"Verdict on ECB QE? Stimulus alone is never a short cut…"

My latest post as a Yahoo Finance Contributor titled "Verdict on ECB QE? Stimulus alone is never a short cut…" can be found here.

Asia today - Japanese election, Australian budget, Indonesian rupiah

So Asia is all about Mr Abe's (not unexpected) victory in the Japanese election today...

 ...a victory which was achieved with a broadly unchanged underlying Parliamentary position: 

 

And the impact of another 5 years of a huge economic experiment?  A lacklustre reaction from both the Japanese FX and equity markets.  

My personal view remains that Japan is somewhere between a rock and a hard place with the likely end scenarios some combination of a much weaker yen, a highly volatile stock market (not totally unopportunistic especially amongst the larger exporters) and ultimately some form of debt consolidation (on a ten year view). The only hope remains radical supply side reform but so far don't hold your breath...

Reflecting continued challenges in the Japanese economy, today's Tankan’s big manufacturer index slipped to 12 in December from 13 in September, As Fast FT noted 'the overall assessment of business conditions improved since September by a single point to 5, where a positive number denotes a "favourable" environment. But companies' forecasts for conditions in three months' time produced an average score of 1, with a particularly gloomy outlook among smaller companies'.

Maybe the Japanese economy should more fully embrace its tourism scope via the weak yen

What else in Asia? In a mid-year budget update, the Australian Treasury predicted deeper budget deficits in the coming years, as falling commodity prices result in slashed revenues and lower tax receipts. The Treasury said it is now projecting a deficit of A$40.4bn in the 2014-15 year, versus an earlier estimate of $A29.7bn. The mid-year budget update doesn't foresee a budget surplus until 2019-20.  Not the greatest signal for Australian assets...especially as the Governor of the RBA was on the wires late last week suggesting a weaker Australian dollar was optimal...

Meanwhile did you see that the Indonesian rupiah fell to a multi-year low too?  Currency wars are building sourced from Asia...

(chart sourced from Fast FT)

"QE is coming in Europe but still not yet"

My latest post as a Yahoo Finance Contributor titled "QE is coming in Europe but still not yet" can be found here.

Charts today - Thanksgiving week, S&P records, OPEC, guns, Congress & ECB QE

Charts today should really start with the better news...Thanksgiving week is generally good for the markets:

So will the S&P500 index break last year's record close number?  That looks likely but it is still some way behind the record: 

Of course we have OPEC's meeting to think about.  Interesting mixed correlation chart on the left below:

Issues in Russia/Ukraine rumble on.  I thought this link talking about a potential new movement of heavy/sophisticated weapons was interesting.  Either way, the Ukrainian currency has been slammed in the last year (as has the Russian rouble): 

 Talking about lethal weapons an interesting perspective on guns...

...and US congressional wealth:

Finally, in a single chart, why ECB QE if announced could/likely would have a big impact: 

"No QE today for Europe but it's the place to be for 2015"

My latest post as a Yahoo Finance Contributor titled ''No QE today for Europe but it's the place to be for 2015" can be found here.

Charts today - high sentiment, jobs growth, FX shifts, water use and looking ahead to the ECB

A big day today for corporate reporting and macroeconomic alike (ECB etc.).  So a few charts and related for starters...

Should we be worried about US dollar strength?  

(h/t @MktOutperform)

And then there is investor sentiment...AAII bull-bear spread hit a whopping +37% this morning...

Week ending 11/5/2014   Data represents what direction members feel the stock market will be in the next 6    months.
Bullish	52.7% up 3.3
Neutral	32.3% up 2.7
Bearish	15.1% down 6
Note: Numbers may not add up to 100% because of rounding.

...if everyone is bullish...

Still ADP payroll trends are pretty good...

(h/t @NickatFP)

...and 'everyone' hopes for 'the usual' post midterm stock market performance

 UK confidence regional/political levels kind of interesting...hardly rampant:

Nice cartoon from today's Financial Times ahead of the ECB meeting today...

