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Plunge In Exports Sparks US GDP Downgrades, Economy On Verge Of Contraction

Plunge In Export Shipments Sparks US GDP Downgrades, Economy On Verge Of Contraction

US economic data took a double hit this morning with…

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This article was originally published by Zero Hedge

Plunge In Export Shipments Sparks US GDP Downgrades, Economy On Verge Of Contraction

US economic data took a double hit this morning with a contraction in durable goods orders and perhaps even more notably, the US merchandise-trade deficit widened to a fresh record in September as exports retreated for the first time in seven months.

The goods trade deficit increased by $8.1bn in September (mom sa), much more than expected, to $96.3 billion.

Source: Bloomberg

It appears the container ship crisis is starting to blowback into the economy as the value of imports rose 0.5% to $238.4 billion, spurred by a 3.6% increase in the value of capital-goods shipments, while exports fell 4.7% from a record high in August to $142.2 billion, driven by a 9.9% decline in the value of outward shipments of industrial supplies and a 3.6% drop in capital goods.

Source: Bloomberg

This prompted Goldman Sachs to reduce their Q3 GDP tracking estimate by 0.5pp to 2.75% (qoq ar) ahead of tomorrow’s advance release.

But, at a time when the Wall Street banks are scratching their heads for credible explanations why they are keeping (or raising) their year-end S&P targets at a time when economic growth is in freefall and inflation is soaring (read: stagflation), an unexpected source of honesty has emerged – the Atlanta Fed, which now sees the US on the verge of contraction.

In its latest GDPNow forecast published moments ago, the Atlanta Fed slashed its estimate for real GDP growth in the third quarter of 2021 to just 0.2%, down from 1.2% on October 15, from 6% about two months ago, and down from 14% back in May.

Remarkably, the GDPNow tracker is about to turn negative even as the average “blue chip” Wall Street bank has a Q3 GDP forecast of just below 4%…

The collapse in the Atlanta Fed tracker has correlated almost tick for tick with Citi’s US macro surprise index which has also plunged in recent months…

… which in turn is the inverse of Citi’s inflation surprise index:

According to the Atlanta Fed economists, after releases from the US Census Bureau, the National Association of Realtors, and the US Department of the Treasury’s Bureau of the Fiscal Service, a decrease in the nowcast of third-quarter real government spending growth from 2.1 percent to 0.8 percent was slightly offset by an increase in the nowcast of third-quarter real gross private domestic investment growth from 9.0 percent to 9.3 percent. Also, the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth decreased from -1.56 percentage points to -1.81 percentage points.

In short, everything is slowing and it is the consumer – that 70% driver of GDP growth – that may be about to hit reverse.

Tyler Durden Wed, 10/27/2021 – 11:45

Author: Tyler Durden

Economics

Weekly Market Pulse: Discounting The Future

The economic news recently has been better than expected and in most cases just pretty darn good. That isn’t true on a global basis as Europe continues…

The economic news recently has been better than expected and in most cases just pretty darn good. That isn’t true on a global basis as Europe continues to experience a pretty sluggish recovery from COVID. And China is busy shooting itself in the foot as Xi pursues the re-Maoing of Chinese society, damn the economic costs. But here in the US, the rebound from the Q3 slowdown is in full bloom. Just last week we had pending home sales, ADP employment, both ISM reports, jobless claims, Challenger job cuts, the unemployment rate and factory orders all better than the pundits’ expectations. I didn’t list the official employment report (establishment survey) because the headline was less than expected but there were some obvious seasonal adjustment issues with that report. And there was a lot of very good news in the household report that more than offset any disappointment in the number of jobs part of the report. There are still a lot of reports to go before the end of the quarter but right now the Atlanta GDPNow page is showing 9.2% GDP growth for Q4 based on the quarterly data released to date. The economy certainly looks like it is on solid ground right now.

So, why in the world are bonds rallying like a Bored Ape NFT  Bitcoin  natural gas crude oil  a cruise line stock Chinese tech stock  a vaccine stock? The 10 year Treasury yield fell 10 basis points on Friday after the payroll report. Well, actually that isn’t accurate. Right after the employment report at 8:30 the yield rose and peaked at 9:30 at about 1.47%. But yields fell relentlessly for the rest of the day, closing at about 1.35%. Short term rates have been rising due to anticipation of Fed policy but the long end is in full on conundrum mode. The result is a yield curve (10/2) that has flattened all the way back to where it started the year. The 10 year yield peaked in the spring around 1.75% and except for a brief pop higher from August to October, it has been downhill every since. TIPS yields have been even more pessimistic with the 10 year yield still less than 10 basis points from its all time low.

