http://www.zerohedge.com/news/2013-05-31/new-record-european-unemployment-101-usdjpy-tractor-beam-breach-bring-early-selling

New Record European Unemployment, 101 USDJPY "Tractor Beam" Breach Bring Early Selling

Submitted by Tyler Durden on 05/31/2013 07:08 -0400

Everything was going so well in the overnight session, following some mixed Japanese data (stronger than expected production, inline inflation, weaker household spending) which kept the USDJPY 101 tractor beam engaged, and the market stable, until just before 2 am Eastern, when Tokyo professor Takatoshi Ito, formerly a deputy at the finance ministry to the BOJ's Kuroda, said overvaluation of the yen versus the dollar has been corrected, which led to a very unpleasant moment of gravity for the currency pair which somehow drives risk around the world based on what several millions Japanese housewives do in unison. The result was a slide to just 30 pips away from the key 100 support level, below which all hell breaks loose, Abenomics starts being unwound, hedge funds - short the yen and long the Nikkei - have no choice but to unwind once profitable positions, the wealth effect craters, and streams are generally crossed.

And while the USDJPY was tumbling, Europe did what it does best: it continued imploding economically, with the European April unemployment rate hitting a new record high of 12.2%, even as Eurozone CPI for May printed at the expected 1.4%, up from 1.2% previously. This coupled with some comments from Bank of Italy's Visco that the ECB is ready to intervene on rates and consider all measure to maintain credit conditions, lead to a bout of EUR weakness as speculation that ECB may cut deposit rates after all was revived. This happened despite the usual weekly announcement that European banks will repay another €3.08 billion in 3Y LTRO debt, further reducing the ECB's balance sheet. Of course, in a continent in which there is no demand for consumer loans anywhere, this is to be perfectly expected.

Adding to the early jitters were rumors that more China official PMI would print well below the expected sub-50 when it is reported on Saturday. Since China is now actively telegraphing its economy is rapidly contracting, if only to show it is in control of the pace of contraction, this is virtually assured: the question is just how bad it is.

All of this adds up to US traders walking in once more to once again see that very odd shade of green, and a color they have virtually forgotten - red. But fear not: with no good market-driven news to report, at least we have yet another confidence driven indicator due out later, the May final print of the UMich confidence. Cause when all else fails, the broke, insolvent, homeless US consumer can at least be more confident than ever.

Bloomberg's bulletin recap of the key overnight events.

Treasuries gain as EUR slides, JPY steady vs dollar; reports showed euro-area unemployment rose to a record 12.2% in April while German retail sales fell 0.4% vs expectations for 0.2% gain.
Protesters blocked the entrance to the ECB in Frankfurt, saying the central bank’s policy choices during the euro-area debt crisis shored up big banks while impoverishing citizens
China’s statistics bureau will test changes to the way it calculates investment in roads, factories and real estate, as part of efforts to improve the reliability of data
Congressional investigators plan to interview four IRS employees as part of a probe into the agency’s scrutiny of small-government groups, according to a spokesman for Representative Darrell Issa
BofAML Corporate Master Index OAS widens to 144bps from 143bps as $2b priced yesterday. Markit IG narrows to 76bps from 77bps. High Yield Master II OAS narrows to 454bps to 455bps; $300m priced yesterday. CDX High Yield steady at 105.61
Sovereign yields mostly lower; EU peripheral yields, including Ireland, Greece, Spain and Italy, rise. Nikkei gains 1.4% while other Asian stock markets and European equities slide. U.S. stock index futures decline. WTI crude, metals fall

WHAT TO WATCH:

Economic Data
8:30am: Personal Income, April, est. 0.1% (prior 0.2%), Personal Spending, April, est. 0.0% (prior 0.2%), PCE Core M/m, April, est. 0.1% (prior 0.0%)
9:00am: NAPM-Milwaukee, May, est. 49 (prior 48.43)
9:45am: Chicago Purchasing Manager, May, est. 50 (prior 49)
9:55am: U. of Michigan Confidence, May final, est. 83.7 (prior 83.7)
10:00am: Commerce Dept. issues benchmark revisions on retail sales data, wholesale inventories and sales data Central Banks

SocGen recaps the key catalysts:

With the exception of the AUD and NZD, G10 currencies have come through a turbulent week unscathed and look set to eke out small gains vs the USD. This is a world away from emerging markets where all of Latam, most of Asia and the ZAR at the top of the EM pile, racked up significant losses. Our EM colleagues are now declaring full-blown risk aversion to characterise developments in EM space and have ruled out further upside in their markets this year (see ‘The end of the bull market'). As the rally in US bond yields steps up a gear, capital inflows into EM have slowed (and in some cases outflows picking up (Thailand), Japanese repatriation stepped up), depressing local currencies in the process while central banks stay engaged in policy easing. However, with currencies weakening, the 50bp hike in Brazil this week shows that some countries are determined to cement the disinflationary trend. The mirror image of EM currencies is true in most of G10 fx with rising US yields spilling over to other core markets, putting UK and euro yields on target to end the week near two-month highs. Swedish rates have added about 30bp this month too despite a more dovish Riksbank and with headline inflation standing at -0.5%. This tightening in real rates is likely to support G10 in the short term vs EM.

