Recap 2014-07-23

Commentary:

BoE minutes were interesting. There were two interpretations discussed for why the correlation between wage growth and employment has fallen, but it is likely that both explanations are at play, as the minutes also suggested. Increased bifurcation of the labor market means that survey indicators of tighter labor mkts translated to lower earnings growth than in the past. And the effective supply of labor has increased… but mainly in lower income occupations. In aggregate, this may mean that tighter labor markets are mainly affecting income growth for higher income occupations, with the average income growth dragged lower by lower income occupations. With respect to the BoE’s inflation mandate, which focuses on average inflation, this may mean a lower neutral rate for any given Unemployment level relative to the previous cycle. In any case, the BoE’s thinking on this in the August Inflation Report will be very pertinent.

GS published a piece on Oil and Geopolitics that was quite interesting:

  • This surge in non-OPEC supply growth over the past year has not only been led by growth in North American “shale oil” production, but also by the broad recovery from the one-off impact of the Macondo spill in the Gulf of Mexico (GoM), which forced the industry to review all of its offshore facilities worldwide and led to a global collapse in productivity.
  • Based on Goldman Sachs’ proprietary Top 400 analysis of the world’s largest new oil and gas fields, shale oil has added 66 bn barrels of crude oil resources and 8 mmbd of future peak production, making higher cost fields redundant. This leads to a flattening of the cost curve around US$80-85/bbl Brent breakeven, effectively splitting the cost curve into an attractive part (<US$80/bbl Brent breakeven) and a redundant part (>US$85/bbl Brent). The current premium of spot oil prices relative to long-dated oil prices on the Brent forward curve provides further incentive to accelerate quick payback investments (shale) vs. other developments (traditional, deepwater, heavy oil).
  • The rise of shale has displaced an estimated $700 bn of capex that sits high on the cost curve, forcing a flattening of capex outside of North America at a time of material expansion of oil service capacity across the chain. This has the potential to lead to 5%-15% cost deflation across oil and gas developments after a decade of 10%+ inflation, and to an improvement of productivity. Coupled with changing supply dynamics, this points to a structural shift that will leave the oil market better equipped to deal with any future disruptions – from the Middle East, Russia or elsewhere.
  • As recently as 2012, the International Energy Agency (IEA) expected Iraq to account for 45% of global production growth through 2030, bringing it on par with the world’s largest oil producers. Iraq’s production gains depend heavily on political stability, as well as physical security. And there is no political scenario coming out of the current crisis in Iraq that would allow it to meet those expectations now.
  • In terms of the rest of the country, the Sunni areas that IS largely control today have some energy resources but are generally unexplored and are not producing much oil. So there is a concern that this Sunni middle would be very poor if the political dynamics changed in a way that halted oil revenue sharing throughout the country. In contrast, the southern Shia part of Iraq is home to the majority of current oil production. If those provinces took control of that oil and considered its sale and development to be a regional prerogative rather than a national one, it could open the door for neighboring Shiite Iran to gain significant sway over Iraqi oil policy.
  • Traditionally, Iran, Turkey, and Syria – all of which have substantial Kurdish populations – have seen an independent Kurdistan carved out of Iraq as a dangerous precedent for more fragmentation in the region. This has been a primary concern for Turkey in particular. But views in the region are changing and the Iraqi Kurds and Turkey have become very close in recent years, largely driven by Turkey’s recognition that the Iraqi Kurds could potentially meet a large share of Turkey’s energy needs. The Turks may now see an independent Iraqi Kurdistan as better than the alternative – an Iraq incapable of providing energy.