The fact that the current economic data is quite good while the bond market points to something less positive is actually not that odd. The movements in bond markets today are not – mostly – about the economic data being released today. The incoming data obviously has some impact but really what bond market players are trying to do is look ahead to next year. The time frame of that focus – 6 months, 9 months or 12 months ahead – shifts based on events but it is always some point in the future. And those expectations about the future are shaped by past experience and unexpected events.

So, why is this happening? What is it that bond traders see that has them marking down future growth? If you’ve been reading my commentaries for any length of time you won’t be surprised when I say I don’t know. There are a lot of things that influence bond traders, some of them having nothing to do with what is going on the US economy. European investors may buy US Treasuries because the yield, while miniscule, is higher than they can get at home. But in general, as I’ve said many times, we take bond yields at face value. If bond yields are falling, that means growth expectations are falling. More recently the drop in nominal bond yields has been mostly about falling inflation expectations but the fact that TIPS yields remain near their all-time lows tells you that investors are still on edge about rising prices. But the bottom line is that we can never know what is in the minds of millions of investors making decisions about whether to buy or sell bonds. It is obvious though that if investors are buying 10 year Treasuries at a big negative real yield their expectations about future growth aren’t very good. And that was true even when the 10 year was trading at 1.75%. It’s just gotten worse recently.

The emergence of a new variant of COVID may have had an impact recently but yields were falling well before that became news. I would venture a guess that omicron, by itself, is not the cause of more economic pessimism but it may have caused a reassessment of the time line for COVID. I think a lot of people were thinking that Delta was the final wave and now, suddenly, we’ve got another one. It has certainly caused me to think about whether we’ll be dealing with COVID – and more importantly the political response to it – for a long time to come. We don’t know how the omicron variant is going to play out yet but cases are rising and investors may just be taking pre-emptive action, selling stocks and buying bonds. But that is just a guess.

It could also be that the market is starting to price in a Fed policy error which would certainly be consistent with past experience. The last three Fed Chairpersons haven’t exactly been maestros and the one who originally had that title was also the one who couldn’t figure out why bonds were rallying while he hiked short rates (Greenspan’s “conundrum”). Policy errors are the Fed’s default mode; the surprise would be if they actually got something right. I have to say though that assuming economic harm from the end of QE requires a more positive view of the impact of QE than I can muster. That is unless you assume that ending QE will negatively impact risk assets and that will negatively impact the economy. In our current speculative state, that may be more true than in the past so I won’t discount it completely.

While the recent stock market sell off has been generally blamed on the emergence of the omicron variant the bond market says it is more likely that investors are starting to question the long term growth outlook. With Fed policy now turning more restrictive – that is how most people see the end of QE even if we at Alhambra don’t  – attention may be turning to the fiscal and regulatory side of the growth equation. On that front I see little in the pending legislation that directly addresses our long-standing economic shortcomings. There is also the small matter of the ongoing upheaval in China which seems to have the potential for a large – negative – impact on the global economy. China, in my opinion, is looking more every day like Japan at the end of the 1980s. That isn’t necessarily negative for the rest of the global economy – just as the end of Japan’s boom wasn’t – but it adds an element of uncertainty that didn’t exist until recently.

As for the pullback in stocks, it has actually been going on longer and is deeper than the averages show. Only 41% of the stocks in the S&P 500 are currently trading above their 50 day moving average compared to 92.5% in April and 76% as recently as a couple of weeks ago. Only 60% are above their 200 day moving average, a number that was 97% in the spring. It has been a small number of large company stocks holding up the averages and they’ve started to join the rest since Thanksgiving. I wouldn’t get too negative too quickly though. Many of the sentiment measures I watch are getting to levels where we would normally expect a rally. Even if this is the top of this incredible bull run it won’t happen overnight. It takes time to change behavior and right now everyone has been trained to buy every dip. That won’t change easily but it will change eventually. For now, I am staying cautious with our allocations, holding a larger than normal level of cash.

