Friday, January 31, 2014

India's Central Bank Governor: "International Monetary Cooperation Has Broken Down" ..... While India has done its best to tommy hammer thier own citizens when it comes to gold , the bleating from India's Central Banker now that the Fed has cut its monetary heroin injections by 20 billion a month by the taper ( from 85 billion down to a " miserly " 65 billion ) , really takes the cake ! Central Bank bleating theme seems to be the US Fed and other Western Central Banks owe them more heroin injections ! Guess the plan will be to hammer FX , EM and US stocks until the Fed blinks ! Capital controls being imposed hinted at by India's Central Banker ? Overnite Data - deflation risk rising in Europe , EMs smack downs continue ( H/t Zero Hedge ) , Equity outflows largest in two years ( h/t ZH ) , Wal-mart cuts guidance on food stamps , weather and some additional interesting factors......US Treasurys are bid today , not surprisingly !

( threat of capital controls in this message ? )

India's Central Bank Governor: "International Monetary Cooperation Has Broken Down"

Tyler Durden's picture

India's recently crowned central bank head (and predecessor of the IMF's Nostradamal Olivier Blanchard), Raghuram Rajan, has not had it easy since taking over India's printer: with inflation through the roof, and only so much scapegoating of gold as the root of all of India's evils, Rajan announced an unexpected 50 bps interest rate hike two days ago in an attempt to preempt the massive EM capital flight that has roundhoused Turkey, South Africa, Hungary, Argentina and most other current account deficit emerging markets. Whether he succeeds in keeping India away from the EM maelstrom will be unveiled in the coming days, although if last summer is any indication, the INR has a long way to fall.
Hinting that the worst is yet to come, was none other than Rajan himself, who yesterday in an interview in Mumbai with Bloomberg TV India, said that "international monetary cooperation has broken down." Of course, when the Fed was monetizing $85 billion each and every month and stocks could only go up, nobody had a complaint about any cooperation, be it monetary or international. However, a 4% drop in the S&P from its all time high... and everyone begins to panic.
The reason for Rajan's displeasure is because he believes that the DMs owe the EMs a favor: "Industrial countries have to play a part in restoring that, and they can’t at this point wash their hands off and say we’ll do what we need to and you do the adjustment."Sorry Raghu - Bernanke hightailed it out of here and as Citi's Steven Englander pointed out yesterday, left you "to twist in the wind." Feel free to submit your thoughts on the matter in the overflowing complaint box in the Marriner Eccles lobby.
Instead of doing this, however, Rajan continued complaining to Bloomberg:
“Fortunately the IMF has stopped giving this as its mantra, but you hear from the industrial countries: We’ll do what we have to do, the markets will adjust and you can decide what you want to do,” Rajan said. “We need better cooperation and unfortunately that’s not been forthcoming so far.”
Rajan said yesterday developed countries might not like adjustments emerging markets take to cope with the outflows, without elaborating on specific measures. His surprise Jan. 28 move to raise the benchmark repurchase rate by a quarter point - - adding to increases of 50 basis points since he took over the Reserve Bank of India in September -- was to stem consumer-price inflation running at close to 10 percent, he said.

