been the strength of the Japanese yen.  It begins the week up above 3% from the end of last year.  That the Canadian dollar is the weakest of the majors, off 5.3%, is somewhat surprising, but understandable given the shift in the central bank’s bias (forward guidance?) from neutral to dovish.  On the other hand, sterling is the second weakest.  Many did not expect that sterling would slip0.5%, despite the likelihood that the BOE is the first of the major central banks to hike rates (next year, likely before the UK election).

 

In the equity market, Japan also surprises, with the Nikkei off 12.7%.  This is among the worst Q1 equity performances among global stock markets. There are two markets that are down around the same magnitude, the Hong Kong Enterprise Index, which tracks Chinese companies listing on the Hang Seng, is off 12.8% while Russia’s MICEX is off 13.1%.

 

In the bond market, the rally in US Treasuries was unexpected. Under the weight of reduced Federal Reserve demand, Treasury yields were expected to have risen to find new clearing prices. Instead, going into the last week of the quarter, the US 10-year yield is off  about 15 bp.  This goes a long way toward explaining the decline in global yields.  Perhaps, though the magnitude of the decline in the peripheral bond yields is also surprising.  Yields in Italy and Spain continued to fall, with 10-year yields off 70-80 bp, while similar yields in Portugal and Greece fell 173 and 158 bp respectively.

 

We see ten events this week that investors will have to navigate.

 

1.  There has been no attempt (yet) by Fed officials to guide the market away from the implication of Yellen’s definition of “considerable period” that the first rate hike is possible in Q2 15. Like Yellen herself, there has been some attempt to downplay the “dot plot” of forecasts, but the Fed cannot have it both ways.  Either the “dot plot” is part of the Fed’s forward guidance/transparency or it is not.  Investors may be particularly sensitive to Fed officials comments on these issues in the days ahead.

 

2.  The longer the Fed waits, the more difficult its task.  The spring thaw is likely to produce somewhat better economic data, even though it was not the only headwind the economy faced. This will likely be evident with the bounce in durable goods orders for February, helped by Boeing orders and a rebound in the auto sector.   February personal consumption expenditures will be reported later in the week.  The remarkable thing is how steady US consumption has growth, and largely without credit cards.  The 3, 6, and 12-month averages converge at 0.3%, which is the February expectation, as well.  Economists may solidify Q1 GDP forecasts, which looks to be tracking around 1.6%-1.8%

 

3.  The Fed also draws attention at mid-week with the second part of the stress tests, which are essentially a review of the banks’ capital plans.  Between dividend payments and stock buyback programs, large US banks want to return $77 bln to shareholders this year. Embarrassingly, the Fed had to revise the results of the first part of the stress tests within 24 hours of the initial release, and the adjustment was mostly minor covering half of the thirty financial institutions it reviewed.   Nevertheless, the revisions underscore the focus on Bank of America. The revisions show its Tier 1 capital would fall below 6% under conditions of  a deep recession, which is still above the regulatory requirement, but the second lowest behind Zions Bancorp, the only institution to have failed the first round.

 

4.  This week’s flash PMI and money supply data from the euro area will shape expectations for the early April ECB meeting.  After the ECB let the March meeting go by without taking fresh action, many participants gave up on the idea entirely, and this helped the euro rise to approach $1.40 for the first time since July 2011.  What is expected to be the second consecutive decline in the manufacturing PMI is likely to underscore Draghi’s pointed remarks that the strength of the euro weighing on growth.  The service sector, which is less sensitive to the euro’s fluctuation, is expected to continue to hold up better.   Separately, money supply growth is expected to stabilize, but at 1.3% expected February print (up from 1.0% in December), it is hardly sufficient fuel for a stronger economic recovery.  Lending to households and businesses likely to continue to fall, though the pace may lessen a little, an outright improvement still seems some time off.  