The bond market is offering a warning about future growth but remember it is just a warning. The bond market, like any market, is not infallible and the economy may not perform as badly as bond traders currently expect. We don’t know what the omicron variant means yet; it could well mark the beginning of the end of the pandemic rather than just another bad chapter. We also don’t know the impact of future Fed policy; could it be that ending QE is actually a positive for the economy? Maybe. We also don’t know how the changes in China will impact the global economy, how other countries may change in response. I am contrarian enough to wonder if Japan might not be the major beneficiary of China’s demise as they move to reassert themselves – militarily and economically – in the region. By the way, if you want to know what is behind the recent moves in China, you should probably read up on Wang Huning. His influence is all over Xi’s moves against their big tech companies and I’d bet there is a lot more to come.


The economic environment is unchanged: Falling growth, rising dollar

 

As I said above, the current economic data isn’t the problem. It is the future the bond market is worried about.

A light week of data ahead but the JOLTS report will be interesting as always.

 

 

The only major asset class in the plus column last week was, of course, bonds. Real estate is also rate sensitive and ended the week basically flat. Small caps have been the big losers in this correction another indication that the correction is about economic growth. Interesting that EM stocks managed to stay green for the week, mostly due to, oddly, Latin America. I’m not sure I have a good reason for that other than that those stocks had been killed already. Value outperformed last week but still lags growth by a small amount.

 

Utilities managed to eke out a gain last week while most everything else was down. Gold was flat on the week and is up over the last month as growth concerns have emerged. The VIX hit 35 last week which is fairly high based on history.

 

All markets look to the future, discounting the consensus view of millions of traders and investors. The wisdom of the crowd is always shifting though; the current market is just a moment in time. I’ve said many times over the last year that there is lot we don’t know about the post-COVID economy and that is still true. The view of the bond market carries a lot of weight but it can only reflect the knowledge and best guesses of its participants. As we learn more about the changes that COVID has wrought, today’s consensus may prove too pessimistic. I sure hope so.

Joe Calhoun

 






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Didi, Alibaba, Evergrande Crush Traders: What To Watch In China

Didi, Alibaba, Evergrande Crush Traders: What To Watch In China

By Sofia Horta e Costa, Bloomberg analyst and reporter

For traders, all the…

Didi, Alibaba, Evergrande Crush Traders: What To Watch In China

By Sofia Horta e Costa, Bloomberg analyst and reporter

For traders, all the bad China news is hitting at once — just as concern over U.S. tapering deflates the most speculative investments globally.

Beijing’s demand that Didi delist its U.S. shares helped trigger the biggest plunge in the Nasdaq Golden Dragon China Index since 2008 on Friday. Alibaba, whose mysterious slump last week was already drawing attention, sank to its lowest level since 2017. The same day, Evergrande said it plans to “actively engage” with offshore creditors on a restructuring plan, suggesting it can no longer keep up with debt payments. That’s as stress returns to China’s dollar junk bond market, with yields above 22%. Evergrande bonds trade near 20 cents on the dollar.

The developments highlight the risks in betting that Chinese assets have already priced in negative news. HSBC, Nomura and UBS all turned positive on the nation’s stocks in October, citing reasons including cheap valuations and receding fear of regulation from Beijing. T. Rowe Price Group and Allianz Global Investors were among money managers taking advantage of the recent turmoil to add Chinese developer bonds.

A lack of transparency is adding to nervousness. Didi’s delisting notice comprised just 127 words. There were no details of how and when a move to Hong Kong would work. Evergrande’s statement was barely longer, and made no mention of whether the embattled developer would meet upcoming debts, including two interest payments due Monday. The Economic Daily said Premier Li Keqiang’s comments about a potential reserve ratio cut doesn’t indicate China will ease monetary policy.

There’s no shortage of symbolism. Alibaba, the largest-ever Chinese listing in the U.S. and the country’s most valuable company less than 14 months ago, has lost about $555 billion in value since its 2020 record. Its ADRs trade at record low valuations. (The company just replaced its CFO.) Didi, which was China’s second-largest U.S. listing — is being yanked at the request of the government. That comes as regulators in both countries put pressure on Chinese firms listed in the U.S.