“In an environment when there is external turmoil, we have to get our house in order and we can’t postpone that,” Rajan said. “So a collateral benefit of getting inflation down is that you also strengthen the belief in the value of the rupee.”
“When there is huge outside turmoil, even today post the Federal Reserve withdrawing stimulus further, it is extremely important that we both be seen on the same page."
You know - this is truly wonderful: for once a central banker admits that his peers are on the verge of losing control of the globe - of course not in those words as the result would be sheer panic upon the realization that central bankers are just as clueless as everyone else - because while conducting central planning in one country is somewhat feasible for a period of time, doing so across every country across currencies, and capital markets, is impossible. And the Indian knows this.
He also knows that in a worst case scenario, the Indian Rupee will crash and burn and make last year's record devaluation of the INR seem like breakfast at Gideon Gono's. Which means that doing the right thing would mean allowing the people - his people - to preserve their wealth in the only real currency that will withstand whatever Emerging Market collapse may be headed this way. Gold.
Instead, what did the Indian Central Bank do?This.
  • Jan 21 - The government raises the gold import duty by 2% to 6%.
  • Jan 22 - The government more than doubles the duty on raw gold to 5%.
  • Jan 30 - Finance Minister P. Chidambaram says there are no plans for additional taxes or curbs on gold imports.
  • Feb 1 - The Reserve Bank of India (RBI) plans to introduce three or four gold-linked products in the next few months.
  • Feb 6 - The RBI says it would consider imposing value and quantity restrictions on gold imports by banks.
  • Feb 14 - The central bank relaxes rules on gold deposit schemes offered by banks by allowing lenders to offer the products with shorter maturities.
  • Feb 20 - The Trade Ministry recommends suspending cheaper gold jewellery imports from Thailand.
  • Feb 28 - India keeps its gold import duty unchanged in its annual national budget, defying industry expectations.
  • Feb 28 - India proposes a transaction tax of 0.01% on nonagricultural futures contracts, including for precious metals.
  • March 1 - The Finance Minister appeals to people not to buy so much gold.
  • March 18 - The Reserve Bank of India says it is examining banks that sell gold coins and wealth management products to identify "systemic issues", with a view to closing any legal loopholes.
  • April 2 - The Finance Ministry suggests it is unlikely to raise the import tax on gold further to avoid smuggling and would instead introduce inflation-indexed instruments.
  • May 3 - The RBI restricts the import of gold on a consignment basis by banks.
  • June 3 - The Finance Minister says India cannot afford high levels of gold imports and may review its import policy.
  • June 5 - India hikes the gold import duty by a third, to 8%.
  • June 21 - Reliance Capital halts gold sales and investments in its gold-backed funds.
  • June 24 - India's biggest jewellers' association asks members to stop selling gold bars and coins, about 35% of their business.
  • July 10 - India's jewellers announce they might continue a voluntary ban on sales of gold coins and bars for six months.
  • July 22 - The RBI moves to tighten gold imports again, making them dependent on export volumes, but offers relief to domestic sellers by lifting restrictions on credit deals.
  • July 31 - India hopes to contain gold imports well below the 845 tonnes that were shipped last year, the Finance Minister says.
  • Aug 13 - India hikes the import duty on gold for a third time in 2013, to 10%. Duties for silver and platinum are also increased to 10%. The customs duty on gold ore bars, ore, and concentrate are increased to 8% from 6%.
  • Aug 14 - India turns the screws on gold buying again, banning imports of coins and medallions and making domestic buyers pay cash.
  • Aug 29 -  India considers plan to allow commercial banks to buy gold direct from ordinary citizens
  • Sept 19 - India hikes import duty on gold jewerly to 15%
And so on.
So thank you for your fake concern Raghuram, but if you really wanted to help your people when the hammer hits, you would lift all capital controls on gold now, and allow your population to preserve their wealth in the only way they have known for the past two thousand years - by converting it into the barbarous relic. And since you won't, enjoy reaping what you and your demented central-planning peers have sown.

More threats of capital controls - this time Turkey ? PM Erdogan's comments from Thursday fuel speculation as to his intentions ....