Notable:

  • AU CPI rose 3.0% as exp vs 2.9% exp. The Trimmed mean CPI jumped to 2.9% vs 2.7% exp and 2.6% prev
  • BoE Minutes:
  1. Given the strength of survey indicators, it remained unclear whether growth would slow modestly in the second half of the year, as envisaged in the May Inflation Report. But there were some indications that a gradual slowing might take place.
  2. In an accounting sense, this increase in employment had been met by both an increase in labour force participation and a fall in unemployment; the unemployment rate had fallen to 6.6%. When combined with activity growth at or above longer-term averages, this implied further disappointment in productivity, with measured output per hour likely to have changed little in the first half of the year.
  3. In contrast to the strength of employment, wage growth had been surprisingly weak… Regular pay growth had fallen to 0.9% over the same period, around half a percentage point lower than expected at the time of the May Inflation Report. Half a percentage point of the weakness in AWE growth reflected a compositional effect: employment growth over the past year had been concentrated in lower-paid sectors.
  4. The Committee considered two possible explanations for the contrasting wage and employment data. The first was that the lags between any tightening in the labour market and an increase in wages were longer than the Committee had previously judged… An alternative explanation was that the effective supply of labour had increased, resulting in a greater degree of slack and so restraining wage growth… It was possible that elements of both explanations were at play to different extents in different parts of the labour market. The Committee would consider these and other possible explanations more fully in its preparations for the August Inflation Report.
  5. The Committee considered alternative interpretations of the data that might have different implications for monetary policy. On one interpretation, the risk of a small rise in Bank Rate derailing the expansion and leaving inflation below the target in the medium term was receding as that expansion became more established. Some survey indicators of wage growth had already picked up materially and, although the degree of slack was highly uncertain, it was likely that it was being absorbed more rapidly than had been envisaged in the May Inflation Report projection. Because estimates of the level of spare capacity had become more uncertain there was a case for setting policy with some reference to the rate at which it was being used up. A rise in Bank Rate at a time when the economy was growing strongly would facilitate a more gradual path thereafter
  6. On an alternative interpretation, although the domestic economy was growing at or above longer-term average rates, there was little indication of inflationary pressures building and there was uncertainty as to whether there had been a more structural change in the relationship between the labour market and inflation. Moreover, there were early signs that global growth was weakening, and an unexpected increase in interest rates when real wages were not yet rising could lead to an outsized reaction in asset prices and destabilise the recovery. On the central projection from May, conditioned on very gradual increases in interest rates, inflation had been forecast to return to the 2% target only after three years. A premature tightening in monetary policy might leave the economy vulnerable to shocks, with the effectiveness of any further stimulus uncertain.

The Fed is worried about the effects of the reverse repo facility on financial markets. They had originally planned on this facility being a key monetary tool but now it probably won’t play more than a supporting role because they’re nervous about the effects it could have on financial markets. Plosser said “there’s a lot of things that might happen to the plumbing of the money markets, and people have gotten…concerned that there’s a lot we don’t know.” WSJ

According to a Congressional hearing Tuesday, up to 25 additional US firms are considering tax inversion deals.

The Bank of Spain Monthly Bulletin raised both 2014 and 2015 GDP growth forecasts. Raises 2014 GDP growth forecast from 1.2% to 1.3% and raises 2015 GDP growth outlook from 1.7% to 2.0%. it noted that activity was recovering faster than expected.

Foreign ministers of the EU failed to agree yesterday on new EU sanctions against Russia, following the downing of the Malaysian plane last week. However, they opened the door for stage 3 sanctions if Russia does not cooperate with the West in the future.

JPM: The most noteworthy macro trend has been the continuing rotation into Europe and back into Emerging Markets as the Great Moderation is back in play… Issuance and inflows into European credit have reached record levels. Inflows into European High Yield reached an all-time high at nearly 19% of total assets under management in 1H14. Outflows from money market funds have surged but stayed within bond markets, fueling inflows into other fixed income asset classes, including emerging markets and municipal bonds. EM fixed income inflows have fully reversed $15bn of 1Q14 outflows, with a solid $20bn of inflows since April

Upcoming:

  • Wed: EU Consumer Confidence, RBNZ, NZ Trade Balance, Japan Trade Balance, PMI, China HSBC Mfg PMI
  • Thu: EU PMI, UK Retail Sales, Italy Consumer Confidence, US Jobless Claims, US Markit Mfg PMI, New Home Sales, Japan CPI, NZ Business Confidence
  • Fri: GfK Consumer Confidence, IFO, Turkey Trade Balance, US DGO
  • Mon: US Markit PMI, US Pending Home Sales, Japan Unemployment, Australia New Home Sales, UK House Prices
  • Tue: US Consumer Confidence, NZ Building Permits