 

5.  The economic highlight from the UK will be CPI and retail sales.    Headline CPI is expected to have slowed to 1.7% in February from 1.9% in January.  This would the lowest print since October 2009.  Few investors seem to appreciate the magnitude of the decline in UK inflation.  It was at 2.9% last June.  Retail sales in February, on the other hand, likely picked up after the out-sized 1.5% decline in January.  Sales are expected to have risen by 0.5%, including auto sales, and 0.3% without.  Nevertheless, the year-over-year pace is expected to moderate sharply to 2.4% from 4.3% including auto sales (2.9% from 4.8% without).  

 

6.  As Japan’s fiscal year winds down, Japanese inflation has stabilized; much as BOJ’s Kuroda had warned investors.  The February national CPI report is expected to show core inflation, which in Japan, excludes fresh food, unchanged at 1.3%.  Tokyo’s core inflation measure for March is expected to be unchanged at 0.9%.  The impression one is left with is that the bulk of the rise in Japanese inflation is due to the yen’s weakness, which, as we noted above, stabilized in Q1. The economic environment, arguably, will change again with the retail sales tax hike on April 1. The key policy issue now is how long will it take officials to determine the impact of the tax hike and respond if necessary. 

 

7.  HSBC’s flash manufacturing PMI for China will be released early in Beijing on March 24.  The consensus calls for a slight improvement to 48.7 from 48.5.  The real point is that it remains below the 50 boom/bust level.   The fact of the matter is that the Chinese economy has been slowing since 2011 (and the peak in the MSCI Emerging Market Equity Index around the same time is not simply coincidental).  It may slow more as the government tries to manage a squeezing out of some excess.  Officials we speak with seem cognizant of the risks.  Consider what China announced last week that may mitigate some of those risks.  It indicated it would expedite some already planned infrastructure projects.  This is seen to help support the economy.  It will allow some banks to issue preferred shares.  This permits another source of funding that can help ease bank’s reliance on short-term funding and loosen the reliance on shadow banking activity. Chinese officials also indicated easing some funding restrictions for property developers.  

 

8.  Pressure on the yuan may continue.   With the CNY6.20 level convincingly breached last week, which some reports had played up as a key level of speculative positioning, the next important chart point is seen in the CNY6.25-CNY6.26 area, which corresponds to the highs seen in December 2012 and February 2013.  Above there and the dollar could have potential toward CNY6.30-CNY6.35.   The yuan has weakened about 3.2%.  It is far too early to take some pundits claims of a new currency war seriously.  Moreover, the relatively low amount of value-added incurred in yuan related costs suggest such a small move will not impact trade flows.  The purpose of the squeeze is not meant to address China’s international competitiveness, but rather the moral hazard and excessive speculation, primarily by domestic economic agents.   That said; the yuan’s weakness must be included in any list of the surprises that have befuddled investors in Q1.  

 

9.  The threat by Kiev politicians to cut Crimea’s water and/or electricity off (Ukraine supplies Crimea with estimated 90% of its water and 80% of its electricity), is a dangerous provocation. Russia is amassing troops on the Ukrainian border.  No US president, going back to General Eisenhower directly used military force to try to repel Soviet or Russian forces.  It was not done in Hungary, Czechoslovakia, or more recently, Georgia.   The sanctions being implemented now are the strongest since the end of the Cold War.  There is scope for additional escalation, and there is little doubt that the “Russian issue” will dominate Obama’s trip to Europe and the G7 meeting. There may be a multiplier effect of sorts in terms of the sanctions as businesses may choose to refrain from dealing with Russian enterprises, especially state-owned or directed, as the case may be, for fear of additional sanctions.  We quickly suspected that lion’s share of the $105 bln drop Treasury holdings in the Federal Reserve’s custody holdings in the week ending March 12 was likely due to Russia shifting its reserve holdings out of the US for fear that the Crimean referendum and annexation could result in the US freezing those assets.  However, the $32 bln rise in custody holdings the following week, even with the settlement of US Treasury auctions is more mysterious. There is some suggestion that the reserves that were transferred out went to another central bank, who then used the Federal Reserve as a sub-custodian with a part of its new mandate. That said, the Federal Reserve and the US Treasury Department know who is doing what.  