Lira on the skids as PM's comments fuel volatility

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Central bank said it had tried to “front-load” its monetary tightening with this week’s rate hike but said it may tighten liquidity further if needed. (Photo: Today's Zaman)
30 January 2014 /ERGİN HAVA, İSTANBUL
Turkey's central bank's massive interest rate hike has done nothing to contain the lira's slide and statements from top government figures are fueling market uncertainty, damaging investor confidence.
The lira was trading at 2.27 against the US dollar on Thursday, well above Wednesday morning's rate of 2.16 after the central bank hiked interest rates to defend the embattled currency.
It is feared that the big emergency interest rate hike, prompted by a continuous dive in the lira, will dent Turkey's economic growth.
Given current market conditions, politicians should take extreme care not to make comments that could exacerbate ongoing volatility, observers are saying. But, do Turkey's politicians even care? Not all of them, apparently.
Asked on Wednesday if he had an alternatives to rate hikes, Prime Minister Recep Tayyip Erdoğan said an "out of the ordinary" economic package could be announced soon. Erdoğan said work on "a plan B or plan C" may be announced in the coming days or weeks. "We want it to be something out of the ordinary. Globally, there are practices," he said, without giving any details.
These comments fanned fears in Turkish markets, already buffeted by a sharp selloff in emerging markets.
Add to this the government's poor management of an ongoing corruption probe and the global impact of US Fed's tapering, and the Erdoğan administration's reputation for strong financial management is further tarnished. This is why market experts argue that much of the pressure on Ankara is of its own making.
"At a time when the central bank has taken this step it would not be right for us to announce this. ... It falls to me to be patient for some time. We have to see where we are going," Erdoğan said on Wednesday. These vague remarks, observers argue, will further unnerve investors, local and foreign alike. “The markets are already on the knife edge and he [Erdoğan] is not helping. …You have to be careful at a time of such volatility in currencies at home and abroad,” economist Uğur Gürses told Today's Zaman over the phone. As Erdoğan declined to provide any details regarding his plans B and C, market experts are wondering what they could entail. Resorting to capital controls, as Turkey did in the 1980s, could be one of those measures, Gürses says.

Malaysian style?

An article the Hürriyet daily published on Thursday likened the possibility of capital controls in Turkey to a similar sequence of events in Malaysia in the late 90s. Following the 1997 Asian financial crisis, Malaysia, hoping to minimize damage, imposed capital controls as an emergency measure, including strict exchange controls and limits on outflows from portfolio investments. Like Erdoğan, then-Malaysian Prime Minister Mahathir bin Mohamad accused an “interest rate lobby” of fueling uncertainty in his country's markets. His claims of an interest-rate lobby were presented as a primary justification of his radical capital control measures.
Erdoğan has overseen strong economic growth since coming to power in 2002 and was able to keep the economy unscathed following the 2008 global financial crisis. But his increasingly authoritarian style has started to discourage investors.
An outspoken critic of Erdoğan's economic policies -- and his pressure on the central bank -- Turkish Industrialists and Businessmen's Association (TÜSİAD) President Muharrem Yılmaz called on the government to preserve transparency, the independence of financial regulators and the judiciary, and political accountability at a meeting in İstanbul on Thursday. “The central bank has taken some measures and let us give the markets time and see what happens,” Yılmaz said.
Erdoğan, however, doesn't seem interested in keeping a low profile until the markets calm down, finance expert Selim Işıklar told Today's Zaman. “We need certain figures, the minister of economy, the finance minister or the central bank governor, to comment on these issues, not Erdoğan,” Işıklar said. The frequency of the prime minister's meddling with market issues and his “controversial arguments” are harming the markets. “We are already the market worst affected by the Fed's stimulus tapering among the ‘Fragile Five'; the current account gap is widening and such statements are the last things Turkey needs to hear,” he added.
According to Faik Öztırak, the main opposition Republican People's Party's (CHP) deputy chief of economy, Erdoğan has lost control over the economy, and this is causing even more damage to the country than had been predicted. “Who has made Turkey so vulnerable to a decline in foreign cash inflows and exposed our economy to external shocks? … We need to reverse this trend with some emergency reforms, measures,” he said. “Or we must brace for a long-lasting domestic crisis.”

Capital controls not on agenda in Turkey

While Prime Minister Recep Tayyip Erdoğan's comments on an unprecedented intervention in the markets stirred concerns and raised questions among investors, members of the Cabinet rushed to clarify the prime minister's statements on Thursday.
Turkey is not considering any sort of capital controls as it battles to defend the lira, a senior government official said on Thursday after Erdoğan said an "out of the ordinary" economic package could be announced soon. "We are not working on capital controls and it is not on the table," the official told Reuters. Turkey's central bank raised all its key interest rates at an emergency policy meeting late on Tuesday, ignoring pressure from Erdoğan as it battled to halt the free fall of the lira, which has hit a series of record lows. Erdoğan, keen to maintain growth ahead of an election cycle starting in two months, has frequently railed against what he describes as an "interest rate lobby" of speculators seeking to stifle growth and undermine the economy.
In the late 1980s, Turkey introduced capital controls aimed at limiting the entry of foreign funds and the external asset liability positions of local banks. Market experts say capital controls are not a solution and are out of step with modern global free-market consensus, particularly at a time when access to hot cash has become more difficult. Turkey cannot afford a decline in foreign direct investment at a time of global capital scarcity, analysts say. Short-term foreign debt that the public and private sectors must repay by the end of the year has reached a total of $168 billion, including payments from earlier long-term debts, official data show. Analysts say the government has few options besides introducing incentives to attract FDI to Turkey.