Recap 2014-07-22

Commentary:

None

Notable:

  • US CPI was stable at 2.1% YoY as exp. The Core measure, however, declined to 1.9% vs 2.0% exp and prev
  • FHFA House Prices rose 0.4% MoM vs 0.2% exp and 0.0% prev
  • Existing home Sales growth slowed to 2.6% vs 1.9% exp and 4.9% prev
  • The Bundesbank has come out in favor of higher German union wages, a “remarkable shift in stance from a central bank famed for its tough approach to keeping prices in check”. The Bundesbank’s chief economist told Spiegel (in an article published Sunday) that the recent union wage increase of 3% was welcome (despite being above the ECB’s inflation target of ~2%). The push for higher compensation underlies ECB concerns over the state of Eurozone inflation. FT
  • A Federal Reserve Staff paper notes that “The results highlight the potential for this type of macro prudential regulation to have a significant and broad influence on bank behavior.”
  • SF Fed: Starting wages of recent college graduates have essentially been flat since the onset of the Great Recession in 2007… The lackluster increases in starting wages for college graduates stand in stark contrast to growth in median weekly earnings for all full-time workers… This has created a substantial gap between wage growth for new college graduates and workers overall… In this Economic Letter we put the wage growth gap in a historical context and consider what is at its heart. In particular, we find that the gap does not reflect a switch in the types of jobs that college graduates are able to find. Rather we find that wage growth has been weak across a wide range of occupations for this group of employees, a result of the lingering weak labor market recovery.

Upcoming:

  • Tue: AU CPI
  • Wed: BoE Minutes, EU Consumer Confidence, RBNZ, NZ Trade Balance, Japan Trade Balance, PMI, China HSBC Mfg PMI
  • Thu: EU PMI, UK Retail Sales, Italy Consumer Confidence, US Jobless Claims, US Markit Mfg PMI, New Home Sales, Japan CPI, NZ Business Confidence
  • Fri: GfK Consumer Confidence, IFO, Turkey Trade Balance, US DGO
  • Mon: US Markit PMI, US Pending Home Sales, Japan Unemployment, Australia New Home Sales, UK House Prices
  • Tue: US Consumer Confidence, NZ Building Permits

Recap 2014-07-21

Commentary:

Interesting article on the EU Commission selection process:

http://www.nytimes.com/2014/07/22/business/international/european-union-has-a-strange-way-of-picking-leaders.html

Subprime Auto Loans: Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime

http://dealbook.nytimes.com/2014/07/19/in-a-subprime-bubble-for-used-cars-unfit-borrowers-pay-sky-high-rates/

My take – subprime loans in sectors other than housing (esp auto & student loans) is one way credit markets are beginning to under price risk in this cycle. As an anecdotal observation, it probably is suggestive of the state of credit markets in general.

Notable:

  • JPM: The Q2 earnings season is shaping up to be a strong one. It is still very early as only ~80 companies in the SPX have posted numbers but so far 77% are beating on EPS (by an average 7%) and ~70% are topping sales forecasts (by an average 1.6%). EPS is on pace to increase nearly 10% Y/Y in Q2 (based on those who have reported combined w/forecasts for the remaining companies) and sales are tracking up ~4% (all those numbers are from Bloomberg). The revenue upside is what distinguishes this earnings season from ones in the recent past – EPS beats have been routine for a while now (thanks to aggressive cost containment and share shrinkage) but sales (so far in Q2) are finally beginning to exceed forecasts too (even perianal revenue underperformers, such as IBM, are coming in better for the June-end period).

