Japan holds $821B US Treasuries
China holds $867B US Treasuries
Federal Reserve Bank now owns approx $800B and is purchasing approx $10B per week.
Tyler Durden at Zero Hedge points out that, at this rate, the US FRB will soon be the largest holder of US Debt!
This morning, in an odd break from the past few weeks, NFLX, AAPL, AMZN, and BIDU are all in the red. Once the POMO results are released in approx 20 minutes it would not be altogether impossible to see each one of these names catch a bid from the primary dealers. Be careful out there!
UPDATE: Results are in...The Fed purchased just $2.2B of 2021-2040 bonds. No wonder the market is heading south...Dow down 50 odd points after being up almost 100 to start the day. This market will likely be very volatile for the rest of the day.
Thursday, September 30, 2010
Today's Economic Data
Today's Data
Q2 GDP third and final estimate: 1.7% vs. 1.6% prior.
Initial claims at 453K vs. exp'd 450K and 469K prior
Continuing claims at 4457k vs. 4450k exp'd and 4540K prior. This prior number being revised from the 4489K reported last week. Everyone was very 'bulled-up' by the continuing claims number last week. It should be no surprise that this number was revised higher. Because the focus of the average market watcher has been limited to the proceeding 11 minutes, the BLS can continue to provide rosy figures only to be revised higher at a later date.
Chicago PMI came in at 60.4 vs. 55 expected and 56.7 prior.
Q2 GDP third and final estimate: 1.7% vs. 1.6% prior.
Initial claims at 453K vs. exp'd 450K and 469K prior
Continuing claims at 4457k vs. 4450k exp'd and 4540K prior. This prior number being revised from the 4489K reported last week. Everyone was very 'bulled-up' by the continuing claims number last week. It should be no surprise that this number was revised higher. Because the focus of the average market watcher has been limited to the proceeding 11 minutes, the BLS can continue to provide rosy figures only to be revised higher at a later date.
Chicago PMI came in at 60.4 vs. 55 expected and 56.7 prior.
Ireland, Spain, & Portugal Update
Ireland announced this morning that the worst case scenario for bailing out its banks to be 50B Euros ($68B). The cost of Anglo Irish Bank will be approx 34B Euros. This is higher than the original estimate of 25B euros. The nation will also likely raise its stake to a majority in Allied Irish Banks which will need an additional 3B Euros this year.
The public debt in Ireland will now be approximately 99% of GDP and Dublin-based Davy Stockbrokers expects that figure to peak at 105% in 2012.
The support for the banking system will drive up the 2010 deficit to 32% of GDP, which as a reminder is 10x the EU's maximum allowable deficit. (Reuters).
Spain's credit rating was cut one notch by Moody's from AAA to Aa1. This was expected however as Moody's was the last rating agency to still maintain Spain at AAA.
Spain will release its 2011 budget today. Reuters, who obtained a copy of the budget ahead of its presentation to Parliament today showed that the government plans to cut net debt issuance in 2011 to 43.3B euros from the 76.2B that was originally planned for 2010. The budget includes much greater austerity measures with a 7.9% reduction in public spending with 16% average cuts for government departments.
In Portugal, PM Jose Socrates, announced that civil service pay would be cut by 5%, public sector pensions would be frozen, and the VAT will be raised to 23% from 21%.
While it's nice to see Ireland admit its woes (perhaps the rest of the world could learn something here...) the numbers are in fact horrendous, Spain was downgraded, and austerity measures in these three nations will make growth and economic health that much more difficult going forward. One might expect the Euro to be weak this morning on some of these disclosures, but afterall its the last day of the quarter and Brian Sack is on deck with a possible record amount of POMO. We are much more commmitted to destroying the value of the dollar than the Eurozone has been to destroy the Euro. When German exports begin to take a hit from the higher euro, we will likely see more aggressive action by the ECB.
Until then, keep your seatbelt securely fastened...To the moon Alice!
The public debt in Ireland will now be approximately 99% of GDP and Dublin-based Davy Stockbrokers expects that figure to peak at 105% in 2012.
The support for the banking system will drive up the 2010 deficit to 32% of GDP, which as a reminder is 10x the EU's maximum allowable deficit. (Reuters).
Spain's credit rating was cut one notch by Moody's from AAA to Aa1. This was expected however as Moody's was the last rating agency to still maintain Spain at AAA.