Cue Europe crash in 3 , 2 ,1 ....

Futures Tumble As "Deflation Monster" Rages In Europe; EMs Continue To Rumble

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The wild volatility continues, with markets set to open well in the negative wiping out all of yesterday's gains and then some, only this time the catalyst is not emerging market crashing and burning (at least not yet even though moments ago the ZAR weakened to a new 5 year low against the USD and the USDTRY is reaching back for the 2.30 level) but European inflation, where the CPI printed at 0.70%, dropping once again from 0.8%, remaining under 1% for the fourth straight month and missing estimates of a pick up to 0.9%.Perhaps only economists are surprised at this reading considering last night Japan reported its highest (energy and food-driven) inflation print in years: so to explain it once again for the cheap seats - Japan is exporting its "deflation monster", Europe is importing it. It also means Mario Draghi is again in a corner and this time will probably have to come up with some emergency tool to boost European inflation or otherwise the ECB will promptly start to lose credibility - is the long awaited unsterilized QE from the ECB finally imminent?
European equities have traded in the red from the get-go with underperformance in financials, after being put under pressure by Banco Popular in Spain, whose bad loan ratio soared further, compounding fears of a weak credit market in the periphery after recent M3 data showed private sector credit contracting at the fastest pace on record.
The latest Eurozone CPI release came in at 0.70% vs. Exp. 0.90% and has presented ECB President Draghi with a headache, raising the prospect of more policy easing by the ECB. This led to a bull flattening of the Euribor curve and downward pressure on EUR/JPY and USD/JPY despite earlier support being provided for EUR through monthended buying by the Buba in EUR/GBP. Elsewhere, Bunds have been provided support following the CPI reading and month-end buying.
Looking at the day ahead, the focus comes back to the data beginning with  Eurozone inflation for January which may have some bearing ahead of next week’s ECB meeting. The consensus is that the headline will print at 0.9% YoY (vs 0.8% previous) while the core estimate will be slightly lower at 0.8%. Euroarea unemployment data for December will also be released today. In the US the focus will be on the Chicago PMI ahead of next week’s ISM. Personal income/spending and the final Univ of Michigan consumer confidence reading round out this week’s US data calendar. Note that China’s official manufacturing PMI will be released early on Saturday morning (London 1am) – consensus is expecting a print of 50.5. This will be closely watched following the deceleration suggested by the HSBC manufacturing PMI (49.5). Mastercard and Simon Property Group will report earnings prior to the US market open today.
Overnight Headine Bulletin from Bloomberg and RanSquawk
  • European equities have remained in the red from the open after being put under pressure by financials following Banco Popular's pre-market update.
  • The latest Eurozone CPI release came in softer than expected and has consequently raised the prospect of further ECB policy easing.
  • Looking ahead for the session there is the release of Canadian GDP, US Personal Income, PCE Deflator, Chicago PMI and Univ. of Michigan Confidence.
  • Treasuries gain for fifth day, 10Y yield falls to new low since Nov. overnight, headed for biggest monthly gain in a year as selloff in EM currencies resumes.
  • Euro-area consumer prices rose 0.7% in Jan., the fourth straight reading below 1%; ECB’s target for inflation is just under 2%
  • Japan’s inflation accelerated in December, industrial output gained and a measure of demand for workers strengthened, signaling gains for Abe’s campaign to end two decades of stagnation
  • The largest banks in Europe will have to show their capital won’t dip below 5.5% of assets in an economic crisis, the European Union’s top banking regulator said
  • Ukraine’s opposition accused President Viktor Yanukovych of foul play as he took sick leave and his Defense Ministry asked for “urgent” steps to counter what it said was an escalation the nation’s political crisis
  • Sovereign yields decline. EU peripheral spreads widen. Asian equity markets mixed, with Nikkei and Shanghai lower, European  markets and U.S. stock-index futures fall. WTI crude and copper lower; gold higher
US Data Docket
  • 8:30am: Employment Cost Index, 4Q, est. 0.4% (prior 0.4%)
  • 8:30am: Personal Income, Dec., est. 0.2% (prior 0.2%); Personal Spending, Dec., est. 0.2% (prior 0.5%); PCE Deflator m/m, Dec., est. 0.2% (prior 0.0%)
  • 9:45am: Chicago Purchasing Managers, Jan., est. 59 (prior 59.1, revision 60.8)
  • 9:55am: UofMich. Confidence, Jan. Final, est. 81.0 (prior 80.4)
  • 11:00am: Fed to purchase $3.75b-$4.75b in 2018 sector
Asian Headlines
