Stocks Sliding: A Wave of Municipal Bankruptcies Looms, Japan Food And Energy Prices Rise; All Others Drop, China Risks A Crisis

With hotter than expected inflation in Japan (yes we know that’s what they wanted), it appears (from Nikkei and JPY) that there is a growing concern Kuroda will back off just a little during his speech on Sunday night (NY time) from the print-til-we-stink paradigm. Japanese stocks are down over 5% since Tuesday and the JPY is surging (suggesting markets are crying out for Kuroda to do a Bernanke and shift to longer/lower forward guidance). US equities – dragged by JPY-related carry unwinds – are also diving, back near yesterday’s lows.


Detroit bankruptcy case could bring unwanted change for muni market

Detroit’s bankruptcy is sending shivers through the more than $3.7 trillion municipal bond market, as investors worry the case will change the way certain bondholders are dealt with.

The municipal bond market is concerned on several fronts, but one of the thorniest problems is how the city’s general obligation bonds will be viewed. Detroit Emergency Manager Kevyn Orr said that the city is treating its limited and unlimited-tax General Obligation bonds as unsecured debt, except for those backed by liens on state aid.

The market has been selling off, with other credit, since early May on talk from theFed that it will likely pare down the size of its bond purchases before the end of the year. The 10-year Treasury yield has gone from a low of 1.61 percent in early May to 2.57 percent Thursday. In the same time frame, the 10-year 10 year AAA muni yield, as defined by the MMD scale, went from 1.66 percent to 2.75 percent.

Japan Food And Energy Prices Rise; All Others Drop

Today, to much fanfare, the FT and other media blast that “Japan posts highest inflation rate since 2008” using this as evidence that Abenomics is once again working (i.e., that the Nikkei 225 has resumed its upward nominal path). Unfortunately, as usually happens, there is a problem here: this is simply not true.

The only reason why Japan posted its first positive CPI print in years has nothing to do with demand-pull broad “benign” inflation driven by rising wages, and everything to do with the “cost-push” of a plunging Yen forcing food and energy prices higher, something we predicted long ago would happen. In fact, when stripping away food and energy, core inflation was slightly weaker than expected with the first month-on month declines in both Tokyo and nationwide in the latest data in several months (seasonally adjusted). Which is to be expected: with incomes flat at best, in order to accommodate soaring food and energy prices the local population has to cut their spending for all other products, leading to deflation.

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But what is most ironic is that economists in the US advise everyone to ignore soaring food and energy costs and to focus on the benign sub 2% annual rise in “other” hedonically-adjusted prices. However, when it comes to Japan, it is the opposite.

Japan Just Had Its Worst Day In A Month, And US Markets Are Heading Lower

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Japanese Inflation Is Entirely Due To Higher Energy Prices

China Meltdown 2013: Economy Is Rapidly Approaching ZERO Growth, Money-Market Funds See Big Outflows, Wage Growth Is Slowing Significantly…



Good morning. Here’s what you need to know.


  • Markets in Asia were mixed in overnight trading. The Japanese Nikkei 225 fell 3%, the Hong Kong Hang Seng rose 0.3%, and the Shanghai Composite fell 0.5%. European markets are in the red with the exception of France and Spain. In the United States, futures point to a negative open.
  • Japanese consumer prices rose 0.2% year over year in June after declining 0.3% in May, marking the first positive annual inflation rate in over a year and the biggest monthly jump in prices since November 2008. Economists were looking for a smaller advance to 0.1% inflation. The increase was largely due to higher energy prices. Stripping out food and energy, consumer prices were still down 0.2% year over year in June.
  • In the week ended July 24, equity funds reported $8.0 billion in inflows, while bond funds saw $4.4 billion in inflows. High yield bond and leveraged loan funds were the big winners, with both asset classes receiving record inflows this week.
  • Amazon reported a loss of $0.02 per share in the second quarter on revenues of $15.7 billion. Both numbers missed consensus forecasts for earnings of $0.06 per share and revenues of $15.73 billion. The company offered third-quarter revenue guidance in the range of $14.45 billion to $17.15 billion versus estimates for $16.98 billion, and shares are lower in pre-market trading.

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