December is shaping up to be a testing time, just as traders around the world look to book profits after a frenzied year. Along with the plunge in Chinese equities and concern over what’s next for Evergrande, another developer Kaisa is on course for default this week unless it can reach a last-minute agreement with creditors to delay payment. The firm has $11.6 billion in outstanding dollar debt, making it the nation’s third-largest issuer of such notes among property firms.

Tyler Durden
Sun, 12/05/2021 – 22:37




Author: Tyler Durden

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Bull market over? Crypto traders turn fearful after Saturday’s flash crash

The overall crypto market remains at its lowest level in two months following Saturday’s flash crash, while by one measure … Read More
The post Bull…

The overall crypto market remains at its lowest level in two months following Saturday’s flash crash, while by one measure the market is more fearful than any time in the past four and a half months.

The Crypto Fear and Greed Index was at 16, meaning “extreme fear,” its lowest level since late July.

The total crypto market stood at US$2.25 trillion this morning, down 1.4 per cent from yesterday and its lowest level since October 6, excluding the last two days.

Two months of sideways action?

Aussie crypto-trader Kyle Stagoll, the administrator of the Crypto Paradox Facebook group, told Stockhead that he thought where the market headed next depended a lot on the US Federal Reserve and its chairman Jerome Powell and his talk of tapering the monetary stimulus measures.

“Crypto and Bitcoin is a risk asset and is affected by the macro cycle which atm (at the moment) is fairly uncertain,” he said in a message.

“My trading plan atm is expecting a full 60-day cycle going sideways in accumulation similar to the action we had in June and July this year.”

“Strong chance of a sweep of the lows of 42k which would create a lot of panic and perfect chance for funds and bigger fish to scoop up retail panic sells. Then we could see a rally around the start of February.”

Bitcoin breaking out above $60,000 would invalidate this scenario, Stagoll warned, and there’s also “the potential we have already entered a bear market.”

Weekend sell-off

On Saturday, the market fell from $2.59 trillion at 1am AEDT to $2.35 trillion at 3.25pm – and then plunged all the way down to $1.92 trillion in the space of 45 minutes.

Hundreds of thousands of overleveraged traders were rekt, with $2.09 billion in positions liquidated, according to Coinglass.

At 11.50am AEDT on Monday, Bitcoin was trading at US$48,607, down 0.8 per cent from 24 hours ago and down 15.7 per cent from seven days go. It fell from US$56,000 on Friday to as low as $42,000 on Binance during the flash-crash.

Ethereum was changing hands at US$4,119, up 0.3 per cent from yesterday and 5.0 per cent from a week ago.

‘Pretty ugly’

Perth-based Thinks Markets analyst Carl Capolingua told Ausbiz TV this morning that it was difficult to pinpoint a reason for the selloff, naming as possibilities everything from Evergrande’s restructuring to fears of the Omicron variant to the Federal Reserve taking a more hawkish stance.

“The bottom line is what we see on the screen, which is pretty ugly,” he said.

The sell-off really damaged the trend-line for Bitcoin, Capolingua said, while the bounce for Ethereum was “so much better. I mean, so much better than Bitcoin. And that trend is still pretty much intact.”

Ethereum was trading for 0.085 BTC, its highest level since May 2018.

Most coins in red

Over 80 of the top 100 coins were in the red, compared to where they were Sunday.

Coinmarketcap

Cosmos (ATOM) had been the biggest loser among the top 100 coins in the past 24 hours, falling 14.0 per cent to US$23.59.

Immutable X, Fantom, The Sandbox, Qtum, Gala Games, Harmony and IoTeX were all down by between 12.8 and 11.5 per cent.

Most top 100 coins were also in the red for the week, with notable exceptions including Terra (LUNA), up 28.7 per cent; Polygon (MATIC), up 18.0 per cent, and Stacks, 13.4 per cent.

Ankr had been the biggest loser among top 100 coins for the past seven days, falling 37.0 per cent. Kadena, Loopring, Qtum, Harmony, Immutable X, Thorchain and Gala Games had all dropped by more than a third.

The post Bull market over? Crypto traders turn fearful after Saturday’s flash crash appeared first on Stockhead.




Author: Derek Rose

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