United States

It all started off relatively well: oil and US equity futures were buoyant on hopes Iran and Saudi Arabia would break out in a bloody conflict any minute boosting the net worth of shareholders of the military industrial complex, and then, out of nowhere, like a depressed China in a bull shop, the "mainland" crashed the party following a terrible manufacturing PMI report, which sent Chinese stocks sliding slowly at first, then very fast.

With China closing the morning session limit down, US equity futures are extending their losses (even though crude futures are holding some of their gains). The initial knee-jerk jump as crude rose on Saudi tensions has been entirely erased and Dow Futures are now down 300 points from New Year's Eve highs... Happy New Year.

China closed the morning session "not off the lows" with a bloodbath in ChiNext and Shenzhen...

With Offshore Yuan crashing over 440 pips - the most since the August deval...

Two months ago, and roughly 6 weeks before the Fed's first rate hike in 9 years, Janet Yellen warned that if the "outlook worsened, the fed might weight negative rates" adding that "negative rates could help encourage banks to lend."

Submitted by Peter Tchir of Brean Capital,

The Manufacturing Economy versus The Service Economy

As we start the new year, there is a debate raging within the market.  No the debate isn’t whether there is weakness in the manufacturing economy, that is taken as a given, especially after Friday’s awful Chicago Purchasing Manager number of 42.9.

No, the debate boils down to this:

The bears will argue that

The U.S. economy has always done poorly when manufacturing has turned this weak

 

With the Fed hiking rates in order to signal a "return of confidence" to the economy, one - the most important - aspect of a recovering economy continues to be absent: rising wages.

As the following chart showing the annual growth in wages of production and non-supervisory workers (who make up 83% of the US workforce) reveals, wage growth is not only well below the Fed's goal of 4.5%, at 1.7% it is below the Fed's goal of 2% inflation, suggestion that on a real basis wages would be declining if the Fed had attained its 2% inflation mandate.