Despite the widening in US/EU rate spreads this week, we are not going to go out on a limb to try and justify the pop in EUR/USD above 1.30. Erratic month-end flows will die down and could easily reverse next week when positions are adjusted ahead of the 6 June ECB meeting and 7 June payrolls report in the US. Lifting the clouds of EU austerity and a climb down on the FTT (if wire reports yesterday are correct, levies of 0.10% on transactions in shares and bonds and 0.01% on derivatives will be dramatically watered down and a phasing in delayed) are two independent events but they could play a role in allaying disinflationary trends and give regional equity markets a shot in the arm. That does not turn the EUR into a buy per se vs the USD, but if a 15bp widening in US/EU 10y swaps can't stop EUR/USD from rallying two weeks on the trot, what can? Opportunistic buyers will be tempted to draw a parallel with 5 April when a return above the 200d ma prompted a 2.5% move from 1.2894 to 1.3202 one week later. A close above 1.3030 today may tempt a few brave participants to repeat this strategy, but who wants to take on the bet that a 210k gain in payrolls next week (SG call) does not set the USD alight?

Highlights of today's calendar include EU flash CPI, the Chicago PMI and Canadian Q1 GDP. The ECB will also release the planned weekly LTRO repayment amounts.

Deutsche Bank summarizes the balance of the overnight activity

Outside of Japan, all eyes are currently on the prospects of tapering and each day seems to bring a different opinion and bias to trading. Next week is almost certainly going to be a week where a strong employment number is unlikely to be market friendly in the nearterm given current sensitivities. Meanwhile Japan continues to create plenty of overnight interest. The Nikkei is trading 1.7% higher helped by some positive Japanese dataflow. Yesterday’s report that Japan’s Public Pension Fund is considering a change to its investment process that could allow a larger allocation to Japanese shares is probably boosting sentiment in equities as well. In terms of the data, Industrial production growth accelerated in May to 1.7%mom versus a consensus estimate of 0.6% and last month’s 0.9%. In terms of inflation, national consumer prices for April are down 0.7%yoy, in line with market forecasts and above last month’s -0.9%. CPI excluding food and energy was a touch above consensus (-0.6% vs -0.7% expected). While we’re on the topic of Japanese inflation, Bloomberg is reporting that Apple has raised the price of its iPad and iPod Shuffle in Japan by 16% and 14% respectively in response to the weaker yen.

Today's rally in Japan is capping off a volatile May for domestic equities. Over the first half of the month the Nikkei gained 12% only to lose virtually all of it in the last couple of weeks. Indeed the Nikkei looks set to finish the month pretty much where it started (13825 as we type vs 13,861 at the end of April). Similarly, the TOPIX looks set to finish with a small loss of 2% for the month. Dollar yen has had a strong month (+3.7%) and is poised to finish May holding just above the 101 level (101.03 as we type). The last time that USDJPY consistently held above 101 was during the tumultuous period of Q4 2008, and back then 10yr JBG yields were around 1.4% or more than 50bp above current levels. In fixed income, BoJ data showed that JGBs held by the major Japanese banks fell 10.8% in April to JPY96trillion. It’s the first time that the balance has fallen below JPY100trillion since June 2011 and confirms recent reports that domestic bank selling has played a part in the recent spike in yields.

Elsewhere overnight, gold (+0.4%) and silver (+0.2%) continue to show strength after rising 1.5% and 1.3% respectively yesterday. The moderate pullback in USD strength in the past two days is perhaps helping. Elsewhere Asian equities are trading with a better tone but Chinese-related equities including the Hang Seng (- 0.1%) and the Shanghai Composite (-0.05%) are lower led by property stocks.

Relative to the 5% sell off in the Nikkei yesterday, the US trading session overnight was certainly much calmer with a stable performance seen across most asset classes. The S&P 500 (+0.37%) finished a little higher and is poised to post its first positive May month since 2009. On the other hand while the UST 10-year yield finished virtually unchanged at 2.11% yesterday the asset class is set for a negative monthly return. Whilst selling in May hasn’t worked out well for equities it certainly has been for US Govies for the first time since 2009. More on this in our asset class review for May that we'll publish here on Monday.