Upcoming:

  • Tue: US CPI, FHFA House Prices, Existing home Sales, AU CPI
  • Wed: BoE Minutes, EU Consumer Confidence, RBNZ, NZ Trade Balance, Japan Trade Balance, PMI, China HSBC Mfg PMI
  • Thu: EU PMI, UK Retail Sales, Italy Consumer Confidence, US Jobless Claims, US Markit Mfg PMI, New Home Sales, Japan CPI, NZ Business Confidence
  • Fri: GfK Consumer Confidence, IFO, Turkey Trade Balance, US DGO

Recap 2014-07-18: Topical Charts

Commentary:

US 2s30s continues to flatten. Support is another 20bps away:

However, the belly of the curve has actually been stable, meaning that the wings have been pivoting. The triangle formation closes in December, which points to a late 3Q breakout:

The story is quite different across the pond. Bund yields are now at the lows from mid 2012 and 2013, and momentum remains strong:

1.35 is a reasonably strong support level on the EUR and bears watching:

Brent has bounced nicely off the 105 level I highlighted before:

After a strong 1H rally, USDCNY looks like it may continue to trend lower:

EEM is near resistance levels stretching back to 2012:

Notable:

  • Canada Core CPI ticked higher to 1.8% vs 1.7% exp and prev
  • UMichigan Confidence declined to 81.3 vs 83 exp and 82.5 prev
  • Amazon starts a $9.99 per month service for unlimited Kindle downloads. h/t Jordan
  • New home pricing in China declined in 55 cities, which is 78.6% of those tracked posting declines. This is this highest level of broad based declines since the index started in January 2011
  • UK banks – the government’s competition watchdog said it would launch an inquiry into the banking industry’s services for small business customers; the review could prompt some of the country’s big banks to be broken up – Reuters

Upcoming:

  • Mon: NZ Credit Card Spending
  • Tue: US CPI, FHFA House Prices, Existing home Sales, AU CPI
  • Wed: BoE Minutes, EU Consumer Confidence, RBNZ, NZ Trade Balance, Japan Trade Balance, PMI, China HSBC Mfg PMI
  • Thu: EU PMI, UK Retail Sales, Italy Consumer Confidence, US Jobless Claims, US Markit Mfg PMI, New Home Sales, Japan CPI, NZ Business Confidence
  • Fri: GfK Consumer Confidence, IFO, Turkey Trade Balance, US DGO

Recap 2014-07-17: Market Take

Commentary:

We got several tape bombs today, which was cited as the reason the S&P sold off more than 1% for the first time since April 10th. As regular readers know, I’ve been expecting a moderate correction. My take is simply that the market had become dominated by short term, weak hands, and that the news today were simply a trigger that set off sell orders that had been held back. These corrections usually take a while to play out, so it’s probably prudent to watch for a bit. Via @ukarlewitz:

Market chatter has been around the Fed of late. Two points that I saw today were interesting:

  • Blackrock’s Fink noted that QE intensity has actually increased this year despite tapering due to reduced bond supply.
  • WSJ discusses recent data showing how China has increased its buying of US TSYs this year at the fastest pace on record. One main motivation of the stepped up purchases has been China’s desire to weaken its yuan. Chart below via RBS, h/t/ @Callum_Thomas

It’s probably reasonably safe to say that the consensus view is that the Fed is behind the curve, and is risking an inflation overshoot. We’ll see if that is correct in time, but it’s worth noting the factors above, at least with respect to price action extending out to the belly of the curve. I’ve been more bearish at the front end of the curve rather than the belly because I think there is a fair bit of uncertainty regarding not only the timing, but also the pace of hikes as well as the terminal rate. The front end is mainly an expression on the first of those three variables, which I am a bit more confident on. I’ve heard various theories regarding what the Fed could do after the first hike, including hiking faster, stopping at 2% and other views in between. My take is that the Fed itself is quite uncertain. What will be the coefficients on the Phillips Curve be this cycle, given the persistent underemployment, and weak commodity price pressures? It will be some time before we can get to a reasonable level of confidence on that answer, IMO. Anyway, that’s why being short the front end seems better than the belly to me, in addition to better carry, better positioning backdrop, and exposure to the factors noted above.