Spain will release its 2011 budget today. Reuters, who obtained a copy of the budget ahead of its presentation to Parliament today showed that the government plans to cut net debt issuance in 2011 to 43.3B euros from the 76.2B that was originally planned for 2010. The budget includes much greater austerity measures with a 7.9% reduction in public spending with 16% average cuts for government departments.
In Portugal, PM Jose Socrates, announced that civil service pay would be cut by 5%, public sector pensions would be frozen, and the VAT will be raised to 23% from 21%.
While it's nice to see Ireland admit its woes (perhaps the rest of the world could learn something here...) the numbers are in fact horrendous, Spain was downgraded, and austerity measures in these three nations will make growth and economic health that much more difficult going forward. One might expect the Euro to be weak this morning on some of these disclosures, but afterall its the last day of the quarter and Brian Sack is on deck with a possible record amount of POMO. We are much more commmitted to destroying the value of the dollar than the Eurozone has been to destroy the Euro. When German exports begin to take a hit from the higher euro, we will likely see more aggressive action by the ECB.
Until then, keep your seatbelt securely fastened...To the moon Alice!
Tuesday, September 28, 2010
Monthly Dow Return vs. Next Month Consumer Confidence: Correlation?
......Consumer Confidence..... Dow Monthly % Return
Dec 09..... 52.9..... 1%
Jan 10..... 55.9..... (3.48%)
Feb 10..... 46..... 2.55%
Mar 10..... 52.5..... 5.13%
Apr 10..... 57.9..... 1.4%
May 10..... 63.3..... (7.9%)
Jun 10..... 52.9..... (3.54%)
Jul 10..... 50.4..... 7%
Aug 10..... 53.5..... (4.3%)
Sep 10..... 48.5..... 7.95% (MTD)
Oct 10..... 55?...... (8%?)
What is interesting here is that Consumer Confidence has a simple observational correlation with prior month equity returns as measured by the monthly change of the DJIA.
So, today's 48.5 should probably be understood within the context of the August slide in equities rather than the current month's performance. The only thing that I find surprising is that the consensus expected a higher reading (at 54) than August's 53.5, despite the fact that the equity market was down in August.
There are of course thousands of intangibles re: consumer confidence, but as Bernanke seems to believe strongly in the wealth effect, I believe its worth reviewing just how closely Americans watch the equity market for cues about the current and future state of the economy. If correlation between these two figures showed no directional relationship, then one must conclude that the Fed is risking hyperinflation and a lower quality life for middle class Americans without any lasting (or even near month) return (in regards to increased consumer spending, slower household sector deleveraging, etc.. Thankfully, it at least seems that there is, at minimum, a casual next-month correlation.
Go POMO!
Dec 09..... 52.9..... 1%
Jan 10..... 55.9..... (3.48%)
Feb 10..... 46..... 2.55%
Mar 10..... 52.5..... 5.13%
Apr 10..... 57.9..... 1.4%
May 10..... 63.3..... (7.9%)
Jun 10..... 52.9..... (3.54%)
Jul 10..... 50.4..... 7%
Aug 10..... 53.5..... (4.3%)
Sep 10..... 48.5..... 7.95% (MTD)
Oct 10..... 55?...... (8%?)
What is interesting here is that Consumer Confidence has a simple observational correlation with prior month equity returns as measured by the monthly change of the DJIA.
So, today's 48.5 should probably be understood within the context of the August slide in equities rather than the current month's performance. The only thing that I find surprising is that the consensus expected a higher reading (at 54) than August's 53.5, despite the fact that the equity market was down in August.
There are of course thousands of intangibles re: consumer confidence, but as Bernanke seems to believe strongly in the wealth effect, I believe its worth reviewing just how closely Americans watch the equity market for cues about the current and future state of the economy. If correlation between these two figures showed no directional relationship, then one must conclude that the Fed is risking hyperinflation and a lower quality life for middle class Americans without any lasting (or even near month) return (in regards to increased consumer spending, slower household sector deleveraging, etc.. Thankfully, it at least seems that there is, at minimum, a casual next-month correlation.
Go POMO!
Anglo Irish Bank and POMO Thursday
Ireland is set to release official cost estimates for the bailout of Anglo Irish Bank on Thursday this week. It will also be a busy day in the US, as the 3rd and final 2Q GDP estimate is due (expected to be unchanged at 1.6%), along with Chicago PMI, and Jobless Claims data.
Earlier this week Moody's lowered their credit rating 3 notches on some of Anglo Irish's debt to one rating above junk status. There is no reason to believe that the cost of AI will be less than the original estimates.