 Will QE happen in the eurozone?

For once I would agree with consensus on timing (slightly worryingly...)

 Oil chart over the last 8 years or so puts the current price into context...

Water use in the US - am surprised by this

Finally...trade weighted yuan a fascinating chart.  Does anyone want a higher FX?  If the Chinese decide transitorily they do not want one then currency wars get another step closer...

Charts today - ABS, breaking down the US Treasury, US optimism and a 14 year UK market high

Charts today has to start with something relevant to what Mr Draghi may talk about later today.  This chart (highlighted by @jsblokland) makes some good points re a QE-lite sort of announcement centred on specific parts of the ABS markets.

I have talked before about bonds and QE and typically - it seems to me - that the main impact comes in the anticipation of QE.  I liked this study by Bruegel (link here) which breaks down the 10 year Treasury.  The real risk-free rate is rising according to them...in a negative real interest rate world not a disaster / a justifier for (continued) flows?

Does this feel correct regarding the US economy?  I note the latest AAII sentiment survey remains stretched but slightly less than last week.  Volatility feels too lowly valued to me.  

Part of any optimism can come from statistical revisions...such as this historic UK economic growth one as noted in today's Financial Times.

Still remains a tricky world however despite, as per the newspaper's front page observation:

'FTSE 100 shrugs off fears to hit 14 year high.  Rise defies Ukraine and Mideast instability'

Charts today - fading global growth and corporate profits (?), manufacturers in Germany/UK call for change and a cartoon about economics...

Charts and graphics that caught my eye this morning:

Zero Hedge's updated 2014 global growth expectations has consistently been a striking chart this year...

Something to do with corporate profit progression stalling?  This chart was in today's Financial Times:

Also in The FT I was struck by the quite aggressive tone of the rhetoric from the CEO of one of Germany's largest companies.  'Overconfidence' sounds like a plea for a more business friendly approach?  Overt QE?

Meanwhile in the UK manufacturers probably want a weaker pound (which must be hurting especially versus the sharp recent decline in the euro).  Of course 'everyone' wants a weaker currency at the moment...

By definition not all currencies can fall simultaneously...this and other economic 'fails' are amusingly parodied here in a cartoon highlighted by @Rumplestatskin:

Asia today - Japan bad numbers special

Asia today has to start with Japan and all the disappointing numbers overnight.  The one that really captures my attention was the trend in consumption...which is down for four successive months since the tax rise:

(Source: Fast FT)

If policy-makers are wondering why 'core' inflation in Japan is stalled at 1.3% and the retail and industrial data also out earlier today was below expectations they now have a clear view: the need for extra stimulus is very clear.  

And the yen should get weaker.  It is beached at an interesting level currently but my analysis of the data suggests it should really fall into the 110-120 range against the US dollar to help with this process. 

Of course who can help Japan out?  It is the Chinese of course judging by this data...

Such is the changing leadership in Asia...

Asia today - Kuroda at Jackson Hole, renminbi use and South Korea's long-term challenge...

Asia today starts with a couple of interesting comments, over the weekend, by the Bank of Japan governor Haruhiko Kuroda at the Jackson Hole meeting:

"We at the Bank of Japan do not think it necessary to change our economic forecasts for coming years...if there is anything which could derail our course toward 2% inflation target we would not hesitate to change or adjust (but for now) we will continue our current monetary policy”

An interesting comment and suggests that more stimulus may be NOT around the corner.  Look though at the signalling from the currency markets...the yen is falling back down to a big level:

I think this continues (which is why I am short the yen).  From a Japanese stock selection perspective staying long the exporters such as Sony and Toyota would be my instinct.  

If Abenomics have proved ultimately slightly disappointing it is still insightful that there has been a more than subtle shift in Japanese economic labo(u)r force participation rates which is a social / cultural change.  Not quite a 'third arrow' but getting there...

