90 seconds at 9 am: Waiting for the FOMC

90 seconds at 9 am: Taper timeline wanted; bond markets brace; US factories upbeat; criminal charges in Libor case; China credit crunch worsens; NZ$1 = US$0.798, TWI = 74.0

18th Jun 13, 8:42am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news markets are waiting for the FOMC.

Markets want definitive information on its tapering timeline. However, the most important indicator from the Fed's meeting this week might be what it does with its often too-rosy growth outlook.

And bond markets are bracing for capital losses as yields are expected to rise. Not everyone is anticipating clear guidance from Thursday's announcements (NZ time), but markets are: equities were up 1% in early trade as investors speculated the Federal Reserve will reaffirm its policies of supporting the economic recovery. However by mid-day some of the gains had evaporated.

US manufacturing outlook is rising in some key states in a new survey out overnight. This mirrors the strong PMI we had in NZ.

The US and the EU announced they are about to start their new bilateral trade deal talks. They will be big, long, and hard-fought.

Finally, some criminal fraud charges for manipulating rates. In Britain, prosecutors plan to file criminal charges against former UBS and Citigroup trader Tom Hayes for allegedly trying to manipulate LIBOR benchmark interest rates.

China's credit crunch - something we reported on in yesterday's Top 10 - is biting harder. Some of their big banks are urging the central bank to free up funds to ease an unusual cash squeeze, as Beijing faces a stark choice: add money to the financial system to help lenders, or stay the course to rein in a rapid expansion of credit and tolerate the risks that involves.

There are new stresses popping up in China too.

Staying in China, one of their latest supercomputers has been ranked the world's fastest, offering nearly double the processing speeds of the America's most powerful system.

The NZ dollar starts today at 79.8 USc, 83.8 AUc, and the TWI is at 74.0.

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6 Comments

by Colin Riden | 18th Jun 13, 10:12am 1371507155

The June 2013 Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved modestly. The general business conditions index—the most comprehensive of the survey's measures—rose nine points to 7.8. Nevertheless, most other indicators in the survey fell. The new orders index slipped six points to -6.7, the shipments index fell twelve points to -11.8, and the unfilled orders index fell eight points to -14.5. The prices paid index held steady at 21.0, while the prices received index rose seven points to 11.3. Labor market conditions worsened, with the index for number of employees dropping to zero and the average workweek index retreating ten points to -11.3. Continuing the trend seen in the past few months, indexes for the six-month outlook declined, suggesting that optimism about future conditions was weakening further.

Karl Denninger on the same US manufacturing data that David finds positive:

http://market-ticker.org/akcs-www?post=221866

Uh, yep.

Orders, shipments, unfilled orders, inventories and delivery time all sucked. What rose? Prices received. Wow.

But while that was up materially employees flattened to zero (on a downtrend) and hours worked collapsed, on a three-month downward trajectory now, to -11.29.

What's really bad however, is the expectations. These are traditionally bullish but they're deteriorating fast. What ought to be bothering everyone is that the employee count projection is basically flat, workweek projection is negative, capex is basically zero and tech spending is negative.

Despite the headline number this is a crap report and the forward expectations are deteriorating at an extreme rate. I don't know how you get the headline number from these internals, but it is what it is -- and this one is dark, squishy and smelly.

This mirrors the strong PMI we had in NZ.

I hope not.

by Rudderless | 18th Jun 13, 10:22am 1371507721

Thanks Colin

I would like to see a breakdown of the recent growth in NZ manufacturing.

I have a feeling that with the massive Darfield plant coming on stream - the bulk of the growth is - wait for it - milk powder.

As a country we have specialised in narrow product ranges before. Many times. And it always ended in tears.

Does anyone remember Apple Fields attempts to go dairy farming?

by Colin Riden | 18th Jun 13, 10:51am 1371509460

Agreed, Rudderless. I have looked but haven't yet found any detail behind the PMI index.

We are I suspect being subject to a concerted 'good news' prerception management campaign. A doubling of agricultural exports over the next 12 years anyone? A 37% increase in the export value of dairy products over the next 4 years? House prices able to rise forever?

Never mind the lack of supporting evidence. All you need to do is believe.

Have a look at what Charles Hugh Smith has to say, and see if it reconciles with what appears to happening in NZ:

http://www.oftwominds.com/blogjun13/abundance-decisions6-13.html

This pressure to maintain the Status Quo whittles down the options even being discussed to politically safe pseudo-reforms. Any ideas that are outside the more of the SAME box are dismissed or marginalized. (SAME: Socially acceptable middling effort--a telling acronym I found in the work of Michael O. Church.)

As a result of this paring away of all bold, daring ideas and solutions, the Status Quo toolbox is devoid of authentic solutions when the bad decisions finally catch up and the era of abundance devolves into scarcity.

by scarfie | 18th Jun 13, 4:21pm 1371529272

I have seen that effect in the Hugh Smith article called the Sigmoid Curve or Sigmoid Effect, but in reality it is the Seneca Effect. The point where change is needed is the change of slope from postive to negative growth, in human population terms that was 1961.

by Colin Riden | 18th Jun 13, 4:46pm 1371530771

In all cases, the Seneca effect will be the result of trying hard to keep things running as usual. In that way, we may run out faster of the resource that keeps the system running: be it a physical resource or a reserve of goodwill.

Yep.

http://cassandralegacy.blogspot.co.nz/2011/08/seneca-effect-origins-of-…

by Roelof | 18th Jun 13, 10:42am 1371508959

rudderless... can u post a link to the data... I have not been able to find it.

many thks