Taking a brief look at yesterday’s markets, we saw more of a ‘goldilocks’ data scenario for both fixed income and equities as the numbers were not too hot to intensify QE tapering fears but not too cold to doubt the prospects of the recovery. Indeed whilst the US Q1 GDP was revised down to 2.4% from 2.5% earlier, the underlying details of the report were rather encouraging and put growth on a more solid footing in the quarter. Joe LaVorgna noted that personal consumption was actually revised slightly higher (3.4% vs. 3.2% as first reported), although the BEA credited motor fuel consumption for the increase.

Furthermore the Q1 inventory build was reduced to $38.3B from $50.3B and this lowered the inventory contribution to growth from 1.0 ppts to 0.6 ppts but a leaner inventory position is more constructive for current quarter production. Elsewhere initial jobless claims rose 10k to 354k last week but several states only reported estimated numbers due to the Memorial Day holiday. Our economics team noted that the 4-week average stands at 347k, which is little different to a month ago.

In terms of today, Personal Income/Spending and the final May consumer sentiment should shed further light on the state of US households/consumers but Chicago PMI will also be a key data print ahead of next Monday’s ISM manufacturing. Elsewhere we have German consumer confidence, French consumer spending and Italian unemployment today. Its also worth noting that China’s official PMI manufacturing is expected to be released tomorrow (Saturday) and the market is looking for a slightly lower print of 50. All this ahead of a big week for US data including a very interesting payroll print next Friday.

http://www.zerohedge.com/news/2013-05-31/apple-hikes-japanese-ipad-ipod-prices

Apple Hikes Japanese iPad, iPod Prices By 16%

Submitted by Tyler Durden on 05/31/2013 07:28 -0400

The missing link to Japan's Abenomic recovery is and will be wage inflation: without it, soaring import costs which have more than offset any benefits from a modest rise in exports (and a still negative trade balance), will be for nothing, and if the wealth effect begins slowing or, heaven forbid, reversing, and the USDJPY slides back under 100 dragging the Nikkei down with it and all those hedge funds who scrambled into Japan with hopes of get rich quick dreams exit stage left, all bets are off.

The result, ironically, would be an even worse bout of deflation than the country had in the recent past as all Abenomics will have done is pulled demand forward driven by transitory stock market gains, while far stickier import energy costs hammer the consumer's discretionary cash flow. In the meantime, corporations aren't waiting, and in a need to protect their bottom lines are doing to selling prices what they have zero intention of doing to wages and costs: hiking them.

So following in the footsteps of many other luxury, and not so luxury, goods makers, Apple was the latest to announce overnight that it is hiking the prices of select iPad and iPod models by 16% and 14% respectively.

From Bloomberg:

Apple Inc. (AAPL) raised the price of iPad tablet computers and iPod music players in Japan after a weaker yen that’s boosting importing costs prompted Toshiba Corp. and Fujitsu Ltd. to consider increasing prices.

Apple now sells the iPad Wi-Fi model with 16 gigabytes of memory for 49,800 yen ($493), compared with its previous price of 42,800 yen, according to Apple’s website. The iPod Shuffle music player costs from 4,800 yen, compared with the previous starting price of 4,200 yen.

“We made some pricing adjustments due to changes in foreign exchange rates,” Takashi Takabayashi, a spokesman for Apple in Japan, said by phone today. He declined to elaborate.

The yen weakened beyond 101 against the U.S. dollar earlier this month for the first time since April 2009 as Prime Minister Shinzo Abe spearheads measures to drive down the currency and end deflation. Fujitsu, a Tokyo-based maker of personal computers, said this month it plans to raise domestic prices. Toshiba said May 8 it may boost prices for televisions and PCs.

The nation’s consumer prices excluding fresh food fell 0.4 percent in April from a year earlier, the statistics bureau said today, compared with a 0.5 percent drop the prior month. The inflation rate hasn’t been above zero in the past year.

So to recap: the Japanese consumer is currently facing soaring energy and food costs, and ever higher prices of core "luxury" goods. The same consumer whose wages are flat at best. For the time being, the Nikkei225 has been a viable offset to plug the difference. However, the Nikkei225 is now approaching a bear market correction from its recent highs, which in turn will crush any consumption animal spirits Japanese households may have had, leading to even more risk asset selling.

In other words, there is no way this ends well unless Japan somehow passes a law making wage hikes mandatory. And with the country now literally all in on what is already a failing economic experiment, this may not be too far off. What happens after? One word - full banana republic status.

Catharsis Ours

Friday, May 31, 2013

New Record European Unemployment, 101 USDJPY "Tractor Beam" Breach Bring Early Selling

Apple Hikes Japanese iPad, iPod Prices By 16%

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