Chillin' out till it needs to be funded
Jobless claims have indeed been carrying the torch in all QE Taper affected weeks since the home sales growth of 12% on year was deemed unworthy by the market and questions raised on the Jobs report and the perennially jobless changing the structural unemployment higher in the US. The S&P futures are trading 1688 this morning after a new US Balance sheet report , added all consumer credit series and figure to report a near 2% contraction ahead of 1.5% in Q1 by 20 basis points in Q2 over last year and overall credit contraction a haemmorhaging 5.6%. Household wealth and overall US debt continued to grow to record levels crossing $74 Tln including just $5 Tln in durables loans and a fast shrinking mortgage pile even as Home prices continue upward.
Europe subsides, Home prices bounce well
Home prices by FHFA were up 8.8% while Case and Schiller was a little tied in monthly growth yet year on year were as expected ignored by the markets at 12% and more yearly growth is not a part of the index reporting per se, that reports continuing toughening across the 20 metro areas. Meanwhile Europe seems to have peaked on its optimism and is expected to give in to the Dollar from here with both the Euro and the Pound Sterling pliant according to reports from the largest FX volume center i.e London which leads New York and Tokyo in volumes by more than a factor of two
More importantly, even as GDP growth is looking better and better, the Fed has symbolically updated the upper limit of long term GDP growth to a more gettable 2.5% and the markets would indeed celebrate the GDP numbers at 2 pm
As expected Banks except for investment banker not so ensnared by mortgages Goldman Sachs fell thru on continuing pressure on mortgages while Non US franchises got stuck with the pressures on Emerging markets from the Taper withdrawals that hit Emerging markets and currencies in the last weeks of May
Jobless Claims, GDP and other Economic announcements
Jobless claims may well come below 300k, yet expectations are that the stepped decline thru 2010 – 2013 may wellcome under pressure with a jump signs of which were seen 4 weeks back. Equities are however unlikely to deny themselves a chance to recover strongly at 15250 levels on the Dow and 1690 levels on the S&P, probably righting the contra trade on Taper worries vs. Economic optimism signaled by indicators
JP Morgan’s $11 Bln settlement
JP Morgan’s settlement with regulators was a handsome $920 mln just for three US regulators roping in one international regulator for a combined settlement in the London whale case. JP Morgan also caught in a Mortgage fraud case for $11 Bln has reportedly been asked for a $7000 mln cash penalty in a total of $11 Bln (Reuters Insider) to settle the mortgage fraud among state and Federal probes. This settlement would also bite Wells Fargo and Bank of America for obvious reasons, but Dimon would see the target is free and clear for regulators this year.
Earlier the banks dropped another self concocted stress test response with flying colors improving to almost lossless conditions in the second one of the year. The Dodd Frank Act as cleared finally asks for four stress tests every year and not just for banks greater than $10 Bln incl the two NBFCs of GE and AIG with the annual one in March (CCAR) being verified by the Fed. The Fed had returned stress test responses correcting the big four by Billions in losses on the calculations. Banks however did improve by between 50% – 75% reaching a minimum average threshold of near 6% where the regulations expect 3% and 4% ( for Cap One and Ally) Details availale in this NASDAQ article pull (http://www.nasdaq.com/article/another-triumph-for-us-banks-analyst-blog-cm277442)
Mid Cycle Stress Tests and flailing Trading Income
The “Strictly Adverse Scenario” in the Q2 test included a 60% drop in Equities, a 13% unemployment and a more than 20% drop in Home Prices. BofA reported positive Capital till September 2015 in the tests jumping off the mortgage induced hole that remains a vicious cycle risk for the bank and most of the 13 reportees reported minor losses in September 15 in the scenarios provided by the Fed. The tests are based on the latest March 2013 Balance sheets as opposed to the CCAR which reported on September 2012 Balance sheets. In Europe the DB investor conference confirmed the worst from Rates and FX volatility for Global Bank franchises including Deutsche and Commerzbank with Barclays and Credit Suisse having already warned earlier Advancedd Cital aproacehs require specific Capital requirements for illiquid structured products and other debt/bons that disregard ratings and should ignore industry standards as excuse relying on bank specific computations of Loss in each such investment/underwriting committed by the banks
What Taper, Fed
Following the taper has uniquely locked in markets vs the Fed with the expectant markets not getting a Tper in September and market worries over a taper rising exponentially as any other date for Taper is unexpected after a busy dissection of each Economic event by the bond markets and the five day breakdown in equities finally raising questions on a continuing rally without the juice. That means Bond markets turning hawkish could precede any actual Fed announcements with mortgage rates already at 5%
And before we sign off, just ignore the debt ceiling headlines, a known administrative thorn that will onlybelittle Republicans than get anything done.
Dealmakers and Dealbreakers
JC Penney seemingly never came out of trouble, when Ron Johnson and the investors left, leaving another Sears in its wake and the stock was down 25% today after the news of a liquidity crisis shaped up in rumors.
We printed a likely symbol for the Twitter ticker as TWO , the twice founded company 15% owned by Evan Williams and some more by his active wife often seen at HQ , may well be listed at NYSE bu tthen NASDAQ is doing quite well post the Taper slip up for markets
Facebook is trading well over $50 this week, even as Target joined the growing promoter network of media savvy conglomerates trying to beat Netflix(US:NFLX, US:TGT)
Fannie Mae in the meantime joined Freddie Mac (US:FRE) in hitting the high seas of securitisation for capital again with a bond issue merely 3% of its new $28.5 Bln portfolio purchased in the second half of 2012 (American Banker). FHA in the meantime is supposed to be looking up Hank Paulson’s last abode for a mini bailout of $1 Bln to start things off again, probably leading to a little build up of those who want to shut down the two US twins carrying on Housing Finance for pretty much everybody yet
By the Way, did we tell you Goldman Sachs Europe, tried to pare its losses in its Asian EMs by clubbing stodgy India with Turkey and Brazil, the two fiscally fickle always ticklishly teenaged governments. We already know the US investors still believe in Russia so thats just going to be more we told you so down the ferry in the Shanghai Free trade zone. For a normal debate worthy diatribe on the topic, check our India morning Report of date The Fragile Five description by GS we believe avoids facts of currency independence and market depth or gives less importance to them than it would (if it could show profit)