Japanese National CPI (Dec) Y/Y 1.6% vs. Exp. 1.5% (Prev. 1.5%) (BBG) Core CPI posted the first annual rise in 5 years, a sign that the Bank of Japan's QQE policy is working.
China began their Lunar New Year holiday today, with the Shanghai Comp to remain closed until February 7th. (RANsquawk)
EU & UK Headlines
ECB has asked Europe's biggest banks to disclose loans on balance sheets that are at risk of default as part of its asset quality review, according to a document. (BBG) The move will provide the ECB with a clear view of diverging bank practices in different Euro states and allow better comparisons across the monetary union. The results could show which banks in the Euro-area will be forced to raise capital in order to meet the ECB's standards.
ECB's Nowotny said the Euro Area is expected to move to positive, albeit still very weak growth this year. (RTRS)
Eurozone CPI Estimate (Jan) Y/Y 0.70% vs. Exp. 0.90% (Prev. 0.80%)
- Eurozone CPI Core (Jan A) Y/Y 0.80% vs. Exp. 0.80% (Prev 0.70%)
Eurozone Unemployment Rate (Dec) M/M 12.0% vs Exp. 12.1% (Prev. 12.1%, Rev. 12.0%)
German Retail Sales (Dec) M/M -2.5% vs. Exp. 0.2% (Prev. 1.5%, Rev. 0.9%)
German Retail Sales (Dec) Y/Y -2.4% vs. Exp. 1.9% (Prev. 1.6%, Rev. 1.1%)
Barclays preliminary pan-Euro agg month-end extensions: +0.13y (12m avg. +0.07y)
Barclays preliminary Sterling month-end extensions:+0.19y (12m avg. +0.06y)
US Headlines
Barclays preliminary US Tsys month-end extensions:+0.06y (12m avg. +0.07y)
European equities have remained in the red from the open after being put under pressure by financials following Banco Popular's pre-market update which revealed a significant increase in their bad loan ratio. Elsewhere, underperformance has been observed in the DAX following negative broker recommendations for Deutsche Bank and Fresenius. In terms of stock specific movers, LVMH and BT Group are seen up around 6% and 2% respectively after their positive pre-market reports, with BT raising their EBITDA outlook.
EUR/JPY and USD/JPY were put under pressure, with the move lower being triggered by the release of softer than expected Eurozone CPI data which prompted broad based EUR weakness. However, EUR/USD later completely reversed the move after being supported by month-end buying of EUR/GBP by Buba. Elsewhere, credit indicators such as FRA rates remain contained near yesterday's levels for TRY and ZAR, while 3x6 FRA is bid (highest since August 2013), with EUR/HUF also bucking the trend and trading close to 2y highs.
Asian buyers of Iranian oil have reduced their purchases of the nations crude by 15% in 2013, with shipments only expected to recover marginally despite the easing of sanctions by the West on Iran. (RTRS)
Japan’s December crude imports down 1.1% Y/Y, according to data released by Ministry of Economy, Trade and Industry. (BBG)
SPDR Gold Trust GLD said its holdings rose 0.08% to 793.16 tonnes on Thursday from 792.56 tonnes on Wednesday, to post its first 2-day gain since 2012. (BBG/RTRS)
India's Finance Ministry said the government and RBI are vigilant and all steps will be taken to ensure stability in financial markets in the wake of the US Fed's decision to further trim its monetary stimulus. (PTI)
* * *
We conclude with Jim Reid's overnight summary
The S&P500 (+1.13%) posted its best performance of 2014 yesterday, on the back of a “less bad” day for emerging markets, an in-line US GDP print and a generally positive corporate earnings tape. But most of that momentum faded after the US closing bell, as the combined earnings disappointments from techheavyweights Amazon and Google took S&P500 futures down 9 points shortly after the closing bell.
Though the sentiment felt a little better in emerging markets, there were still pockets of instability across the EM complex. On the fixed income side, the CDX EM index continued to widen (+2.5bp) and there was a persistent flight to quality theme as core 10yr bond yields firmed at the expense of Hungary (+12bp), Turkey (+10bp) and South Africa (+2bp). EM FX bellwethers including the ZAR (+0.95%) and RUB (+0.63%) had much needed relief rallies against the USD, but pressure continued to mount on the Turkish lira (-0.36%) and the lesser-reported Hungaran forint (-0.87%). The latter has lost almost 7% in value against the USD in January alone. Turkey’s finance minister ruled out capital controls yesterday leaving the market wondering exactly what other Plan B measures that Prime Minister Erdogan was planning to announce in the coming weeks. Meanwhile, the Reserve Bank of India’s governor Rajan warned about that global central bank coordination had broken down, and said that his developed market counterparts had a part in restoring that cooperation.