 

10.  While politics may always be local, this weekend’s French municipal elections (run-offs next weekend) may be looked upon for insight into the May EU parliamentary elections.  In this light, the success of a rejuvenated National Front will be watched very closely.  It is little wonder that the euro zone finance ministers pushed hard to reach an agreement on the Single Resolution Mechanism (at least three months late) with the current EU parliament is that an agreement with the next parliament may be more difficult.  If France is unwilling or unable to articulate and defend the interests of the debtors, the new EU parliament (and resulting new EU Commission) might be the check on Germany and the interests of the creditors.  From a local lens, this will be the first voter response to the Hollande government.  Even though the Socialists may manage to hold on to Paris, in a campaign that seemed to lack any meaningful substance, it is likely to get solidly trounced.  Hollande will likely respond with a cabinet reshuffle.   As Hollande tacks right, it will be interesting to watch what happens to Montebourg, the controversial industry minister:  keep him close as a bone to the left-base or replace him as an olive-branch to industry, which he has alienated.  

via Zero Hedge http://ift.tt/1gXZlrY Marc To Market

Concurrently with out post on what the odds are of a war between the US and Russia over Ukraine, the House Intelligence Committee Chairman Mike Rogers, and war hawk, appeared on TV this morning saying that the United States ought to provide weapons to the Ukrainian army “so it could defend the country from a Russian invasion.” This is the same Mike Rogers who last August did everything in his power to perpetuate the lie that Syrians had used chemical weapons against “rebels” (who subsequently turned out to be mostly Qatari-funded Al Qaeda mercenaries and other Islamic extremists) “There are things that we can do that I think we’re not doing. I don’t think the rhetoric (from Obama administration officials) matches the reality on the ground,” he said.

Seemingly oblivious that all Russia desperately wants is further escalation in the conflict, which can then immediately be seen as a provocation for further incursions into either the Ukraine and/or other former Soviet counteries, Rogers said that, while ruling out the deployment of U.S. military forces in Ukraine, he called for sending small arms and radio equipment that the Ukrainian military could use to “protect and defend themselves. And I think that sends a very clear message.”

Absolutely it does: the message it sends is that US foreign policy has just hit rock bottom in terms of game theoretical escalation cluelessness. At least in Syria someone put some effort in fabricating YouTube videos and at least putting together a media campaign demonizing Assad. And still failed.

More from NBC:

Speaking from Tblisi, the capital of Georgia, a country that Russian forces invaded in 2008, Rogers said on NBC’s Meet the Press that the Ukrainians “passionately believe” that Russian President Vladimir Putin “will be on the move again in Ukraine, especially in the east.”

 

He said both Ukrainian and U.S. intelligence officials “believe that Putin is not done in Ukraine. It is very troubling. He has put all the military units he would need to move into Ukraine on its eastern border and is doing exercises.”

 

If Putin orders Russian forces into the Baltic nations of Estonia, Latvia and Lithuania – which are NATO member states and which the United States is obligated by the NATO treaty to defend — then “we (will) have allowed people who want to be free, who want to be independent, who want to have self-determination, and we’ve turned our back and walked away from them.”

 

In an apparent allusion to the seizure of Czechoslovakia which was a prelude to Hitler’s invasion of Poland in 1939, Rogers added, “The world did that once – and it was a major catastrophe.”

The full clip:

 

And while US neocons are warmongering, Ukraine is all too happy to raise the tension level just a bit more, hoping that NATO will finally intervene and present Putin with at least some hurdle to overrunning all of East Ukraine, using exactly the same template as already show in Crimea. From WSJ:

Ukraine’s top diplomat warned Sunday that the chances of war with Russia “are growing” due to the buildup of Moscow’s forces along his country’s eastern border. In an interview with ABC’s “This Week,” acting Ukrainian Foreign Minister Andrii Deshchytsia said Kiev “is ready to respond” should Russia–which has already seized the Crimea–move further in Ukrainian territory.

 

“The situation is becoming even more explosive than it was a week ago,” Mr. Deshchytsia said.

 

He said Ukraine’s first approach to the Russian threat on the frontier would be diplomatic. But, he said, “people are also ready to defend their homeland.”

Meanwhile, Putin is sitting back in his chair and smiling, since everything so far continues to unwind precisely according to his plan.

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