Tag: news

Stocks just could not figure it out – good jobs data, bad jobs data, WWWIII? But Treasuries and gold did. 30Y yields tumbled to fresh 11 month lows (lot of desk chatter of GPIF buy orders ahead of their holiday), 10Y to 2014 lows, but the short-end sold off as 5s30s flattened to 5 year lows (under 170bps). Despite some smackdowns this week, precious metals bounced back notably today with gold's best day in a month, back over $1300 and unch on the week. Despite yields tumbling, Utility stocks were the week's losers (-1.2%) while homebuilders were best (oh yeah because lower mortgage rates is all that is holding back pent-up demand for homes!!). On the week, Trannies outperformed but Russell 2000 was worst of the major indices (the opposite of today's action). The USD pumped and dumped around the jobs data, but ended the day unch (down 0.25% on the week). Credit markets closed at their wides of the day, notably divergent from stocks on the week. A massive VIX-selling effort began late in the day (because with 38 dead in Odessa who would need to hedge?) – but stocks ignored it.

 

VIX slam down did not work (and who the fuck is selling protection so aggressively when we are seeing the worst civilian casualties in Ukraine since Kiev and Putin with his finger on the button!!)

 

Stocks tracked AUDJPY closely all day but note the ramp to 103 in USDJPY that ran stops and then collapsed…

 

Stocks did not follow bonds…

 

The Russell 2000 underperformed on the week and Trannies were best

 

On the week, despite bond strength (and yields tumbling) Utilities underperformed…

 

Treasuries rallied all week on weak data (and yes today's jobs data was weak) with the long-end outperforming (and short-end selling off in a tapery way today)…lot of desk chatter of resting buy orders from Japan's GPIF for the long bond

 

Which smacked the yield curve to fresh 5 year lows…

 

FX markets pumped and dumped with USDJPY stops run over 103 and then dumped back down again (JPY unch on the week)… The USD ended the day unch and week -0.25%

 

Gold had its best day in a month and snapped up to unchanged on the week but commodities were broadly lower on the week…

 

Credit markets are not happy…

 

And here's your unrigged markets today…

 

 

Charts: Bloomberg

Bonus Chart: "Costs"

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In a NYT article which perhaps was meant to boost poor Americans’ spirits that despite their horrible economic plight (because, you see, the past five years of Fed monetary easing – which explicitly allowed US politicians to avoid engaging in much needed and very unpopular fiscal reform – only focused on helping just the wealthiest – sorry verry much, better luck next time) things really are quite great because, through the magic of hedonics, most things are really cheaper than ever.

To wit:

Since the 1980s, for instance, the real price of a midrange color television has plummeted about tenfold, and televisions today are crisper, bigger, lighter and often Internet-connected. Similarly, the effective price of clothing, bicycles, small appliances, processed foods — virtually anything produced in a factory — has followed a downward trajectory. The result is that Americans can buy much more stuff at bargain prices.

They can.

The only problem is they don’t, because while one can use hedonic adjustments all day long to make it appear that one gets more bang for the buck, one still has to spend several hundred to over a thousand for a simple televsion every few years, regardless of whether it is 1080p, 4K, 3D, or any other fleeting fad.

The NYT does touch on this amusing sleight of hand used by economists always and everywhere to make inflation appear tamer than it is:

“If you handpick services and goods where there has been dramatic technological progress, then the fact that poor people can consume these items in 2014 and even rich people couldn’t consume them in 1954 is hardly a meaningful distinction,” said Gary Burtless, an economist at the Brookings Institution. “That’s not telling you who is rich and who is poor, not in the way that Adam Smith and most everyone else since him thinks about poverty.”

Indeed – because between soaring food and energy prices, and stagnant or outright declining wages (the average weekly wage this month was $24.31; the average weekly wage last month was… $24.31), and the indigestability of the iPad (a new version of which is offered every 8-12 months with new features, which somehow also makes it hedonically cheaper) America’s poor couldn’t care less about how “cheap” those things they simply can never afford, allegedly are.

And the other problem, and an indication of just how ridiculous hedonics really is, is shown on the chart below, which is what economists use to “justify” that inflation really is very tame.

The punchline: apparently the “hedonically adjusted” deflation in Television costs over the past ten years is over 100%.

Huh, deflation of more than 100%? How is that possible? Just read the fine print:

Data is collected from retail stores and adjusted by specialists to reflect changes in quantity offered in a product or an increase in quality. Much of the drop in prices for electronics reflects an increase in quality over the past 10 years.