Looking at Asian markets this morning, it has been fairly quiet with Hong Kong, Singapore, Mainland China, Taiwan and South Korea closed for Chinese New Year. Most of these markets will only gradually return early-to-mid next week, so liquidity will continue to be fairly patchy during the Asian time zone. Of the equity markets which are open, there’s been some focus on the Nikkei which dropped sharply after the lunch break and is currently at session lows of -1.5% - dragging with it US equity futures (-0.2%). Today’s losses in Japan have been attributed to a several disappointing quarterly earnings and month end rebalancing. Indeed, it’s been a fairly uninspiring reporting season so far for Japanese stocks with less than half of Nikkei constituents beating/meeting analyst expectations on the earnings line, compared with the approximately two-thirds who did so last reporting season. In terms of macro data, preliminary Japanese industrial production numbers for December came in at +1.1% MoM which was slightly below the 1.3% expected. Japanese CPI was a bit higher than forecast at 1.6% (vs 1.5% expected).
Before we review the US dataflow, we should note that the Bloomberg Economic Surprise Index has fallen back into negative territory. The index started the year at 6 month highs, but has fallen sharply in recent weeks as a few disappointments on the housing, payrolls and durable goods fronts bring market expectations back down. On that note, US pending homes sales (released yesterday) fell 8.7% MoM (vs a fall of 0.3% expected) and initial jobless claims were higher than expected at 348k (vs 330k expected). Q4 GDP printed at 3.2% which was consistent with Bloomberg median expectations. In the detail of the report, the strongest components included consumption which grew 3.3% which was the second strongest rate since the end of the recession.
A surge in Q4 exports (11.4% vs. 3.9% previously) amid soft import growth (0.9% vs. 2.4%) pushed net exports to the highest reading since the end of the recession. Meanwhile, the softer components of the report were residential investment (-9.8% vs. +10.3% previously) and federal government spending and investment (-12.7% vs. -1.5%). There were also no major surprises in terms of the Core PCE which came in at 1.1% (Bloomberg consensus 1.1%). The WSJ’s Hilsenrath points out that this is well below the Fed’s December 2012 prediction that Core PCE would range between 1.6% to 1.9%.
On the topic of US inflation, DB’s economists Hooper et al write in their latest Global Economic Perspectives that recent core inflation has been depressed by both temporary and fundamental factors. On the temporary side, a one-time sequester-related decline in health care inflation reduced core inflation by about 0.15% points this past year. Fundamentally, a stronger US dollar and substantial domestic and global slack have reduced inflation pressures. Peter believes, however, that inflation should turn the corner this year. As US economic activity remains above trend, economic and labor market slack should decline, and rising wage pressures along with stable and more elevated inflation expectations should exert upward pressure on inflation. With unemployment trending towards the Fed’s guidance hurdles, the Fed has made it clear that its policy decisions going forward will place increased weight on low core inflation. Hooper et al believe that this inflation outlook could lead the Fed to quicken the pace of QE reduction from current expectations of $10bn per meeting after mid-year.
In our own 2014 outlook ('The taper-bubble tightrope'), we outlined a view that policy makers will likely walk a very fine line this year between withdrawing liquidity too quickly and facilitating problems in markets/economies that have become addicted to central bank activity. We continue to think we may see a few wobbles first that encourage central banks to err more on the side of caution. So in our forecasts we thought H2 would be better than H1 as by then we may have European QE (or equivalents), an increase in BoJ purchases and potentially the Fed pausing from their seemingly preordained tapering path. We would have a more bearish view if we thought central banks would not be so market friendly in 2014 as a number of unresolved global issues remain.
Looking at the day ahead, the focus comes back to the data beginning with  Eurozone inflation for January which may have some bearing ahead of next week’s ECB meeting. The consensus is that the headline will print at 0.9% YoY (vs 0.8% previous) while the core estimate will be slightly lower at 0.8%. Euroarea unemployment data for December will also be released today. In the US the focus will be on the Chicago PMI ahead of next week’s ISM. Personal income/spending and the final Univ of Michigan consumer confidence reading round out this week’s US data calendar. Note that China’s official manufacturing PMI will be released early on Saturday morning (London 1am) – consensus is expecting a print of 50.5. This will be closely watched following the deceleration suggested by the HSBC manufacturing PMI (49.5). Mastercard and Simon Property Group will report earnings prior to the US market open today.

