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By Tyler Durden

While the US manufacturing sector has been in a clear recession for the past year as a result of the collapsing commodity complex, so far the stable growth in low-paying service jobs – at least according to the BLS’ statistical assumptions – such as those of waiters and bartenders have kept the broader service economy out of contraction (even though recent Service PMI data has been downright scary).

This is now changing: as we showed a month ago, according to the lagged effect of the collapse of the Restaurant Performance Index, that party is over:

… just like it was in 2008;

But while such macro indices suffer from the same calendar and statistical aberrations which the BLS is all too famous for, a confirmation of the troubling restaurant downward trend was provided yesterday by company-level channel checks, courtesy of Sterne Agee, which show that same store sales trends at America’s casual dining restaurants – those which cater to the vast majority of the US middle class – have suffered a fourth consecutive month of declines, something not observed since the first financial crisis, sliding a whopping 3% in March.

From Sterne Agee’s March 24 channel checks:

Our channel checks for casual dining suggest a decline in casual dining same store sales (SSS) trends in the first half of March. While it is too early to determine if this is a trend, it appears that a fourth month in a row of negative SSS may occur, which we believe would be a disappointment to investors.

Casual Dining Stocks are Under Pressure in Recent Trading: On a month-to-date basis, we note that casual dining stocks have been under pressure, with an average price decline of -3.1%, including bottom-tier performers: Buffalo Wild Wings -10.2%, Red Robin -8 4% and Brinker -8.3.

To be sure, Sterne Agee tries to spin this disturbing trend as faborably as posible:

While there is much debate on whether the discounting/promotional environment in the quick service (QSR) space is affecting casual dining, we think it is too early to call this a shift in consumer behavior or change in trend.

However, it is becoming all too obviouos that not only has the great gas price collapse of 2015/2016 done anything to boost consumer spending on such core discretionary items as dinner, but that the purchasing power of the US middle class continues to deteriorate with every passing month – having troughed so far in March – and that economists are clueless to explain the reason behind this.

And the worst news is that with gas prices set to anniversary their 2015 lows in a few months at which point they will start rising due to the base effect, suddenly the great “gas …read more

Source: The "Restaurant Recovery" Is Over: Casual Dining Sales Tumble For Fourth Straight Month

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By Tyler Durden

USDJPY just had its best week in 2 months, funding bullish momentum and carry trades around the world in the midst of dismal economic data everywhere and tumbling earnings expectations. This “bullish” Yen strength, however, amid China's biggest weekly devaluation in almost 3 months, was ironically driven by drastic investment outflows – record sales of Japanese stocks by foreigners (sell JPY), and record purchases of foreign bonds by Japanese investors (sell JPY). Sooner, rather than later, it is obvious that the investment outflows will dominate the carry trades (see Thursday and Friday) and Kuroda and Abe will have a major problem.

Yen was dumped all week…

Which provided just enough juice for carry trades to lift Japanese stocks (despite the weakness in data and China's biggest weekly Yuan devaluation in almost 3 months)

But notice that the last two days have seen Japanese stocks decouple from USDJPY, perhaps the first glimpse of the investment outflows overwhelming any casino-based carry trades flows.

And this is why… Foreigners sold a record amount of Japanese stocks last week… (implicitly meansing Yen was sold)

And Japanese investors fled the insanity of record low yields in JGBs, buying a record amount of foreign bonds last week (implicitly selling Yen again)…

So the Yen weakness – which was so bullishly supportive of global equity markets via carry – was in fact a signal of massive investor anxiety fleeing the sinking ship. Peter Pan-ic indeed.

Abe and Kuroda will soon face a major problem as a weaker Yen will signal the exact opposite trade that has been so active since 2012 – weakness means weak Japanese economy means sell Japanese assets.. and we will soon see capital controls in the world's largest debtor nation.

And remember – the devaluation of The Yen has done nothing – NOTHING – to improve exports for Japan…

“The tailwind from the weak yen has gone. We can’t help but hold a pessimistic view on the outlook for exports,” said Atsushi Takeda, an economist at Itochu Corp. in Tokyo, said before the figures were released. “Domestic demand won’t be dependable at all, and the same goes for exports. I can’t deny the possibility of another economic contraction this quarter.”

…read more

Source: Foreigners Dumped More Japanese Stocks This Week Than Ever Before

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By Tyler Durden

“It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”

That’s from WTO chief economist Robert Koopman, and it’s a quote we’ve used on a number of occasions. Koopman is referring to the fact that for several years in a row, the rate of growth in global trade has lagged GDP growth. That’s a problem for two reasons: 1) GDP growth is hardly robust as it is, and 2) before the recent downturn, the last time trade growth underperformed the rate of economic expansion was two decades ago.

As

2) What is the implication of a futile currency war for EM FX? Beware of going long currencies purely on the basis of fundamental undervaluation.

Focusing on EM, lingering growth concerns further increase the perceived need for currency depreciation. However, since currency depreciation does not translate easily into exports improvement, more currency adjustment is probably required than in the past to obtain the same growth/current account impetus; currencies must be more undervalued before substantially improving the current account. In sum, a significant undervaluation of an EM currency may not be sufficient to drive appreciation via the current account channel; rather, even more currency adjustment may be required for some undervalued currencies.

Current accounts, especially in LatAm but also in high-yielding EMEA, still reflect excessive domestic absorption. Improvements have been limited despite large scale FX depreciation. Further, what current account improvement has taken place has been mainly on account of import compression rather than exports – perhaps FX weakness has played some role in this as imports become more expensive with a weaker currency, but a majority of it reflects demand slowdown in EM. Therefore, for currencies running large current account deficits, more FX adjustment may be on the cards before undervaluations start providing material support.

3) Which currencies to be wary of going long purely on the basis of fundamental undervaluation? In EMEA, ZAR stands out as an example.

If global trade growth has collapsed and the currency war is futile, a currency that is heavily undervalued on a fundamental model like BEER or PPP could easily become more undervalued. In this context, the FEER model, which estimates misalignments based purely on the distance of the cyclically- adjusted current account balance from its long-term average, could provide an appropriate warning signal. That is, one should be wary about long a currency on the basis of BEER undervaluation if it is also showing FEER overvaluation, as FEER overvaluation signals that the current account balance is still below its long-term average and therefore has not adjusted by ‘enough’.

* * *

We’ve said it before and we’ll say it again: central banks better figure out how to print trade, and fast.

…read more

Source: Deutsche Bank’s Dire Warning On Global Trade: "The Currency War Is Futile"

    

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Posted March 25th, 2016 in Uncategorized.