Ah, so the drop in prices in not actually a drop in prices which very well may be rising… but simply “an increase in quality.”

By that logic, 99% of Americans are wealthier because the US household net worth chart showing really just the wealth of 1% of Americans (those whose paper wealth is tied to the stock market) moves from lower left to upper right. Courtesy of Mr. Chairmanwoman’s money printer. And if not that then, well, there is always the trickle down effect.

Isn’t modern “hedonically-adjusted” economics just grand: after all, since the quality of that money in your pocket is so much higher, you are now richer. Just ignore the fact that in proportion to all the outstanding money, what you have in your pocket is now worse than a joke.

via Zero Hedge http://ift.tt/1uf7Ogp Tyler Durden

Treasury Futures markets on the CBOT were halted this morning for about 10 seconds following the release of the April payrolls data. While somewhat stunning all by itself, given that the move was not massive, Nanex notes that what is unsual about this event is that quotes also stopped updating – indicating a possible system issue at the exchange.

Of course, in these "unrigged" markets, what more would we expect?

 

Via Nanex,

On May 2, 2014 at 8:30:05, right after release of the Non-farm Payroll number, quotes and trades in Treasury futures from CBOT halted for about 10 seconds. Sequence numbers before and after the event indicate no data was dropped. What is unsual about this event is that quotes also stopped updating – indicating a possible system issue at the exchange.

1. June 2014 5 Year T-Note Futures (ZF) Trades and quote spread. 
You can clearly see the gap.

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2. June 2014 5 Year T-Note Futures (ZF) Quote spread and Quotes per second.
It is unusual to see a gap in quotes – this indicates a different issue – not a normal trading halt.

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3. June 2014 DJIA eMini (YM) futures trades and quote spread.
Also traded at "CBOT" – but doesn't have the gap.

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4. June 2014 most active treasuries: Ultra T-Bonds (UB), T-Bonds (ZB), 10 Yr T-Notes (ZN), 5 Yr T-Notes (ZF), and 2 Yr T-Notes (ZT). Note the gap at 8:30:05.

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5. Zoom of chart 4 above.

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6. Most active Futures contracts.

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7. Zoom of chart 6 above.

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

Authored by Thina Margrethe Saltvedt and Aurelija Augulyte of Nordea Bank,

• Russia as important oil as gas supplier to Europe
• Disruptions to Russian oil flows will have huge impact on oil prices
• Embittered political climate, oil prices at USD 150/barrel and high financial market uncertainty can tip EU back into recession
• Oil price spike and flight to safety a recipe for broad-based USD strengthening and lower global rates: three risk scenarios
• US shale oil or SPR release will not prevent oil price spike

Oil prices have increased by more than USD 2/barrel today as tension in Ukraine has escalated and raise concerns about the risks of disruption in Russian energy exports. There is a risk that the security situation in the east Ukraine will worsen even further ahead of the 25 May elections.

Memories have been awakened of episodes in 2006 and 2009 when Gazprom halted all Russian gas flows through Ukraine, amid pricing disputes, completely cutting off supplies to Southern Europe and partially other European countries. Not nearly as much attention has been paid to the risk of a disruption to the oil flows.

Russia is as important an oil exporter to Europe (of both crude and refined products) as it is a gas exporter, but unlike for gas, only a relatively small portion of its overall oil exports to Europe transit through Ukraine. Oil, in contrast to gas, is easy to store, ship and trade, which means that the markets more flexible and a single customer has less immediate scope for action. Nevertheless, the consequences of a cut in Russian oil supplies could be as rave since the oil global oil market has little back-up capacity to lean on, European commercial oil stocks are low and there is no real substitute for oil in the transportation sector (which accounts for more than 60% of total oil consumption worldwide).

As a result a halt in the oil deliveries from Russia to Europe will spark a sharp spike in oil prices and in a worst case scenario an oil crisis. A longer-lasting disruption to oil supplies and an extended period with high oil prices will curb the potential for Euro-zone economic growth and slow down growth in the global economy. If the oil price spike is accompanied by a sharp fall in confidence and financial players recede to safe havens, the impact on global growth and financial markets will be even more severe.

The questions are therefore how vulnerable the European oil market is to a halt in oil deliveries from Russia and whether the European economy can withstand a protracted period of high oil prices?