Cue US  market crash on 3 ,2 ,1 ......

Equity Funds Have Largest Weekly Outflow In Over Two Years

Tyler Durden's picture

There is one major problem when the entire market is a rigged casino (by both the Fed and HFTs), favoring degenerate gamblers over traditional investors: at the first whiff of trouble everyone bails. Or as BofA politely puts it, "Typically flows follow returns and this week was no exception." In the past week, trouble whiffed, and the degenerate gamblers, loaded up to the gills with record margin debt hightailed it out of the casino, leading to the largest weekly equity fund outflow in over two years! Add some record leverage to the equity withdrawal, continued EM turbulence, ongoing Japanese deflation exports, oh and of course the ongoing Fed taper which has been solely responsible for all S&P gains since 666, and suddenly you have all the ingredients for a broad market crash.
More from BofA:
"... equity, high yield and EM bond funds all reported large outflows last week after the sharp selloff in risk assets driven by weakness in EM. At the same time munis – the asset class that benefits most from the rally in rates – had the first significant inflow (+$0.46bn) since May. The $12.02bn equity fund outflow was the largest weekly outflow in over two years. EM funds also saw a sizable $2.65bn outflow, driven by local currency funds – the largest since June. This outflow also reversed the slowdown in EM redemptions that we saw during the first three weeks of the year."
And charting the YTD fund flows across all asset classes:

Cue US consumer crash in 3 , 2 , 1 .....

WTF Is Going On: Real Disposable Income Plummets Most In 40 Years

Tyler Durden's picture

We may not know much about "Keynesian economics" (and neither does anyone else: they just plug and pray, literally), but we know one thing: when real disposable personal income plummets by 2.7% from a year ago - the biggest collapse since the semi-depression in 1974, something isvery, very wrong with the US consumer, and not to mention the entire US economy...