Not to worry however, should there be any resulting weakness in the Euro/strength in the $, it will be offset by the FRBNY's Thursday POMO. Today's POMO managed to lift the Dow 40-odd points as we head into the close on a terrible Philly Fed #, a huge Consumer Sentiment miss, and an in-line but disappointing Case-Shiller home price index.
The total POMO today was a $550M TIPS purchase. This is the smallest POMO of September (possibly also b/c this was a TIPS purchase rather than a Coupon Purchase.) Last week's POMO came in at $11.15B, the prior week's at $8.669B, and the week of September 6th at $4.058B. The average weekly POMO in September has been $7.959B. Given that we've only seen $550M this week, and given the slew of potentially disruptive data on Thursday, which is not incidentally the last day of the quarter, should we expect a record $7B+ in POMO on Thursday???
Total POMO for the month of September (with one operation remaining): $25.327B
Earlier this week Moody's lowered their credit rating 3 notches on some of Anglo Irish's debt to one rating above junk status. There is no reason to believe that the cost of AI will be less than the original estimates.
Not to worry however, should there be any resulting weakness in the Euro/strength in the $, it will be offset by the FRBNY's Thursday POMO. Today's POMO managed to lift the Dow 40-odd points as we head into the close on a terrible Philly Fed #, a huge Consumer Sentiment miss, and an in-line but disappointing Case-Shiller home price index.
The total POMO today was a $550M TIPS purchase. This is the smallest POMO of September (possibly also b/c this was a TIPS purchase rather than a Coupon Purchase.) Last week's POMO came in at $11.15B, the prior week's at $8.669B, and the week of September 6th at $4.058B. The average weekly POMO in September has been $7.959B. Given that we've only seen $550M this week, and given the slew of potentially disruptive data on Thursday, which is not incidentally the last day of the quarter, should we expect a record $7B+ in POMO on Thursday???
Total POMO for the month of September (with one operation remaining): $25.327B
Brazil, Romania, Portugal, Ireland Tidbits
Brazil's finance minister, Guido Mantega, said, "We're in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness." (FT)
Romania's interior minister, Vasile Blaga, resigned after a protest by policemen over austerity measures. It seems troubled EU nations continue to have a more difficult time implementing austerity measures than many had hoped.
Portugal will soon see increased taxes according to a report by the OECD. The FT reports that the minority Socialist government has threatened to resign if the opposition Social Democrats refuse to support its 2011 budget proposals, which are expected to include tax hikes.
Ireland also faces higher taxes in the near future. Danny McCoy, the general secretary of the Irish Business and Employers Confederation said, "You have to be an ostrich not to realise there are taxes coming." (FT)
Romania's interior minister, Vasile Blaga, resigned after a protest by policemen over austerity measures. It seems troubled EU nations continue to have a more difficult time implementing austerity measures than many had hoped.
Portugal will soon see increased taxes according to a report by the OECD. The FT reports that the minority Socialist government has threatened to resign if the opposition Social Democrats refuse to support its 2011 budget proposals, which are expected to include tax hikes.
Ireland also faces higher taxes in the near future. Danny McCoy, the general secretary of the Irish Business and Employers Confederation said, "You have to be an ostrich not to realise there are taxes coming." (FT)
Japan & China - Update
An article in the FT this morning reports that Japan has said it may decide to demand compensation from China for the damage done to the two ships that were intentionally rammed by now-released captain, Zhan Qixiong.
China responded to Mr. Zhan's return by demanding an apology and compensation for the incident. This belligerent attack was a source of great embarrassement to Japanese officials who believed the release of Mr. Zhan would lead to a de-escalation of the trade issues that are picking up steam between Asia's two largest economies.
These updates serve as another reminder that the geopolitical/trade tensions that are roiling beneath the surface have not cooled off, despite the Dow holding the line at 10,800 (w/ many thanks to Brian Sack at the NY Fed!).
China responded to Mr. Zhan's return by demanding an apology and compensation for the incident. This belligerent attack was a source of great embarrassement to Japanese officials who believed the release of Mr. Zhan would lead to a de-escalation of the trade issues that are picking up steam between Asia's two largest economies.
These updates serve as another reminder that the geopolitical/trade tensions that are roiling beneath the surface have not cooled off, despite the Dow holding the line at 10,800 (w/ many thanks to Brian Sack at the NY Fed!).
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