Brent oil and NBP gas prices will react sharply to supply disruptions

Disruptions to Russian oil flows will have big impact on prices

The sabre-rattling and threats will no doubt continue for a while, but so far tensions between Russia and the West over Ukraine have had minimal impact on physical oil balances. What if an escalation of the crisis in Ukraine, in a worst case scenario, leads to disruptions in the oil supplies from Russia to the EU as a consequence of for example a halt in oil deliveries via Ukraine, a halt in deliveries of oil and gas from Russia to EU as a retaliation of stricter sanction imposed by EU/US on Russia and attacks on infrastructure following increasing political turbulence – what would then be the effect on Brent oil prices and economic growth in the current tight oil market environment?

Any disruptions to the oil flows going from Russia to the European market will presumably have a big impact on oil prices, as commercial inventories are low (three major OCED 2013 year-end stock levels lowest in 10 years), the current European supply/demand balance remains tight and the world’s spare production capacity is fairly low. Supply outages remain severe in aggregate at roughly 3.5 mb/d in the MENA region alone, mostly in Iran, Iraq, Libya, Syria and Sudan (PIRA). Commercial stocks are not ample enough to weather significant ongoing physical supply disruptions and definitely not to withstand a curtailment of supply arising from a growing political dispute between Russia and the West.

A sharp rise in oil prices – if prices remain elevated for a period of time – will have a negative effect on economic growth and in a worst-case scenario push the EU back into recession. Clearly, higher oil prices and weaker growth in the EU will also have an impact on the growth potential of the global economy. How long a price spike will last, and thus the impact on the EU and the global economy, depends on the volumes held back from the market and the reason for the halt – whether the production/transportation infrastructure is damaged or the taps are turned off.

Three risk scenarios: a halt in oil deliveries from Russia – impact on oil prices and EU GDP growth

We have looked at three different scenarios and the potential effects on oil prices, economic growth, the EUR/USD cross and rates depending on the period and severity of the disruptions.

Oil Price Scenarios: Russian oil export is cut by one-half

In all three scenarios we assume that Russian crude oil exports to Europe are cut by 50% or around 1.5mb/d. The GDP calculations are based on the International Monetary Fund GEM simulations.

Scenario 1: A short-term halt to oil deliveries lasting only two weeks, pushing oil prices up by 10-20% (from Q1 average at USD 108/barrel).

 

Scenario 2: one-half of Russian oil supplies to Europe is locked in, but this time for two quarters. Global spare capacity will fall to lows last seen in 2008 to 2.2% of global demand from the current 3.9%. We expect that Saudi Arabia’s spare capacity will compensate for some of the losses, but with a lag. Notably the ECB will not act against EUR/USD in this scenario, since it will see the advantages of a weaker EUR towards the USD for energy imports and increasing competitiveness for Euro-zone products and services abroad.

 

Scenario 3: oil supply disruptions are expected to lead to a cut in oil flows to Europe by 1.5m b/d and push oil prices up to USD 150/barrel. Saudi Arabia will increase production (the spare capacity buffer will fall), and the market situation will call for an IEA Strategic Petroleum Reserve (SPR) release (see box), but with a lag. As the market is concerned that the disruptions will be more severe than in scenario 2, the price spike is followed by a huge spike in risk aversion triggering a flight to safety by financial players away from risky assets, a widening of credit spreads – recipe for broad USD strengthening and we will likely see global rates go much lower. In this case the impact on the global economy would be much larger and the EU will most likely tip back into recession.

Potential impact of the three scenarios

The oil market is global and a sharp spike in Brent oil prices would of course raise prices of other crudes and oil products as well. Since Russia is one of the largest oil producers and exporters in the world with total exports of 7.1m b/d crude and products, it would be close to impossible to compensate for the full amount in the short to medium term if these barrels do not reach the market. Even a smaller volume, say 50% of the crude exported to Europe (the amount used in the scenarios above), would be very difficult to replace as the quality of the replacement needs to match.

Oil Price Spike: Three scenarios and impact on EURUSD

Embittering political climate and higher oil prices can push the EU back into recession

In the absence of Russian barrels, world oil prices would undoubtedly spike – causing economic pain for the large oil import-dependent countries such as the EU and reducing the growth potential of the world economy. An embittering political climate and an oil price spike would most likely be followed by a huge drop in market confidence, triggering a flight to safety in financial markets which in turn would magnify the impact on economic growth and push the EU back into recession.

As Russia and Europe remain closely linked as oil and economic trading partners, we do not see this as the outcome of the crisis. But the recent escalation of the conflict in Ukraine clearly increases the risk of a supply disruption materialising. The shock of the Crimean annexation should speed up the sluggish European decision-making process on energy storage, interconnection in the gas market, diversification of suppliers, liberalisation, shale gas production and efficiency measures especially on the transportation side.