And longer-term chart:

Here We Go: Wal-Mart Cuts Guidance, Blames Foodstamps, Weather

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That didn't take long. Moments ago the world's largest retailer (sorry AMZN) WoeMart (sic) just confirmed what everyone who is not an economist knows - the US consumer is barely alive. The reasons: cut in foodstamps, and of course, the weather: "“Despite a holiday season that delivered positive comps, two factors contributed to lower comp sales performance for the 14-week period for Walmart U.S. First,the sales impact from the reduction in SNAP(the U.S. government Supplemental Nutrition Assistance Program) benefits that went into effect Nov. 1 is greater than we expected. And, second, eight named winter storms resulted in store closures that impacted traffic throughout the quarter."
And all this just half an hour before we learn just how little savings US consumers have left with which to provide the same kind of one-time boost we saw in early Q4 before it all went to hell.
From the release:
The company provided fourth quarter diluted earnings per share from continuing operations (EPS) guidance of $1.50 to $1.60, which included a $0.10 per share impact from two discrete items, which resulted in an underlying1 EPS guidance range of $1.60 to $1.70. For the full year, the company expected to deliver EPS of $5.01 to $5.11 and accounting for the $0.10 of discrete items, the range for underlying EPS was between $5.11 and $5.21.

We now anticipate that our underlying EPS for the fourth quarter of fiscal 2014 will be at or slightly below the low end of our range of $1.60 to $1.70,” said Charles Holley, Wal-Mart Stores, Inc. chief financial officer. “For the full year, we expect underlying EPS to be at or slightly below the low end of our range of $5.11 to $5.21.

“Today, we are providing updated information on previously disclosed items, as well as new additional discrete items that were not anticipated when we provided our fourth quarter and full year guidance. These discrete items will impact EPS results for the fourth quarter and the year,” said Holley.
It wasn't just the weather though. The company also listed the following factors:
Detailed explanation on discrete items:
  • Brazil and China store closures:Approximately 50 underperforming units between these two markets were closed.
  • India transaction: Walmart terminated the franchise and supply agreements related to retail stores. The estimated charge for this transaction is now approximately $0.05 per share versus the previous estimate of $0.04 per share.
  • Brazil non-income tax contingencies:The company is subject to tax examinations for non-income taxes in Brazil. A number of these examinations are ongoing, and in certain cases, have resulted in assessments from taxing authorities, some of which we are currently contesting. As part of the company’s standard review process and as a result of changing conditions and circumstances, the company expects to record additional liabilities related to these loss contingencies.
  • Brazil employment claim contingencies:We expect to record additional charges related to employment claims. Walmart Brazil has experienced a significant increase in employment claims in recent years as a result of company efforts to improve productivity and reduce costs. The company has performed a detailed review of potential liabilities related to these claims, as well as a review of our historical processes and practices related to accounting for court deposits required to litigate such claims. As a result of this review, the company expects to record charges to increase our liabilities and account for settlements of historical employment claims.
  • China store lease expense charges: We identified a historical lease accounting practice that did not conform to our U.S. GAAP-based global policies. As a result, the company expects to record a charge to conform to this accounting practice.
  • Sam’s Club U.S restructuring and club closure.: Sam’s Club is implementing a new in-club leadership and staff structure to better align U.S. club teams with the sales volume of each club, and expects to record a charge for severance-related costs. Additionally, one club is being closed.
Well, there's always a reason.


Americans Burned Through $46 Billion In Savings To Fund December Purchases: Savings Rate Lowest Since January 2013

Tyler Durden's picture

If there was any confusion where the funding for what little shopping spree Americans engaged in during December, it should all go away now. While the street was expecting a 0.2% increase in both personal income and personal spending in the month of December, what it got instead was a flat print in income (i.e. unchanged from November) while spending (mostly for non-durable goods) spiked by 0.4% meaning there was a 0.4% funding hold that had to be filled somehow. That somehow we now know is personal savings, which tumbled from a revised 4.3% to 3.9% - the lowest since January 2013, only back then incomes would rise for the rest of the year driven by the 30% increase in the S&P "wealth effect." This time, with the Fed now tapering QE, the only way is down for both the "wealth effect" and Personal Incomes... and thus Personal spending, that majority component of US GDP.
Finally, this data means that according to the BEA in December US consumers funded
some $46 billion in spending through burning down their savings. 
As of December 31, 2013 total personal savings left are down to $495 billion.
Source: BEA