GS: While banks should then be happy to borrow below IOER and earn a riskless profit, there are costs of expanding balance sheets to execute such a trade. One key cost has been the FDIC’s assessment on assets less equity, which affects domestic institutions but not foreign institutions. This is an important reason why foreign banks are the largest borrowers in the fed funds market, according to the Federal Reserve Bank of New York. Indeed, as shown in Exhibit 2, foreign banks have disproportionately accommodated the increase in the amount of excess reserves created by the Fed’s QE purchases. As noted by our Banking research analysts, past and upcoming leverage and liquidity regulations such as the Supplementary Leverage Ratio (SLR) may act to drive a further wedge between theoretical arbitrage relationships and observed market rates, by increasing the cost of bank balance sheet.

Interesting chart from Trulia: Homeownership rates by age cohort. Note that the ownership rate for every cohort except the 65+ is at the lowest level since at least 1982.

This is interesting, though not surprising:

A new study from Princeton researcher, Brooke Macnamara, and her colleagues declares that golden 10,000-hour rule is, in fact, a myth. Their meta-analysis of 88 deliberate practice studies suggests that “the amount of practice accumulated over time does not seem to play a huge role in accounting for individual differences in skill or performance in domains including music, games, sports, professions and education,” PrincetonUniversity writes. In music, deliberate practice accounts for a 21 percent difference in individual performance; in sports, the researchers conclude, it accounts for just 18 percent.

Notable:

  • A Malaysia Airlines flight with nearly 300 people aboard crashed over eastern Ukraine near the Russian border on Thursday, the Ukraine government and a regional European aviation official reported, and the Interfax news agency said it had been shot down by Ukrainian separatists. This was confirmed by the Pentagon later in the day.
  • Israel started its ground invasion of Gaza
  • US Jobless Claims was stable at 302K vs 310k prev
  • US Housing Starts dropped 9.3% MoM vs +1.9% exp and -6.5% prev
  • Philly Fed jumped to 23.9 vs 16 exp and 17.8 prev
  • Eurozone banks will have just two weeks to raise capital in October if stress tests uncover shortfalls, according to the ECB. – FT
  • Microsoft announced 18k job cuts.
  • Blackstone is buying a loan portfolio worth EU6.39B from Spanish lender Catalunya Banc. h/t Jordan
  • Japan: Bank loan officers reported sustained solidness in corporate demand and plunge in household demand in 2Q
  • BBG: Last year, the Nasdaq was infected by a worm that had the potential to do physical damage, like Stuxnet. The attack had two zero-day vulnerabilities in combination. The NSA had seen a version of the malware before, designed and built by the Federal Security Service of the Russian Federation. Later in the investigation, some U.S. officials questioned whether the NSA had pushed the evidence too far. Malware often changes hands — it’s sold, stolen, or shared. And the technical differences between attack code and something less destructive can be surprisingly small.
    As the probe deepened inside Nasdaq’s headquarters and its data center, investigators had to reconstruct the path of world- class hackers whose job depended on being untraceable. What the investigators found inside Nasdaq shocked them, according to both law enforcement officials and private contractors hired by the company to aid in the investigation. Agents found the tracks of several different groups operating freely, some of which may have been in the exchange’s networks for years, including criminal hackers and Chinese cyberspies. Basic records of the daily activity occurring on the company’s servers, which would have helped investigators trace the hackers’ movements, were almost nonexistent. Investigators also discovered that the website run by OneLibertyPlaza’s building management company had been laced with a Russian-made exploit kit known as Blackhole, infecting tenants who visited the page to pay bills or do other maintenance.
    As investigators followed the new leads, more teams fanned out across the country. The Treasury Department’s Office of Critical Infrastructure Protection and Compliance Policy drew up a list of 10 major banks and U.S. stock exchanges that might be targets for a broader campaign. Not all the companies agreed to cooperate with the investigation. In those that did, agents began scouring computer logs and examining servers, aided by the companies’ security teams. The agents found little evidence of a broader attack. What they did find were systematic security failures riddling some of the most important U.S. financial institutions. It turned out that many on the list were vulnerable to the same attack that struck Nasdaq. They were spared only because the hackers hadn’t bothered to try.
    By mid-2011, investigators began to conclude that the Russians weren’t trying to sabotage Nasdaq. They wanted to clone it, either to incorporate its technology directly into their exchange or as a model to learn from. And they dispatched an elite team of cyberspies to get it.