What else is of interest today in Asia?  Well @chloechotv notes on the mixed-at-best Chinese housing market that:

'Yikes! Beijing sees first 0 down payment property promotion. Developers’ 1H sales lower than expected, more companies may follow, Reorient'

Meanwhile the growth and growth of renminbi settlement and usage continues apace:

(h/t @aaroncareaga)

Finally, as per this report, "South Korea’s fertility rate is so low that the country’s population could go the way of the dinosaurs by 2750, according to a new simulation commissioned by the National Assembly in Seoul". 

2750 is a suitably longer-term focused theme! 

Europe - falling margins and lacklustre PMIs...Mr Draghi should be watching and taking notes

I noticed that the Dutch listed food retailer Ahold was getting back towards the 'interesting' Euro12.5 levels I set three months ago (link here).

Ahold shares - and more pertinently their Q2 results released today - indicate something deeper about pretty much all developed market countries out there at the moment: it is not easy.  Falling identical sales growth, generally falling margins and pacing through the presentation document a realisation that businesses cannot stand still, there is a constant need for innovation, cost cutting and general change.

For Ahold some of this is priced in and sub Euro12.5 it would be trading on a single digit EV/ebit multiple, lowly geared balance sheet and 3.7% dividend yield i.e. a medium-term value investor can start to make that work (although I do note some talk about potential acquisitions in the US to help boost their market position there - not so sure about that).  

This 'it is tough out there' feel however remains very pertinent...and this is shown by the most recent composite Markit PMI disclosures in Europe which do not strike me as compellingly strong despite a higher than the neutral 50 level outcome: 

I particularly liked the insight that 'selling prices have fallen in each month since April 2012, with the latest cut the sharpest in three months'.  That really says something even before you get onto the continuing French-German economic performance divergence...

To me Markit's conclusion is actually potentially dangerous smacking of Draghi's 'Mr Confidence' perspective of a couple of weeks ago (link here): 

'...it is most likely that policymakers will allow recent stimulus efforts to have a greater chance to filter through to the real economy before making any further moves'

Action still needs to be sooner rather than later.  The signal from the core Euro Area bond markets is telling you this...and the falling margins from companies like Ahold.

Mr Confidence: Mario Draghi, the ECB and why he should be acting NOW

'Mr Confidence' sounds like a badly titled book by a convicted felon writing from his prison cell.  Listening to the comments from Mario Draghi at the European Central Bank's monthly press conference the moniker came into my head. 

Unsurprisingly there was no change in ECB policy.  No surprises there as over the last two or three months Mario Draghi has pushed certain interest rates lower, launched the TLTROs (targeted longer-term refinancing options) and talked expansively about the scope for further stimulus. In the slow evolution world of ECB decision-making the limited actions and plentiful comments have been almost at revolution speed.  The proximity of the great European mid/late August vacation also weighs. 

Mario Draghi remains Mr Confidence however. Before he goes on the (very politically correct) Italian holiday that was briefly mentioned in the press conference let us briefly appraise some of the comments he made. 

'TLTRO will enhance our monetary policy stance...by an expansion in credit'.  Hmm, not everywhere according to this graphic from Citigroup...

A recent ECB bank lending survey shows a 'pick-up in loans'.  If you get your magnifying glasses out maybe there is just about a net proportion of banks who are loosening requirements...

'Geopolitical risk...has heightened, is higher than a few months ago' but it is 'very hard to assess' risks/impacts due to 'sanctions and counter-sanctions...still assessing the impact of sanctions on the Euro Area economy'.  It seems pretty clear to me that the impact is worrying large for Europe...

And then there was that the wonderful comment that countries who have a 'convincing program of structural reforms are performing better'.  I am just trying to recall those German industrial figures from yesterday...

I hope Mario Draghi has a good holiday in Italy because when he gets back to the ECB's Frankfurt headquarters on 1 September he is going to have some work to do...in filling this gap...

 

(h/t @AxelMerk)

 

...either that or there is going to be an even bigger economic performance gap to fill over the next year.  Simply put the Mario Draghi should have no confidence in no changes to current policy: if he is not going to act now he has to act in the early autumn.