Read the full story about the Europe/Russian oil interdependency, Ukraine as a traansit country for oil and the US shale oil production /SPR release will not prevent an oil price spike and see all the graphs in the PDF below:

 

140502 Ukraine Crisis GDP v1

via Zero Hedge http://ift.tt/1mm7Xh0 Tyler Durden

A leaked recording by the vice-chairman of Vanke Group (China’s biggest property developer), confirms, as The Telegraph’s Amrbose Evans-Pritchard reports, what the bears have been saying for months, ‘it is a dangerous bubble, and already deflating‘. Mao Daqing’s words, translated, are ominous: “In 1990, Tokyo’s total land value accounts for 63.3% of US GDP, while Hong Kong reached 66.3% in 1997. Now, the total land value in Beijing is 61.6% of US GDP, a dangerous level… China has reached its capacity limit for new construction of residential projects… and I don’t see any possibility for a rise in home prices.” The simple chart below highlights all one needs to know – inventory is exploding – and as Mao concludes: “housing production per 1000 people reached 35; even when the housing market is hot, no country has a figure of greater than 14 – this should cause alarm.”

Via The Telegraph’s Ambrose Evans-Pritchard,

So now we know what China’s biggest property developer really thinks about the Chinese housing boom.

A leaked recording of dinner speech by Vanke Group’s vice-chairman Mao Daqing more or less confirms what the bears have been saying for months. It is a dangerous bubble, and already deflating.

 

Li Junheng from JL Warren Capital has translated his comments:

 

“In 1990, Tokyo’s total land value accounts for 63.3pc of US GDP, while Hong Kong reached 66.3pc in 1997. Now, the total land value in Beijing is 61.6pc of US GDP, a dangerous level,” said Mr Mao.

 

“Overall, I believe that China has reached its capacity limit for new construction of residential projects. Only those coastal Tier 3/Tier 4 cities have the potential for capacity expansion.”

 

“I don’t see any possibility for a rise in home prices, especially in cities with large housing inventory, unless the government pushes out another few trillion. Beijing and Shanghai have already been listed among the most expensive cities in the world in terms of the medium central city property prices.”

 

 

Mr Mao said China’s house production per 1,000 head of population reached 35 in 2011. The figure is below 12 in most developed economies “even when the housing market is hot; no country has a figure of greater than 14”.

 

“By 2011, housing production per 1000 people reached 30 in Tier 2 cities, excluding the construction of affordable houses. A persistently high figure such as this should cause alarm,” he said.

 

…

 

The numbers of flats and houses for sale has suddenly doubled. “Many owners are trying to get rid of high-priced houses as soon as possible, even at the cost of deep discounts. As a result, ordinary people who want to sell homes in the secondary market must face deep price cuts,” he said.

 

“In China’s 27 key cities, transaction volume dropped 13pc, 21pc, 30pc year-on-year in January, February, and March respectively. We expect the trend to continue in April. The drivers behind the fall in price are credit tightening from the banks.”

 

“Most cities have seen an increase in the ratio of inventory to sales. Among the 27 key cities we surveyed, more than 21 have inventory exceeding 12 months, among which are 9 greater than 24 months. The supply of residential buildings is rapidly increasing month-on-month.”

 

Mr Mao said 42 new projects for elite homes in Beijing will be finished in 2015, hitting the market with an extra 50,000 units that “can’t possibly be digested”.

So there we have it. Vanke Group say the comments do not reflect the view of the company or indeed Mr Mao – which is odd – but they do not dispute that the recording is authentic.

His words compliment recent warnings by Nomura’s Zhiwei Zhang that the problem is even worse in the smaller cities in the interior, as we reported last month:

 

“We believe that a sharp property market correction could lead to a systemic crisis in China, and is the biggest risk China faces in 2014. The risk is particularly high in third and fourth- tier cities, which accounted for 67pc of housing under construction in 2013,” he said

As AEP notes, it’s time to rip the band-aid off – but the rest of the world should be very nervous…

On balance it is better for China to get the trauma over and done with sooner rather than later. But the rest of the world should be under no illusions as to what it means.

 

This policy decision – should President Xi stay the course – is equivalent in global scale to the decision by Fed chief Benjamin Strong to pop the US speculative bubble in 1928, causing a commodity slump that was transmitted worldwide through the dollar based currency system (Inter-War Gold Standard) and which later snowballed into something far worse.

 

The US was then the world’s rising creditor power, with foreign reserves above 6pc of global GDP, almost exactly the same as China’s holdings today. When China sneezes … you will catch a cold, wherever you are.

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