European and Asian equities and ‘risk-on’ currencies have all benefitted as the post-payroll asset rally gained momentum. I think the move has a decent chance to last till Christmas. Tapering will be announced next week, the ‘tapering isn’t tightening message’ will be repeated and policy uncertainty will decrease. The Fed is on hold until the second half of 2015, the ECB for even longer, the Chinese slowdown is having a vacation (thanks to some shadow banking) and it looks as though military action in Syria will be avoided. Have the global economy’s structural problems gone up in a puff of smoke? No, but that’s not the point right now.
French bank Societe Generale’s Russian unit Rosbank has dismissed Chief Executive Vladimir Golubkov following his prosecution for bribery and will launch a search for a successor, it said on Monday.
France’s second-biggest bank is seeking to reassure markets that it can overcome the latest blow to its underperforming Russian subsidiary after a years-long turnaround campaign that has cost billions.
Rosbank said its board had fired Golubkov with immediate effect. His first deputy, Igor Antonov, will continue as acting chief executive until a replacement can be found.>> Read More
Since the European sovereign debt crisis began, it was always clear that somehow it must end with the ECB.
The ECB has the unlimited firepower to back stop wobbly governments, and furthermore, every other modern economy basically works this way: The central bank, not the bond market, is the real funding mechanism for governments. That’s why Japan, the UK, and the US don’t have sovereign debt crises despite huge government debts.
So when ECB chief Mario Draghi unveiled a plan a couple of weeks ago to buy unlimited amounts of short-term government debt, it appeared that at least a mechanism that would actually work would soon be put into place.
And that mechanism (known as OMT) could work if it gets off the ground, but the rules are that a country has to seek outside aide and oversight in order to be eligible for bond buying, and here’s where we run into a problem that the ECB can’t solve.
In a note to clients this morning, in the aftermath of the massive protests in Spain, SocGen’s Kit Juckes put it bluntly:>> Read More
Next week looks busy, between global economic indicators and the Eurogroup meeting scheduled for July 20.
After the collapse in manufacturing in June, and the horrible German economic sentiment numbers, Societe Generale gives us the highlights of the coming week:
Empire State Manufacturing Survey, July 16: Manufacturing in the north east plunged after the Empire state survey fell to 2.29 in June. SocGen analysts are looking for the business conditions index to rise modestly to 5.70.
U.S. retail sales, July 16: “Stepped-up auto-dealer revenues, combined with an anticipated rebound in building materials purchases, likely propelled retail and food services sales 0.4% higher in June, erasing all but a fraction of the decline posted over the April-May span.”
The German ZEW economic sentiment survey, July 17: As the strong arm of Europe, all eyes are on Germany’s economic sentiment survey which plunged in June. SocGen analysts “expect another deterioration in both the economic sentiment and the current situation, but not nearly as severe as the exceptional weakness reported in June.” Their consensus is for economic sentiment to decline to -25 and for a current situation reading of 25.
U.S. and UK inflation, July 17: After a downward inflation trend UK consumer prices should be unchanged at 2.8 percent year-over-year in June. In the U.S. inflation is expected to increase for a fourth straight month but at a marginal rate of 0.2 percent per month.
Philadelphia Fed Survey, July 19: The Philly Fed collapsed to -16.6 in May. SocGen analysts expect the survey to contract for a third straight month, improving slightly to -14.7 percent.
UK retail sales, July 19: “Sales have been highly volatile of late, buffeted by varying weather conditions.” But analysts are looking for a 1 percent month-over-month increase.
Eurogroup meeting, July 20: The meeting is expected to deliver a finalization of the Memorandum of Understanding for financial assistance to the Spanish banking sector. The meeting could also offer more details on Greece’s compliance with its financial programs.
Disappointing the liquidity-starved masses, the BoJ wholeheartedly believes that this time it’s different and their economy remains more or less flat and shows signs of picking up leaving hope for another massive LSAP (and a disappointed SocGen) having to wait for the Fed to pick up the pieces of a global slowdown. The BoJ maintained the size of its asset-purchase fund, credit-loan program, and ZIRP noting that, via Bloomberg:
*BOJ SAYS NO ONE PROPOSED EXPANSION OF STIMULUS AT MEETING
It seems the Japanese are following China’s lead (since China’s economy posted a trade surplus on expectations of a deficit and following the biggest import surge since 1989, this means that the hard landing is delayed as the PBOC is far more concerned about the pockets of food inflation noted yesterday and as such will be far less willing to proceed with the easing everyone demands) and deferring to the Fed for the next global liquidity pump (remember its flow not stock so this is bad news for risk-on – as can be seen in AUDJPY, Oil, and Copper). Gold is so far enjoying this as one by one global central banks check to the Fed’s check-raise expectations.