Upcoming:

  • Fri: Canada CPI, UMichigan Confidence
  • Mon: NZ Credit Card Spending
  • Tue: US CPI, FHFA House Prices, Existing home Sales, AU CPI
  • Wed: BoE Minutes, EU Consumer Confidence, RBNZ, NZ Trade Balance, Japan Trade Balance, PMI, China HSBC Mfg PMI
  • Thu: EU PMI, UK Retail Sales, Italy Consumer Confidence, US Jobless Claims, US Markit Mfg PMI, New Home Sales, Japan CPI, NZ Business Confidence

Recap 2014-07-16: BAML July FMS

Commentary:

BAML’s July FMS broadly told the same story as previous surveys. Cash remains fairly high:

Likely at least party driven by concerns of equity overvaluation:

But interestingly enough, despite valuation concerns, equity allocation is now at the second highest reading in 13 years:

While bond exposure is quite low:

Note that neither the equity or bond asset allocation charts seem strongly predictive of anything more than short term returns, so take those two observations with a grain of salt. Having said that, it does seem to suggest that equities may not rally as much over the next few weeks. Note also that, according to the FMS, within equity space Japanese and EU equities are by far the most popular.

Credit-like products are a fairly consensus overweight here, and so may be especially vulnerable to a liquidity event.

The majority of European investors seem to think that the ECB will conduct a QE program:

And a sizable minority expect it to be a major source of economic growth:

IMO, that is a misguided view, but that doesn’t mean that growth won’t pick up.

Notable:

  • BoC kept policy unchanged as exp:
  1. Recent higher inflation is attributable to the temporary effects of higher energy prices, exchange rate pass-through and other sector-specific shocks, rather than to any change in domestic economic fundamentals. Over the next two years, inflation is projected to fluctuate around 2 per cent as these temporary effects ease and the downward pressure on inflation from economic slack and heightened retail competition gradually dissipates.
  2. the economy is expected to reach full capacity around mid-2016, a little later than anticipated in April.

UK Unemployment declined to 6.5% as exp vs 6.6% prev. Earnings growth was weaker than expected at 0.3% vs 0.5% exp and 0.4% prev.

US Core PPI declined to 1.8% vs 1.7% exp and 2.0% prev

US NAHB jumped to 53 vs 50 exp and 49 prev. This was the highest print since Jan.

China Retail Sales was stable at 12.4% YoY vs 12.5% exp and prev.

China IP rose to 9.2% vs 9.0% exp and 8.8% prev.

China GDP rose 7.5% YoY in 2Q vs 7.4% exp and prev

BBG: Leaders of the five BRICS nations agreed on the structure of a $50 billion development bank by granting China its headquarters and India its first rotating presidency. Brazil, Russia and South Africa were also granted posts or units in the new bank. The leaders also formalized the creation of a $100 billion currency exchange reserve, which member states can tap in case of balance of payment crises

Washington and Beijing have made sig. progress towards working out a solution that will permit the US to inspect the work done by Chinese accounting firms. WSJ

Upcoming:

  • Thu: US Jobless Claims, Housing Starts, Philly Fed,
  • Fri: Canada CPI, UMichigan Confidence
  • Mon: NZ Credit Card Spending
  • Tue: US CPI, FHFA House Prices, Existing home Sales, AU CPI
  • Wed: BoE Minutes, EU Consumer Confidence, RBNZ, NZ Trade Balance, Japan Trade Balance, PMI, China HSBC Mfg PMI

Recap 2014-07-15

Commentary:

GS had a very good piece on weak UK wage growth:

Disaggregating UK pay data by sector shows that the recent weakness in pay growth is largely a result of a shift in employment from sectors with above-average levels of pay to those with below-average levels of pay, rather than a further fall in wage growth within sectors. Our calculations suggest that such composition effects are currently reducing headline wage growth by around 0.8%, explaining some of the gap between weak official pay growth and strong survey data.

If true, this suggests that the pickup in labor productivity that the BoE is expecting is not likely to increase sufficiently to slow employment growth. All else equal, this suggests the risk of higher UK yields.

