Chillin' out till it needs to be funded
Markets cannot be allowed to Dictate Fed Policy
Jefferies results cascaded an apposite downturn into the markets even as GM was upgraded to investment grade on the back of a $27 price for $3 Bln of Trups with its Pension funds/unions. Jefferies lost $6 out of $7 in profits from last year as on the rates and currencies market turning blue on the QE choke being removed from the markets in one go. Trading income largely depends on markets in Interest rates and FX swaps which have lost their flavor as the Dollar broke thru on Taper schedule announcements that set off markets on May 21
As Citi for example, depends on 50% of its income from Emerging Markets, established banks with EM strategies in he lead on Trading screens lik Citi and Deutsche would , report a considerably weaker quarter over last year, giving markets a direction after the No Taper trade wavered off 1750 highs on the S&P and returned to 1550 marks on the Dow.
European banks reported this week by the FT additionally still struggle to meet Capital requirements frm Basel III selling and cutting risky assets as credit conditions in Europe continue to deteriorate and the Euro continues to enjoy y the bounce off the Dollar’s dread as Economic recovery comes back in he second half, with OECD nations across Europe topping off regional GD growth at its best at less than 2% and US considering forecasts of 2.5% or less in the long run, with or without higher debt ceilings.
Meanwhile, Apple’s China debut finally won it some aplause as Week 1 sales of the 5s and 5c came out at more than 9 bln phones even as Microsoft and Blackberry reported $1 Bln writedowns in tablet and smartphone inventory BB make RIM in the meantime is being offered $3 Bln for its asssets from Fairfax and is up 75 cents in the half hour since the news trickled in.
US Manufacturing PMI data repored another cut in optimism to 52.8 from a low 54 last month even as European region continued building on a recovering Services growth with mproving order backlog situation, though no tunemployment. China reported a robust August data coming with Flash data crossing to 52.4 from a 51.8 last month. The Yen trade remained sympathetic to a weak Dollar looking to take the Yen back over 100 in the face of continuesd successful growth reports after Abenomics was introduced. Europe in the meanwhile significantly lost more political Capital in its leadership struggles at IMF and WTO looking at its candidates falling short an EMs looking at building a mor economically pliant franchise in Development banks
In Auto sales, one sees Ford managing a European turnarund even as Fiat , and Peugeot lead another 5% fall in sales ( registratons)
The rest of the week sees important releases in House Price Data including the Case Schiller series across 20 US cities and symoblic Current account and US FDI data as Bullard mentions enough to relieve markets of their lock around QE Taper, with a hope of another early start in October. Bernanke had earlier mentioned Markets could not be allowed to dictate Fed Policy” at the Press Conference after the cataclysmic cheat by the poliy makers making markets chary of Fed pronouncements and more elaborate in Economic analysis to catch the Taper into the Bond yields which are stil softer at 2.73% after the Fed announcement . A likely calendar for the Taper till the markets spun themselves into the word games in detail was always a start of a consequential taper in DEcember leading to a stable cntinuing minimal stimulus from June 14 onwards.
The US Q2 GDP may well come lower than the market expected jump at 2.6% and Q3 forecasts may also suffer further rationalisation but a 2% plus GD growth is well above satisfctry for the Fed as long as the growth is sustained across the second half of the year and doubts on those are troubling proponnts of withdrawing the mindless liquidity without much benefit unleashed by the Fed in 2010 and 2011