Separately, Note that front Brent prices have come back to the 105, which has been a pivot for about two years now:

This. h/t @katie_martin_FX

There are signs Mr. Gross is maintaining at least some of his former approach. In mid-May, during a meeting of about 20 Pimco executives at the firm’s investment committee, Mr. Gross halted Jeremie Banet, a French-born executive vice president and portfolio manager, while he was sharing his views.

"I never understand what you’re saying," Mr. Gross said, according to people in the room. "Ever."

A day after the exchange, Mr. Banet announced his resignation and said he planned to operate a food truck selling croque-monsieur sandwiches in Los Angeles. In an email, Mr. Banet said there was no connection between the meeting and his departure from Pimco. He said he has "enormous respect and admiration for Bill Gross."

In a July 10 statement, Mr. Gross said: "On that day, Jeremie was sitting at the far end of the table and I was unable to hear what he was saying. I have always respected Jeremie professionally and I like him personally."

Notable:

  • Yellen: ‘Significant slack remains in labor markets.’
  • UK CPI rose to 1.9% vs 1.6% exp and 1.5% prev. Core prices rose to 2.0% vs 1.5% prev
  • German Zew declined to 27.1 vs 28.2 exp and 29.8 prev.
  • US Retail Sales rose 0.2% vs 0.6% exp and 0.3% prev. However, the control group was much better rising 0.6% vs 0.5% exp, and with last month’s print revised up to 0.2% from 0.0%.
  • Empire Mfg rose to 25.6 vs 17 exp and 19.3 prev
  • Import Prices jumped to 1.2% vs 1.1% exp and 0.4% prev, driven by base effects. MoM, prices rose 0.1% vs 0.4% exp , though last month’s print was revised up to 0.3% from 0.1%.
  • RBA Minutes took gradual step towards reintroducing an easing bias. In particular, by adding a key caveat to the final sentence of the Minutes, and by dropping the phrase "for some time yet"
  1. Members observed, however, that total hours worked had not increased for a considerable time. Forward-looking indicators of employment had recently been mixed and while these indicators were higher than at the low points of the previous year, they remained at levels consistent with only moderate growth in employment in the months ahead.
  2. Low interest rates were working to support demand, but members agreed that it was difficult to judge the extent to which this would offset the anticipated substantial decline in mining investment and the effect of planned fiscal consolidation. The exchange rate remained high by historical standards, particularly given the declines in key commodity prices, and was therefore offering less assistance than it otherwise might in achieving balanced growth in the economy.

BoJ kept policy unchanged as exp

JPM beat. Net revenues declined 2% YoY, and income was down 8%. Mortgage originations totaled $16.8bn, down 66% yoy and 1% qoq, but auto originations rose to $7.1bn, up 4% yoy and 6% qoq. Fixed Income revenues of $3.5bn fell 15% yoy, driven by low volatility and client activity. Equity revenues of $1.2bn fell 10% yoy on lower derivative revenues. Management had guided to a 20% yoy decline in Markets revenue (FICC and Equities) earlier in 2Q. For the FICC and Equities revenue guidance, management said that it expects the "current environment to persist into 3Q14 with normal seasonal trends." Shareholder returns remain important, with management confirming that it returned $3bn of capital to shareholders in 2Q, through the repurchase of $1.5bn of common equity and increasing the dividend to $0.40 per share. There is $5bn of remaining share buyback capacity for 3Q14-1Q15. GS: We view results as relatively strong across the board, highlighted by better capital market revenue (trading -14% vs guidance of -20%+), loan growth (+2%), lower full-year expense guidance ($58bn vs <$59bn prior) and lower-than-expected credit costs (both charge-offs and reserve release). With stable NIM, accelerating loan growth and continued expense leverage, we remain Buy-rated on shares

Upcoming:

  • Tue: China Retail Sales
  • Wed: UK Employment, US PPI, BoC, US NAHB,
  • Thu: US Jobless Claims, Housing Starts, Philly Fed,
  • Fri: Canada CPI, UMichigan Confidence
  • Mon: NZ Credit Card Spending